Monday 23 Jul 2018 | 19:36 | SYDNEY
Monday 23 Jul 2018 | 19:36 | SYDNEY

A different kind of trade war?


Mark Thirlwell

18 May 2009 14:30

I’ve noted before that one reason for assuming we will avoid a re-run of the Great Depression is that we have learnt some lessons from history, including the one about making sure we do not choose to re-run the Smoot-Hawley inspired experience of an international tariff war. 

The good news is that so far there has been no widespread resort to hiking tariff barriers, thanks in part to the disciplines imposed by membership in the WTO and other trade agreements. That said, in his March report on trade-related developments, WTO Director-General Pascal Lamy warned:

Many WTO Members are facing increased pressure to take protectionist actions. At the start of this year, most WTO members appeared to have successfully kept these pressures under control...Since then, there has been significant slippage. There have been increases in tariffs, new non-tariff measures, and more resort to trade defence measures such as anti-dumping actions. The financial and fiscal stimulus packages that have been introduced to tackle the crises clearly favour the restoration of trade growth globally and they are to be welcomed, but some of them contain elements – such as state aids, other subsidies and “buy/lend/invest/hire local” conditions – that favour domestic goods and services at the expense of imports.

Moreover, as World Bank economists noted in their own assessment of trends in post-crisis protectionism, the developed world in particular has tended to respond to demands for protection through subsidies and other support packages. These in turn have often been accompanied by the sort of buy/lend/invest/hire local restrictions highlighted by Lamy above. 

The result is a form of ‘murky protectionism’ that is often harder to track than reliance on tariff measures, but which still lends itself to retaliation and hence the risk of trade wars – as this story on rising tensions between the US and Canada over ‘Buy American’ provisions makes clear.