President Obama Must Find New Ways to Increase Confidence in the Global Trading and Financial Systems

A new report issued by the World Trade Organization reveals that key U.S. trading partners have taken steps to erect new trade barriers in the wake of the global financial crisis. While the report is relatively sanguine about the effect of protectionist pressures on international trade thus far, the impact on the trading system of countries’ responses to the global economic crisis may not be clear for some time and the current trajectory is not encouraging.

The report, dated January 23, has not been made public by the WTO though it has been circulated to reports and has appeared on at least one website.

It catalogues a range of measures which countries from Korea to Ecuador have undertaken in recent months which either complicate or restrict trade. Russia, for instance, has increased tariffs on automobile imports while Indonesia has restricted the means of entry of imports into the country.

However, the report does not capture the universe of trade-restricting or distorting measures that have occurred or are likely to occur. Brazil just announced new measures which require certain importers to obtain pre-approval prior to receiving goods from overseas. In the United States and around the world, new “buy national” provisions are being debated as part of stimulus and recovery packages. And India’s decision to raise steel tariffs has been met with calls by Indian industry for even higher tariffs.

This is not the way it was supposed to be. In November, leaders of the G-20 nations pledged not to put in place new protectionist tariff and non-tariff barriers to trade.

By the WTO’s count, six members of the G-20 – Argentina, Brazil, India, Indonesia, Russia, and South Korea – have already broken this pledge.

Backtracking on the G-20 trade promise threatens to undermine the credibility of the G-20 and the global trading system. President Obama and other leaders will have another crack at committing to an open trading system in London this April, when British Prime Minister Gordon Brown hosts the next G-20 summit. Heads of state should use that meeting, as well as the current discussions in Davos in and around the World Economic Forum, to find new ways to inject confidence into the global trading and financial systems rather than erecting new walls that jeopardize trade and economic growth.

A good start would be to agree to enforce the “no new tariffs pledge” and redouble efforts to conclude the Doha Round of trade negotiations. Both would help bolster confidence in, and the stability of, international markets as well as the credibility of global institutions like the G-20.