Protectionism, Barter Distort Global Trade Balance Picture
Mendelsohn, M. S., American Banker
In the past few years the focus of international concern has shifted increasingly onto trade, and for good reason. World trade has only just begun to recover this year from its most serious peace-time decline in more than half a century.
During the thirty years through 1980, world trade expanded almost consistently and for the most part appreciably faster than world output. But in the three years through 1983, world trade actually fell more sharply than total output. As a result, the role of trade as an "engine of growth" can no longer be assumed with the same confidence as before, least of all if protectionism goes on proliferating to make matters even worse.
On the International Monetary Fund's calculations, the value of world exports declined for three consecutive years through 1983 by a total of about 11.5%. That was a significantly lesser contraction than the 27% fall estimated to have taken place in world trade during the four years from 1929 to 1932, but still extremely worrying after a generation of almost unbroken trade expansion.
During the 30 years to 1980, the value of world trade fell only in two years, in 1952 and 1958, and the volume of world exports, which likewise declined during the three years through 1983, had similarly fallen only twice before in the preceding 30 years, in 1958 and 1975.
Small wonder, then, that this year's annual IMF report concentrates on trade -- along with fiscal policy -- as one of the two aspects of the global economy in most need of urgent official action. Yet the concern about "creeping protectionism," which has been a recurring topic for about the last ten years, has so far produced few actual results.
As the IMF report notes, somewhat acidly, in its concluding passage: "Several international meetings at the ministerial level have emphasized the determination of the participants to resist and roll back protectionist measures. It is to be hoped that the coming year will see more success in bringing these intentions to fruition than has been apparent hitherto."
Concern about world trade has reasons that go deeper than the shock of the three-year downturn from 1980 to 1983. During the 1970s, the volume of world exports had slowed down to an annual growth rate of 5.5% from 8% in the 1960s and 6.5% in the 1950s. This was mainly due to the very steep rise in world export prices, initially oil and other raw material prices, but prices of manufactured exports thereafter as well.
The value of world exports, which had risen by an annual average of 7% in the 1950s and 9.5% in the 1960s, rose by an average of almost 21% a year in the 1970s. This contributed at first to a distinct slowing down in the volume of world export growth and then to the three-year decline at the start of this decade both in value and volume. Price Stability Is Best Hope
It follows that the best hope for a resumption of a sustained growth in world trade both as an engine and product of world economic growth lies in the maintenance of the relative price stability achieved as a result of the three-year global disinflation from 1979 to 1982. Nevertheless, protectionism in itself imposes a high cost both on the countries that try to "protect" their jobs and industries, and on their trading partners, whose exports are curtailed.
A particularly visible danger posed by trade protectionsim is the threat that it poses for troubled debtor countries striving to return to full debt service and credit standing. The broadly defined developing countries, including oil exporters, account for about 30% of world trade, as measured by the value of world exports or imports.
Moreover, a large part of that is concentrated precisely in a number of the biggest debtor countries. Severe and simultaneous import contraction to which those countries have resorted as a first step towards returning to good credit standing would, if protracted, pose its own dangers to the major western trading countries. …