Another Great Lie: “We Don’t Engage In Protectionism”

It’s long been said that there are three great lies:

“The check is in the mail.”
“I’ll respect you in the morning.”
“I’m from the government, and I’m here to help you.”

There are many other candidates, of course, especially in light of the fact that a growing body of research “shows that people lie constantly [and] deception is pervasive in everyday life,” according to a May story in U.S. News & Word Report.

Nevertheless, one economics-related untruth probably deserves a special mention, because it’s a lie that governments around the world have been uttering quite a lot, especially since the financial crisis began:

“We don’t engage in protectionism.”

The truth is, virtually all countries have some barriers in place that limit cross-border trade in goods and services. And when times are tough, as they are now, it is inevitable that many, if not most, will feel compelled to be even more restrictive in that regard. So it should be no surprise, as the Financial Times reveals in “G20 Nations Break ‘No Protectionism’ Vow,” that their actions don’t match their words:

The world’s leading economies have continued to break their pledge of no protectionism with a raft of restrictions on trade and investment, say two authoritative reports.

Both the World Trade Organisation and Global Trade Alert, a monitoring service co-ordinated by the think-tank the Centre for Economic Policy Research, said the Group of 20 governments had continued to implement a steady stream of restrictions on trade since making the pledge at their meeting in Washington last November.

“On average a G20 member has broken the no-protectionism pledge once every three days,” said Simon Evenett, professor of trade and economic development at the University of St Gallen in Switzerland, who co-ordinates GTA.

The reports come in the wake of US President Barack Obama’s decision to impose emergency tariffs on Chinese tyres, sparking threats from Beijing of blocks on American goods. The issue is likely to be raised at the G20 heads of government meeting in Pittsburgh next week.

On Monday the US chicken industry criticised China’s investigation into whether they were dumping poultry in the Chinese market, saying the move was retaliation for the tyre tariffs.

The WTO, with the United Nations Conference on Trade and Development and the Organisation for Economic Co-operation and Development, reviewed the data from April to August and concluded: “We have not observed widespread resort to trade or investment restrictions as a reaction to the global financial and economic crisis.”

The number of additional proposals to impose “antidumping” duties, which are levied on imports deemed to be priced unfairly low, was about the same in the first half of 2009 as a year earlier.

However, the number of proposed G20 “safeguard” measures such as the Chinese tyres decision, which allow countries to block surges of imports without proving unfair pricing, had risen from two in the first seven months of 2008 to 16 this year, the WTO reported.

Economists said that assessing the trade impact of such measures was very difficult, not least because the nature of the restrictions had changed so much.

The difference between the current crisis and that of the 1930s, when many governments raised trade barriers across the board, is that countries have instead decided to resort to state aid to assist their troubled industries.

Since November, GTA has found that G20 governments had announced twice as many trade-distorting state bail-outs as increases in tariffs - often in politically sensitive industries such as car manufacture.

Prof Evenett said that the trade-distorting measures affected some 80 per cent of all categories of goods and added that the WTO report was too complacent about the threat posed by protectionism.

As well as implementing about 60 trade-harming measures in each of the first two quarters of this year, big governments were additionally planning another 130.

“Only the most cavalier observer could dismiss the harm being done to exports and their possible contribution to economic recovery,” he said.

The WTO said that it was hard to assess what impact on actual commerce the trade-distorting measures would have.

GTA said that China was the biggest target of trade-distorting measures by other countries and that the worst offenders in introducing such measures included nations such as Indonesia, Germany, India and Ukraine.

“Despite all the talk about measures to bolster green industries, innovation and future growth poles of the economy, the great majority of the discriminatory measures taken in favour of domestic firms are in smokestack declining industries or in agriculture,” it said.

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