thestar.com
World's at dangerous stage in trade fights
David Crane
IN THE 1930s, the worldwide economy failed to recover from the 1929 stock-market collapse in large part due to trade wars. One country after another tried to preserve jobs through protectionist barriers while dumping whatever it could of its output through exports to other countries. In the end, everyone ended up with terrible unemployment.
It's a lesson we should not forget in the current spread of protectionism, largely driven by the United States, with its recent actions on steel and softwood lumber.
The danger is that, once this process gets under way, other countries seek retaliation, or try to protect themselves from being side-swiped, and a downward spiral can easily emerge. That's what happened in the 1930s.
It took World War II, with all its horrors, to restore full employment, but one positive outcome was a widespread recognition that the protectionist mistakes of the 1930s should not be repeated, and that the postwar world should develop a rules-based system of open markets so that countries could grow through trade.
While protectionist sentiment in the United States prevented the creation of an International Trade Organization, the General Agreement on Tariffs and Trade was created. Through successive rounds of talks, trade barriers among the group's members were steadily reduced, while the number of member countries grew to 144.
While the agreement was far from perfect, and trade disputes could become quite ugly, progress was made.
Indeed, with the collapse of communism, countries of Eastern Europe and China rushed to become members, and accept the obligations of membership. In Latin America, countries such as Brazil, Mexico and Argentina moved away from closed economies. Now Russia wants to join.
In 1994, the World Trade Organization came into being, broadening trade rules to include services as well as products, and establishing a much more effective system for resolving disputes. Last November, the Doha round of trade talks was launched in Qatar, with the promise of focusing on the trade needs of the world's poorer countries.
But now this advance is threatened. For example, after the United States recently imposed tariffs of 30 per cent on steel imports from many countries around the world — to garner votes in West Virginia and Pennsylvania — other countries have announced additional protectionist possibilities.
Canada may adopt similar measures. Secretary of State for Finance John McCallum and Trade Minister Pierre Pettigrew have announced the Canadian International Trade Tribunal will investigate whether steel imports are causing or threatening to cause injury to our steel producers.
"This government will not stand idly by and let our markets be flooded with diverted steel," McCallum said.
The European Union has already drawn up a list of U.S. imports, worth $2.1 billion (U.S.) annually, that will face harsh European penalties if the World Trade Organization finds that the U.S. actions on steel were illegal. The Europeans will also impose quotas on steel imports from other countries. The European Union has also applied to the trade organization for the right to impose penalties of $4 billion (U.S.) for unfair tax breaks the United States gives exporters.
The harsh action against Canadian softwood-lumber producers announced last week will poison Canada-U.S. trade relations because the U.S. action was driven, as was the case with steel, by local U.S. politics and narrow commercial interests. The United States is also pursuing action against other Canadian producers, including tomato producers, as well as continuing to threaten the Canadian Wheat Board despite Washington's own studies showing claims against the wheat board are nonsense.
Again, local politics is driving these actions.
In a recent interview in Britain's Financial Times, Grant Aldonos, a senior U.S. trade official, threatened that the United States might take action against other countries — on agriculture and semiconductors, for example — unless Europe and Japan do more to boost economic growth and create bigger export markets for U.S. companies.
So, the world is at a dangerous stage. The United States has to accept much of the blame, because Washington is undermining the global rules-based system to influence votes in this year's congressional election campaigns. But no one is pure in this.
What we need, at the Group of Eight summit in June, is a strong declaration by the G-8 leaders that they will pull back from protectionism and respect the rules-based system. If the richest countries cannot do that, what example are they setting for the rest of the world? And what are the implications then? |
