Big slide in global trade looms over G-20 meeting

[March 31, 2009]  GENEVA (AP) -- With global trade sliding, analysts say some of the world's most powerful leaders may need to offer more than ritual support for open markets when they meet this week if they are to steady a teetering economy and avoid a damaging retreat to protectionism.

The presidents, prime ministers and chancellors of the Group of 20 nations have halfheartedly respected their pledge of four months ago to avoid turning inwards in fighting the economic crisis. Since then, world commerce has plummeted in a way unseen since the Great Depression.

With no concerted strategy for a revival, some economists say a rash of go-it-alone stimulus packages and industry bailouts could lead to trade wars -- causing havoc in one of the key driving forces to the world's economic growth since World War II.

"We're playing with fire," said Jagdish Bhagwati, an economist at Columbia University. "The system was designed to avoid the free-for-all wrestling of the 1930s. If the U.S. and France start saying, 'This is legal so I am going to do it,' everyone else will start to play that game."

The World Bank says 17 of the 20 countries whose leaders are meeting in London on Thursday have resorted to protectionist measures since declaring their opposition to such action during a November conference in Washington.

The World Trade Organization says most of the major powers -- from the United States and European Union to China and India -- have erected new barriers to imports in the form of tariffs, subsidies or other measures designed to protect domestic industries.

Part of the problem is that the financial collapse shattered confidence in the world's economic order, which includes as a major tenet the free flow of goods and services. With the recession deepening, pressure has ramped up on governments to come up with more ways to protect farmers, manufacturers and service providers from competitors overseas.

"The case for trade needs to be made more effectively, including by us," said Keith Rockwell, spokesman for WTO chief Pascal Lamy, who will attend the London summit. "It behooves all of us to explain the benefits of trade, and what it means to economic growth and development."

For 60 years, international trade has been a major driver of the global economy, outpacing GDP growth and spurring gains in both rich and poor countries. But trade is being hit hard by the crisis, with the WTO recently predicting that global commercial activity will shrink 9 percent in 2009 after 27 years of uninterrupted expansion.

The main cause is the sharp drop in demand for goods, both domestic and foreign, but analysts warn that protectionist sentiment threatens to make recovery far more difficult.

And slower, said Ed Gresser, trade director at the Progressive Policy Institute in Washington.

He said merchandise imports in the United States, the world's biggest market for foreign goods, has fallen about a third -- to $210 billion a month from $310 billion only a half-year ago. That's slightly worse than the 30 percent fall in trade in the first six months after the 1929 market crash.

"We're in bad shape and I wouldn't say we've seen the bottom yet," Gresser said. "Governments haven't really been working together. But they aren't really working at odds with each other. If they did, we could be in for a very hard time."

From footwear to steel to automaking, the G-20 countries have contributed to a protectionist swing, and there may be little the leaders can do in London to immediately reverse that trend, beyond broader attempts to stimulate the economy and fire up demand.

There are a host of smaller spats among the participants.

China is fuming over a U.S. ban on its poultry over safety concerns; Washington is looking to move against subsidies it accuses Beijing of paying manufactures. Farm exporters are upset with the 27-nation European Union's reintroduction of dairy subsidies; and European nations are bickering among themselves over auto bailout packages and which members will have to shoulder job cuts.

The danger is best highlighted in a dispute between the U.S. and Mexico over trucking. Mexico has raised tariffs on 89 American products worth $2.4 billion in annual trade in retaliation for a U.S. decision to cancel a program that gave Mexican truckers access to U.S. highways. American fruit, wine and washing machines will be among the goods affected.

"If anyone doubted the danger of tit-for-tat, the Mexican response was a pretty clear indication that things can spiral out of control pretty easily," said Rockwell at the WTO. "That helps nobody. Everybody knows this intellectually, but each and every one of the leaders is facing protectionist pressures from domestic constituents."

[Associated Press; By BRADLEY S. KLAPPER]

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