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Trade barriers no solution to crisis

By Wen Jia (China Daily)
Updated: 2009-08-03 07:46

Increasing trade restrictions against Chinese products signify a discordant resurgence of protectionism - a development that will not only hurt China, but also hamper global economic recovery.

Ministry of Commerce data show 15 countries and regions initiated 60 investigations against Chinese products for dumping and over-subsidizing goods and other suspected reasons in the first half of this year. The number of probes and the value of the goods, $8.276 billion, are record high.

Not surprisingly, those targeted were products of the steel, rubber, footwear, and aluminum industries, in which China has spent decades in building up some advantages. Since last year, investigations against Chinese steel products have forced them to beat a retreat from markets in more than a dozen countries and regions.

Complaints against made-in-China products have spread like a contagious disease from the developed markets to the developing ones. It is to be noted here that a number of countries have imposed incipient protective measures such as increasing export subsidies, fund offers and currency devaluations on the pretext of rescuing their economies or issuing stimulus packages.

But this new wave of protectionism is not conducive to global economic recovery. The overt and covert trade restrictions go against the free-trade and competition principles of the World Trade Organization (WTO) and the promises made by world leaders at the G20 meeting last fall in Washington.

Such trade frictions have resulted in suspension of production or closure of factories in China's coastal region, where a majority of its 220 million migrant laborers find employment. But many of these laborers have returned home empty-handed and that in no way will increase consumption, which is deemed essential to help ensure an early economic recovery.

Trade restrictions will eventually hurt other economies even if China does not resort to tit-for-tat retaliation. The reason is simple: Today's economies are interdependent, and manufacturing in China is essentially a subcontracting system woven into the low-end of the international supply chain. The products assembled in China by lowly paid workers, who have to send money back home to support their families, comprises raw materials and intermediate parts bought from abroad. Much of the capital investment originates in the developed world, and the gains flow out of China. That partly explains why the economic growth of China can help put its partner economies on a healthy track.

Developed countries such as the US should honor their promises and fulfill their responsibility to curb their potentially devastating anti-trade moves. The developed economies have been egging China to lead the much-needed global economic recovery. And if trade is an integral part of the US economic recovery plan as was stated by US officials, a continuous decline in foreign trade because of the added pressure of protectionism will not do any good to a country like China that has depended on trade for much of its growth.

Developing countries such as Mexico should learn from China's experience, which achieved success because of its open-door policy. In a world of globalized production and marketing, building fences with high tariffs or other means will yield more harm than gain in the long run, as they will weaken the core value of domestic businesses - their corporate competitiveness. So instead of creating trade barriers, the emerging economies should use the global economic crisis to cash in on their strengths to serve consumers across the world.

That's why it is heartening to see trade officials from 21 APEC member economies extend their non-binding commitment to preventing protectionism from thwarting economic growth and regional integration by a year. The commitment, first made in November 2008 by APEC leaders to refrain till the end of 2009 from raising new barriers to investment or to trade in goods and services and imposing new export restrictions, now runs up to 2010.

The ingenuity of these governments is in contrast with the US Tariff Act that encouraged protectionism during the Great Depression and intensified tensions leading to World War II.

Still the world needs institutions like the WTO and World Bank more than ever to ensure member states have properly implemented trade measures. The more persuasive their instruments are, the better.

WTO Director-General Pascal Lamy seemed to have hit the nail on the head at the recent APEC forum in Singapore by saying: "Effective international cooperation and open markets are as vital today as they have ever been."

In the age of globalization, the belief that severe economic crisis is followed by protectionism should be changed to a 21st century economic mantra that trade and open-mindedness are integral to each other.

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