Friday, December 5, 2008

Financial crisis and protectionism

New e-book from about the dangers of protectionism due to the financial crisis. It is titled The crisis and protectionism: Steps world leaders should take.

Here is the synopsis:

Unless world leaders strengthen trade cooperation, new tariffs and competitive devaluations could trigger a protectionist spiral of WTO-consistent trade barriers. To rule this out, world leaders should: 1) Reduce protectionist pressures by fighting the recession with macroeconomic polices; 2) Translate APEC and G20 leaders’ words into deeds by agreeing a framework for concluding the Doha Round; and 3) Establish a real-time WTO/IMF surveillance mechanism to track new protection.

The dangers of protectionism:

If all nations put their tariffs up to their bound rate – i.e. the WTO tariff ceilings that they are committed to respecting – then exporters from middle- and high-income nations would faces tariffs that were on average twice as high as they are now; those facing poor nations would triple since they tend to export agriculture goods where tariff bindings are astronomically high or nonexistent. If a vortex of beggar-thy-neighbour moves pushed tariffs ‘only’ up to the maximum level that nations had applied over the past 13 years (i.e. since the last WTO Round was signed), then figures would be more like 50% higher and 100% higher for the groups.

Meanwhile, Rodrik ponders on Keynesian economics and protectionism. He is also taking about Tobin tax on foreign transactions and redirecting that tax revenue to the developing countries that are in dire need of credit.

So unless we come up with a solution to the credit constraints in the developing world, we are going to either endanger the effectiveness of Keynesian policies in the U.S. and other advanced nations, or risk a sharp increase in protectionism.  Not a pleasant choice.

And, here is ‘modern day Keynes’ aka Krugman applauding the great Keynes.