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Despite G20 pledge, global trade friction heating up

The resolve of the Group of 20 countries to stare down trade barriers is wavering.

The G20 declared early in its fight against the financial crisis it would resist the impulse to placate domestic interests, vowing to resist protectionism. Officials recognized the self-defeating effect that tariff walls had during the Great Depression.

For the most part, the leaders of world's major economies have remained true to their word. Global trade will increase 13.5 per cent this year, according to the World Trade Organization, a feat that suggests shipping lanes have been left wide open.

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Still, trade friction between some nations is building.

Lawmakers in the United States are scheduled to vote on legislation Wednesday that would allow companies to seek retribution for sales lost to international competitors that benefit from government manipulation of exchange rates. The bill is aimed squarely at China, which many unions and some companies blame for lost jobs, even though the country is the U.S.'s fastest-growing export market.

"We've had a trend towards more disputes, as compared to the sort of businesslike flow which we had for the two to three years preceding the crisis," WTO director-general Pascal Lamy conceded last week, according to a report on

Measures of the kind the G20 pledged to resist are now occurring with some regularity.

China in the past week moved to impose duties on imports of U.S. chicken. Japan earlier this month threatened to take Canada before the WTO over Ontario's green energy program. This week, Brazil's Finance Minister, Guido Mantega, said a "currency war" had broken out between nations intent on devaluing their currencies to seek an advantage in international markets.

The trade battles echo the Great Depression, which governments exacerbated by throwing up tariff walls and launching "beggar-thy-neighbour" currency policies. The problem is that employment hasn't matched the rebound in imports and exports. As joblessness persists, politicians appear to be increasingly siding with voters, against the advice of economists and historians.

Protectionist tendencies "do not appear to have abated" in recent months, said a report this week by the Peterson Institute for International Economics, written by Gary Hufbauer, a former trade economist at the U.S. Treasury Department, Jacob Kirkegaard and Woan Foong Wong. "If anything, they have gotten worse."

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Mr. Hufbauer and his co-authors are most alarmed by what they call "pipeline" measures. These are threats of future trade action - the tinder for trade wars - or protectionist schemes that have yet to be felt. Pipeline measures have increased 27 per cent since June, according to their calculations.

It's time for the G20 to stop its self-congratulation for withstanding protectionism through the crisis, Mr. Hufbauer said.

"As long as they say that, they don't have to do anything," Mr. Hufbauer said. "As long as they don't recognize reality, they don't feel they have to put any muscle into their commitments."

Bernard Hoekman, director of international trade at the World Bank, said protectionist measures to date equal at most about 2 per cent of total world trade. Mr. Hoekman gives some credit to the G20 for that, but he also points to changing trade patterns. Because much of global trade is now in component parts, countries and companies have recognized it's not in their interest to seek protection behind tariffs or import controls.

Still, Mr. Hoekman acknowledged a change in tone. During the financial crisis, the G20 countries effectively partook in a mass subsidy program. As those stimulus measures wear off, and unemployed workers take note of imported goods they used to make, the risk of a protectionist backlash remains significant.

"We're certainly not out of the woods," Mr. Hoekman said. "There's been a sharp rebound in trade, but not a sharp rebound in employment."

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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