Author Archives: jdingel

Is Doha critical to surviving the crisis?

Joseph Francois says that the emphasis on the Doha Round is misplaced:

Approximately 30% of world trade is locked in at zero tariffs through various European agreements (the European Union treaties and the EEA), another 8% of trade is under zero tariffs locked in through NAFTA, and another 40% involves OECD importers where tariffs are at or very close to bound rates — i.e. there is no “binding overhang” (except for the OECD share involving food trade outside free trade blocks, which is roughly 2.5% of world trade).

On top of this, the commitments undertaken by China and Taiwan when they joined the WTO also limit their room for protectionist manoeuvres. If we also include Hong Kong and Singapore as “safe” importers (they are traditionally staunch free traders), this leaves around 20% of trade “at risk.” This involves Asian importers, Africa, Latin America, OPEC Members, and components of the former Soviet Union… What all this means is that the recent IFPRI study (which has been widely quoted) may greatly overstate the risk of Doha failing. Because of regional and multilateral bindings that really do bind, we will not get a massive unwinding of trade through widespread hikes in applied tariff schedules – unless the EU, NAFTA, and WTO themselves all unwind as well…

We need to devote energy to non-Doha issues in Geneva. These include the risk of rising and excessive use of antidumping, countervailing duty, and safeguard protection; misguided public subsidies (though some of the current ones may be justified on retro-Keynesian grounds); rising protection in the poorest countries; and temptation in the US Congress to violate existing treaty commitments. The WTO members should spend energy on these issues, but the Doha Round is not a critical part of the equation.

Preventing a protectionist outbreak

New VoxEU book on the crisis and protectionism:

When incomes, investment and jobs are under threat, national governments try to cushion the blow – in part by erecting new trade barriers. This time is no exception. According to the latest data from the WTO and ITC, the number of antidumping cases jumped 40% in the first half of 2008 and many nations have already raised tariffs in 2008.

The magnitude of the new protection is modest. However, as the recession spreads and deepens globally, this could change – especially if world leaders lose control of the situation; protectionism and competitive devaluations could trigger a vortex of beggar-thy-neighbour policies.

The universal respect of WTO rules and 60 years of tariff negotiations make a repeat of the 1930s tariff war unlikely. But a WTO-consistent protectionist cycle is a real possibility. Indeed, just such a thing happened on a small scale in the last major financial crisis – the 1997 Asian crisis.

Featuring Richard Baldwin, Jagdish Bhagwati, Ann Capling, Wendy Dobson, Peter Draper, Simon Evenett, Gary Hufbauer, Douglas Irwin, R V Kanoria, Robert Z. Lawrence, Patrick Messerlin, Kevin O’Rourke, Arvind Panagariya, Yung Chul Park, Hadi Soesastro, and Jeffery Schott.

New NBER WPs

Lots from the NBER this week, here are ungated links.

  • Between 1875 and 1913, industrial tariffs are positively correlated with growth while agricultural tariffs are negatively correlated with growth. [Lehmann & O’Rourke]
  • China’s export expansion has only dampened other developing country’s exports by around 1%. [Hanson & Robertson]

No short-run fix for trade’s popularity

Ben Muse on the Obama administration’s difficulties ahead:

[Timothy Geithner, Treasury Secretary-to-be] sees the importance of an open economy, and is concerned about building political support for it. He doesn’t have a plan to do it. Telling people how important integration is to their well-being isn’t working. A better educated, more adaptable workforce, and programs to address the frictions associated with adjustment, may not change attitudes and if they do, may only do so in the long run. To top things off, the political problem must be solved in the middle of a delicate and consequential transition.

Rising trade costs: Pirates

There’s a great, long piece on Somali piracy in the FT by James Blitz and Robert Wright. Here are the trade-related highlights, but follow the link for lots more interesting details.

There have been 95 attacks by Somali pirates on vessels this year, with 39 ships captured and nearly 800 crew held. More than $20m has been paid in ransoms by shipowners and insurers… These pirates of the Horn are worrying governments around the world for several reasons. Their activities are bringing sclerosis to one of the world’s main trade arteries – the Gulf of Aden, which sees the passage of 20,000 ships a year. Shipping companies are beginning to divert their vessels round the Cape of Good Hope, increasing journey times by 30 per cent…

People in the shipping industry have for some time been irritated by the word “pirate” – with its romantic and exotic connotations – and like to remind the public that the hijackers are hardened criminals… In a society stricken by poverty, their boldness, organisation and technical savoir-faire impress one security expert: “They treat this as a business. They’ve upgraded what it means to be a pirate.”…

Attacks during shipping’s last piracy crisis – in the Malacca Strait separating Indonesia from Malaysia and Singapore – were less frequent and limited mainly to armed robbery of crews and ships’ offices. But that problem – which Pottengal Mukundan, IMB director, calls “maritime mugging” – has been largely eliminated since 2006 by improved security co-operation between the three coastal states…

“This Somali piracy problem is going to be on the international security agenda for some time,” says a senior UK official. “It is a highly lucrative business, providing a job-creation scheme in a country with very few other outlets and which also happens to be in a very sensitive part of the global trading system.”

Flirting with automobile nationalism

Jeff Sachs makes unpersuasive arguments for bailing out the Big Three in Detroit:

First, this is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon. This achievement is closer than many suppose, with the pathbreaking plug-in hybrid Chevy Volt set to arrive in 2010 and several new hybrid models on the way. American-made fuel-cell cars may be a large-scale reality within a decade. Success would dramatically improve energy and national security, climate security, and U.S. global competitiveness, and a public-private partnership is needed to bring about this transformation.

Questions for Professor Sachs:

  • Why is it important that fuel-cell cars be made in America?
  • Why do American-made fuel-cell cars need to be produced at plants owned by domestic parent companies rather than foreign-owned US plants located outside Detroit?
  • What does “US global competitiveness” mean in this context?

Mark Koyama is harsher but puts it more succinctly: “Is this article by an economist?“