"Economic Isolationism" may be on the rise

As world leaders prepare for an economic summit meeting in London early next month, a new World Bank study indicates that a surge of trade protectionism is becoming a worrisome issue.

Since G-20 leaders signed a pledge in November 2008 to avoid protectionist measures, several countries, including 17 of the G-20, have implemented 47 measures that restrict trade at the expense of other countries, a new World Bank study shows.

 Since the beginning of the financial crisis, officials have proposed and/or implemented roughly 78 trade measures, according to the World Bank’s monitoring list of trade and trade-related measures. Of these, 66 involved trade restrictions, and 47 trade-restricting measures eventually took effect. The effects of these measures are likely minor relative to the size of unaffected markets but they have a significant negative effect on particular exporters shut out of markets.

 “Leaders must not heed the siren-song of protectionist fixes, whether for trade, stimulus packages, or bailouts,” said World Bank Group President Robert B. Zoellick.  “Economic isolationism can lead to a negative spiral of events such as those we saw in the 1930s, which made a bad situation much, much worse.”

“Critical Cargoes” agrees that the cost of inaction on the Doha Agenda is rising.

 To date most countries have not yet raised tariffs to bound levels or taken full advantage of headroom on agricultural subsidies.  However, as the recession deepens, many countries may be tempted to.  This threat underscores the importance of pushing forward with a rapid conclusion of the Doha round.

 The study suggests that the G-20, for its part, could adopt additional measures that would strengthen the fragile consensus against further protectionism…including those efforts made by special interests and trade unions in this country.