Protectionist trend on the rise


The Japan Times
By David Howell
July 22, 2009

In the English language the word "Protection" sounds warm and friendly. Everyone needs protection against the storms of life and it is nice to give protection and be protected. But lift this innocent word into the international sphere and it becomes a sinister and ominous concept, a harbinger of narrow selfishness, conflict and impoverishment.

At present it is a word being heard increasingly on the world stage. The virus of protectionism, like the virus of swine fever, is spreading fast through the global economy, and taking new and more dangerous forms.

Trade protection used to mean just raising tariffs, or imposing quotas on imports on certain goods from certain sources. The lessons of the great slump of the 1930s were thought to have taught people that raising protectionist barriers of this type ruined everybody. In the postwar period, international institutions and procedures were set up to maintain free trade, of which today’s World Trade Organization is the heir and successor.

Meanwhile, protectionism has mutated into a whole variety of new guises and, in the current global recession, is beginning to rage virulently. Antidumping duties, "buy local" conditions in contracts, excessive health and safety rules, barriers to investment flows and "foreign" ownership, child-labor or forced-labor accusations — these are just some of the new instruments to which country after country is resorting as the virus spreads.

Now, a still newer form of protectionism has arrived in the form of carbon tariffs — which are imposed to protect one country’s industries whose carbon emissions may be fined and heavily taxed from competition from another country’s producers with no such burdens. This idea, which can of course be used to strike especially hard at imports from poorer countries and from lower-wage economies such as China and India, is gaining ground in the European Union and has now been fully approved by the U.S. Congress.

In turn, various Chinese and Indian leaders, and others, have protested that this amounts to outright trade war — just the sort of thing that the WTO exists to prevent. And of course they are right.

Slapping higher taxes and tariffs on the imports of their countries leads directly to poverty and unemployment. It delays the day when poorer economies might develop and become richer markets for imports, and it links one particular cause or campaign, carbon reduction, with the overall trade process — with potentially disastrous effects.

It is a classic example of good intentions leading to bad outcomes. The problem is too much zeal. Once a cause of this sort turns into a crusade, people become blind to the harmful, and even cruel, consequences their zealotry may produce.

Turning the fight against climate change into a trade war is particularly dangerous. It brings together as allies not only the well-intentioned green campaigners but also the most narrow nationalists, trade unions bent on guarding members’ jobs against foreign labor, monopolists, inefficient producers trying to hide weaknesses, populist demagogues, and a bunch of other undesirables.

All of these phenomena can now be seen springing up like weeds on the world trade scene, while the WTO wrings its hands and free traders find themselves pushed aside. According to the latest WTO report, new trade-distorting restrictions are being enacted twice as fast as acts of liberalization.

The vast availability of information and the passion for transparency now give every lobby, good or bad, new power to push their demands for more protection and to cow governments and politicians into panic protectionist measures and condoning the erection of new trade barriers. President Barack Obama has tried to warn agaisnt this cause-and-effect behavior in the U.S. Congress — probably in vain. He should remind them of how crippling American tariff hikes on imports in the 1930s helped lead directly to a world war.

It takes a very brave politician these days to speak out against these enormous pressures, which somehow must be resisted if the world is not to slide into another dark age of trade retaliation and nationalist protection. This is not just because the whole human race will end up poorer as a result; destroying trade and investment flows destroys dialogue and sows the seeds of bitter and violent conflict. Japan’s 20th century is a grim reminder of how this can happen all too easily.

It would be a high irony if all the activity and lobbying and politicking of the campaigners against global warming and their scientific backers led not to a greener and more peaceful word, which everyone wants, but back to a domino process of trade isolation, with conflict and destruction to follow.

As always, moderating and calming voices are needed at the world leadership level. But as always they are proving very hard to find.

David Howell is a former British Cabinet minister and former chairman of the Commons Foreign Affairs Committee. He is now a member of the House of Lords.

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