The Mexican government said Monday it would slap tariffs on 90 U.S. industrial and agricultural products, in a trade dispute that underscored the difficulties facing President Barack Obama as he tries to assure business and global allies that he favors free trade.
Mexico said the tariffs were in retaliation for the cancellation of a pilot program allowing Mexican trucks to transport cargo throughout the U.S.
Unions have for years fought to keep Mexican trucks off U.S. highways, despite longstanding agreements by the two countries to eventually allow their passage. Legislation killing the pilot program was included in a $410 billion spending bill Mr. Obama signed last week.
Category Archives: Protectionism
Protectionism, dictatorship, and war
I am more concerned about economic losses, policy coordination, and other high-probability costs, but Ed Glaeser is making the less-traditional case that protectionism risks increasing the likelihood of war by eroding democracy in developing countries:
Democracy is bolstered by prosperity and damaged by downturns. Since the pioneering work of Martin Lipset 50 years ago, social scientists have tried to understand why democracies and wealth go together. My colleague Robert Barro found that this link exists not because democracies increase prosperity, but because prosperity supports democracy. The appeal of democracy’s enemies increases when democracies, like the Weimar Republic, are unable to deliver economic success.
Trade is crucial for the prosperity of the world’s poorer countries, especially during a downturn. My own research finds little connection between trade and economic growth among rich or middle-income countries, but in the poorest places, where democracies are least stable, a 20 percent drop in the ratio of trade to GDP is associated with per capita incomes growing by 1 percent less per year. Reductions in trade had a devastating impact on Argentina in the 1930s, ending decades of democracy and ushering in a long period of dictatorship and political turmoil.
Free trade brings prosperity to the world’s poorer countries, strengthening their transitions to democracy and making their citizens, and us, safer. But the United States is now contemplating policies that threaten our ability to argue that an economically connected world is stronger and safer.
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.
Who's a trade lobbyist?
Bombardini and Trebbi: “The data show that sectors characterized by a higher degree of competition (more substitutable products and a lower concentration of production) tend to lobby more together (through a sector-wide trade association), while sectors with higher concentration and more differentiated products lobby more individually.”
Repealing the Unlawful Internet Gambling Enforcement Act
The popularity of protectionist policies
Name and shame
Gary Hufbauer suggests forming a panel of eminent trade economists and lawyers to “name and shame” countries turning to protectionist measures.
Buy Canada
When will we start screaming about the Buy Canadian and Buy European procurement clauses?
How many jobs is the Buy American provision worth?
Ben Nelson points to a study by Gary Hufbauer and Jeff Schott that the Buy American provision of the stimulus bill would only “create” 1,000 jobs in the steel industry because it is so capital-intensive.
"An economic declaration of war"
Willem Buiter condemns the Buy American provision of the spending package as dramatically as possible:
There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-US finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly…
The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause. If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all.
Trade Diversion 