lifestyle leader

For those you with short memories: a reminder about the G20 meeting from late 2008. Among the many fine words put forward following the November summit, there is one collection that seems worth revisiting. Declaration #13 reads (ahem):

We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.

Given the near-universal consensus on the detrimental contagion effects that protectionist measures have on global trade and material well-being, this was not particularly earth-shattering. Still, it was nice to see our political leaders re-affirming their commitment to...

Oh bugger! it took only three days before we heard serious talk in America about bailing out the automotive industry. This was followed shortly by the lawmakers considering a "buy US steel provision" for TARP funds. Meanwhile, in China, there is the small matter of currency manipulation and using the fiscal stimulus plan to promote domestic industries.

Not to be outdone, India has stepped up to the protectionist plate (wicket?) to take a few swings. Yesterday, India's government banned Chinese toy imports for six months - all six which fall into the twelve month period of no-import barriers promised above. From Free Exchange:

What the [Indian] government is thinking is unclear. In a grave speech at the G20 meeting in November, India’s prime minister urged the group to "forestall any protectionist tendencies which always surface in times of recession". The G20 seems to take India seriously. But India doesn’t seem to feel the same way about the G20.

Unfortunately, the same can be said for many of the G20's members. Of course, if all Chinese toys posed a serious health hazard in some way maybe this could be justified. But is it likely that all Chinese toys are dangerous? If so, India's government should be presenting their evidence to the WTO, not taking the path of least domestic political resistance and implementing a complete ban. Incidentally, this is also the path towards a trade war with one of the world's largest exporters.

Now I'm guessing the toy industry does not represent a significant portion of China's GDP, but that's not really the point. As The Economist's in-depth look at the infamous Smoot-Hawley bill of 1930 made clear, the real damage comes from how such laws sour trade relations, leading to retaliatory effects. Just look at what happened last week with French cheese.

So let's leave aside for the moment how such actions undermine the G20 and provide yet further evidence for the calculated hypocrisy of our political leadership. The real danger is that tariffs/bans on stuffed kittens and fancy cheese are the first snowballs that kick off an avalanche of protectionism that smothers trade and damages geopolitical relations. It is precisely now, in this economic turmoil, when international cooperation is needed more than ever.