An unintended consequence of the world economic washout is the sharp drop in trade. More disturbing, though, is the fact that many countries are erecting protectionist barriers at the expense of other countries. How can we prevent this unwelcome tendency from intensifying? How will free trade assist in global economic recovery? Hai Wen, Vice President of Peking University, gave his answers in a speech at the Global Think Tank Summit held on July 3-4 in Beijing.
The swirling financial chaos is putting a freeze on flows of global trade, though the blow appears soft relative to the 1929-33 Great Depression. We have confidence and patience that we will see a turnaround in the end. It will just take some time for that day to come.
It is understandable that countries are imposing restrictions on imports as a last resort to prop up domestic businesses. After all, every country has its own economic preoccupation as this deep downturn descends. But China has a different reason. The real blame for the country's import declines lies not in protectionist measures, but a freefall in exports, mostly processed products, that has reduced the need for imports of raw materials.
Nonetheless, criticism over protectionism is fully justified given how helpful free trade is for the withering world economy. The question is, how can we push for its early arrival?
I believe the question of free trade is a political one. Many countries take protectionist measures for political reasons or because of pressure from domestic interest groups. To precipitate trade liberalization, it is necessary to press ahead with multilateral trade talks to fight back against those pressures and help those countries look long term through immediate interests.
This brings up another head-scratcher—how to accelerate international trade talks that have stalled. In response, the World Trade Organization (WTO) should play a bigger role by imposing punishments on trade restrictions. The WTO must force protectionists to pay the price, though it may not be able to completely curb the trend.
I believe propelling the global trade talks is now an important task for the world. It may be quite difficult due to a lot of reasons, but we should have confidence that it can be an effective solution to protectionism problems.
In addressing trade protectionism, we should also focus on the several big trade powers. The EU, the United States, China, Japan and Russia are currently the world's top five traders and account for the bulk of the global economy. Their self-discipline and mutual supervision are important for the openness and progress of world trade.
Since it is quite difficult for us to point fingers at any of them for protectionist measures, it might work if they can just keep their imports comparable with exports so that global trade can stay in balance. |