Even as the global economy is making a slow, uneven recovery, there are indications that the broad agreement among leading countries to co-ordinate their trade and other macroeconomic policies has started fraying at the edges. Much has been expected from mutually supportive trade policies that would enable orderly, coordinated international trade with few fetters. This would not only counter the worst features of the crisis but perhaps help individual countries avoid the kind of mutually destructive protectionist policies that plunged the global economy into a deep depression in the 1930s. The G20 countries — together accounting for 85 per cent of the world’s GDP — have been alive to the potential of orderly trade to lift the sagging global economy. Trade has figured prominently in all G20 summits, including the recent one in Los Cabos. This time, though, while upholding their promise not to protect their own businesses by restricting trade, the group’s leaders decided to extend the pledge through 2014 only after much discussion and acrimony.
That even in better times trade issues have been non-controversial is a myth. Eleven years on, the Doha round of trade talks is going nowhere. The World Trade Organisation, which is overseeing the talks, as well as all its members have pledged unequivocally to embrace multilateralism, which is the only sure safeguard against protectionist tendencies. But in the wake of the Doha round’s failure, countries have rushed to conclude bilateral agreements and regional trade pacts which are only a second best option. The WTO, the European Union and a number of independent think tanks are worried over the steady rise in trade barriers, which come in myriad forms ranging from higher tariffs to costly import licences and customs controls. Some new trade restrictions are subtle, difficult to spot by a watchdog and make an impact indirectly. The U.S. government’s tightening of visa rules for Indian IT professionals and the frequent politically motivated attacks on outsourcing of jobs by American companies to India are a case in point. Recent developments in the U.S. demonstrate that short-term political compulsions will always trump sound economics such as a commitment to free, multilateral trade. Notwithstanding claims to the contrary, some of the new trade barriers will not be dismantled once specific national concerns are met. The other worrying development is that some of these are no longer aimed at combating the temporary effects of the crisis but are meant to stimulate recovery. Long after the current crisis passes, then, the protectionism it is engendering will remain.