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Views from the Center


The excellent article by Anthony Faiola and Ariana Eunjung Cha in today's Washington Post (Downturn Choking Global Commerce) shows how close we are to the precipice in the global trading system and what is at stake with the trade negotiations in Geneva. Although there has been a long-standing assumption that countries would continue to ride the bike of trade liberalization forward, there are no guarantees. With too little forward motion, bicycles topple. As the economic crisis widens, there will be a tendency to focus inward and to increase tariffs, increase subsidies, and engage in competitive devaluations, all in a misguided attempt to protect national economic welfare.

Because applied tariff rates are often lower than the rates bound by World Trade Organization agreements, some countries couldraise tariffs or increase subsidies but still be compatible with the WTO. While such moves would not technically breach existing agreements, they would nonetheless inhibit the flow of investment, goods, and services, increase costs for consumers and further slow economic growth. This is especially true for developing countries, whose only option for economic growth and poverty alleviation is integration into the global economy.

While a rise in protectionism in these tough times is likely, it need not be inevitable. It is essential that government officials in developed, emerging, and developing countries alike think carefully about how to best advance their collective self-interest and resist such pressures. If they fail, the problems described in the WaPo article will only worsen, and this would indeed be bad news for the United States and for the rest of the world.

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CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.