Protectionist power

There is an anti-protectionism slot at nearly every international summit. The G20 meeting last November and the G2 meeting (otherwise known as the US-China Strategic and Economic Dialogue) in July both included heartfelt pledges to play fair on trade.

But have words translated into action? Here the waters become muddy. Data released in late July by Chad Brown, a professor of economics at Brandeis University who organizes the Global Antidumping Database for the World Bank, found that requests for new import restrictions grew by 19% in the first half of 2009 compared with the same period last year.

China has borne the brunt of many of these actions; Chinese exporters were targeted in all 17 of the new product-level import restrictions imposed by WTO member countries in the second quarter of 2009. In the past 12 months, the country has also been on the losing side of WTO rulings on auto parts tariffs and on import restrictions on foreign movies, books and music. It also settled a complaint filed by the US, EU and Canada over restrictions placed on foreign providers of financial information.

Beijing isn’t taking this lying down. While China has only initiated five cases with the WTO since joining the body in 2001, three of them occurred within the last 11 months. Most recently, China has called into question US restrictions on imports of Chinese steel and tires.

We can all agree that protectionism is bad for global business. But the real danger of rising protectionism between China and the US may be political rather than economic.  

The US economic picture remains grim, but some have suggested that the recession has eased or even bottomed out. China by most accounts will post GDP growth of at least 8% this year. While the situation may not be as bad as many had feared, these remain delicate times for the G2, and thus for the world.

The two countries are in the process of reordering their decades-old economic relationship – one in which China produces and the US buys – and the journey is sure to be painful. Analysts say China has a track record of complying with WTO rulings, and it is difficult to imagine a single trade dispute threatening the long-term trajectory of the Sino-US relationship.

But the fear is that tit-for-tat trade disputes may foster a political environment in which it is difficult for both countries to collaborate on both economic issues and challenges that transcend the economy – such as nuclear proliferation or climate change. That would leave the world truly unprotected.