The fateful allure of protectionism : taking stock for the G8

Abstract

The world is facing the most severe global economic crisis since the great depression of the 1930s. For the first time since Second World War, world gross domestic product (GDP) is expected to decline, and growth in developing countries is expected to fall to 1.2 percent from 5.9 percent in 2008. Trade has declined as well: global trade volumes are expected to fall by some 10 percent in 2009; the worst decline in trade since the 1930s. Governments have responded to the crisis with policies to support economic activity and employment. Efforts have been made to coordinate these policy responses, in particular to maintain an open trade regime. The systemic risks of a resort to protectionist policies are generally recognized by world leaders: at their April Summit in London, they committed to refrain from raising new barriers and to minimize any negative impact on trade and investment of domestic policy responses to the crisis. Centre for Economic Policy Research (CEPR) and the World Bank believe that at present the greatest threat to the world trading system is that, through accident or design, a major trading nation decides to turn inward and reject global economic engagement. There are, however, reasons for continued concern. Even the most optimistic forecasts for economic recovery imply substantial increases in unemployment in the major trading powers in 2010 and, in some cases, in 2011. The protectionist temptation will almost surely intensify before it abates, and a significant use of trade-distorting policy by a major jurisdiction could set off unwelcome domino effects. Continued vigilance is necessary. A key aspect of this vigilance is Global Trade Alert supported by the World Bank (and other donors), and coordinated by CEPR. Global Trade Alert provides real-time information on state measures taken during the current global downturn that are likely to affect foreign commerce. It goes beyond other monitoring initiatives, by identifying the trading partners likely to be harmed by these measures and by encouraging third parties to submit measures for scrutiny. This volume contains summaries of the papers that were presented and discussed at the conference.

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