The Rise of Economic Nationalism ..!!

Which industries and regions are most threatened by new forms of economic nationalism?

Key Points
• The global crisis has raised concerns about the adoption of protectionist measures to support domestic industries and please public opinion.
• Despite the severity of the crisis, only a few countries have resorted to such measures, and in a limited number of industries.
• The multilateral trade system (MTS) is under constant threat. Politicians must exhibit stronger leadership in supporting it.
• Fairness and equality of treatment by major trading partners is crucial when negotiating with developing nations.
• While the disastrous effects of protectionism on developing countries are all too obvious, it also negatively affects advanced economies.

Synopsis
The severity of the current crisis has made protectionism increasingly popular. The adoption of measures to support local industries may seem appealing at first and provide some temporary benefits. However, their consequences in the longer run are disastrous because of the retaliatory measures likely to be taken by affected countries, the distortive effects, and the impact on access, prices and variety.

Fortunately, there has not been a major move towards protectionism as the majority of governments around the world realize the positive role of trade in their recovery. Rather than resorting to protectionism, they have been trying to fix the problems that led to the crisis and adopting new international financial regulations. The unprecedented drop in trade over the past 18 months is not the consequence of protectionism but merely the result of collapsing global demand.

Yet, the MTS needs stronger support. Governments need to resist the pressure to adapt populist measures exercised by the electors, labour unions and domestic industries who are most affected by international competition. Their suggestions, all the more persuasive in times of crisis, provide temporary fixes. Governments must exhibit strong leadership and work at convincing all parties of the benefits of pro-trade policies. The latest decision by the US to raise tariffs on tyre imports from China, if confirmed, could have dreadful consequences, such as triggering a cascade of retaliatory measures or damaging the framework of the MTS.

The difficult negotiations of the Doha Round, which trade ministers will attempt to revive next week in Geneva and later at the G20 summit in Pittsburgh, is another reminder of the fragility of the system. To conclude the Doha Round, governments will need to make concessions and be both visionary and reasonable. More work awaits negotiators after Doha, especially regarding the proliferation of regional and free trade agreements. As these agreements create trade among participating countries at the expense of others and violate the most favoured nation clause, governments will have to agree to extend these bilateral agreements to all WTO members.

Besides its fragility, the fairness of the MTS is also the subject of debate. Developing nations resent that advanced nations still seem to dictate the rules of the game. Despite its flaws, the MTS is one of the most successful models of international cooperation.

Happy Reading..!!