Ernesto Zedillo wants "aggressive deterrence" of protectionism


Ernesto Zedillo wants to raise the stakes in our efforts to fight protectionism amidst the global crisis:

Of course, pledges to avoid protectionism by leaders or other high-level officials are always welcome, but as recent events have shown, sooner rather than later, those pledges are blown away by the wind of domestic political pressures and there remains little of practical value.

The only thing that will make leaders think twice about whether or not to fall into the temptation of pleasing a particular constituency with protectionism will be the possibility that, as a consequence of such an action, another of its political constituencies will end up being seriously hurt. This possibility will make dubious the net political benefit of walking the protectionist tightrope.

 What I am suggesting is that pledges by countries to use whatever legal means they have at their disposal to retaliate against others for protectionist actions that harm their exports will prove far more effective than their own pledges not to introduce new trade barriers. Interestingly, a credible pledge to legally retaliate for others’ protectionism does not need to be the result of collective action, unlike the case of a pledge to avoid new trade barriers. All you need is one major trade partner to commit to retaliation for others to follow suit.

If a leader of a trading power is convinced that worldwide protectionism will make of this crisis an even worse disaster, then, in addition to resist domestic pressures for higher trade barriers, that leader should firmly declare that any new action restricting access of his country’s exports to any foreign market shall lead to retaliation against the export sectors of the trade transgressor…

 Needless to say, I am not arguing for the convenience of a nasty trade war. What I am submitting is that if you want to prevent one, it’s better to make the potential contestants aware of the full cost of their own folly starting from day one. In other words, let’s use whatever tools the system has in order to make clear to whoever decides to ride the protectionist wagon that there will be no such a thing as a free ride, but rather that there shall be blood. In short, let the WTO’s teeth bite!

That’s from a new book released today, “The collapse of global trade, murky protectionism, and the crisis: Recommendations for the G20,” edited by Richard Baldwin and Simon Evenett. It includes contributions from Anne Krueger, Jagdish Bhagwati, Peter Gallagher, and many others. Weighing in at over 100 pages, it has plenty for trade policy wonks to chew on.