Economics, International economy

The G-20 Trades in Its Credibility

Sometime later today the Pittsburgh summit of the Group of 20 nations (G-20) will conclude and the leaders will issue a communiqué. It will lay out the steps they have agreed upon for joint action to right the wrongs behind the current economic crisis. Will it matter? Will these pledges really cause the participants to veer away from existing plans and adopt a new, common strategy?

We don’t have to speculate. The G-20 has been meeting so frequently of late that it already has a track record. The Financial Times opined about the “G20 per cent success rate.” The column argued that the group members failed to restore confidence, growth, and jobs; did not restore bank lending; failed to improve regulation; and has not reduced the threat of future financial crises. But the column credits the G-20 with success in promoting trade.

Perhaps the kindly columnist felt compelled to offer the poor leaders something, but of the five categories, trade seems an unlikely candidate for a charitable score. The previous two summits ended with pledges to avoid protectionism and to work for a speedy and successful conclusion of the Doha Round of WTO trade talks. These pledges were quickly followed by flourishing new protection in almost all of the participating countries and no noticeable progress on Doha. The only way to reconcile such a dismal record with claims of success is to set a very low bar and say that we would have expected worse behavior given the severity of the downturn.

It’s easiest to look at this argument in the context of the United States. President Obama has endorsed a number of protectionist measures, both before and after his G-20 pledges to avoid them. There was the “Buy America” provision in the stimulus, the ban on Mexican trucks, and the recent decision to slap tariffs on imports of low-end Chinese tires. This has led former supporters like Dan Drezner to reconsider their views on the president’s commitment to open trade.

But President Obama still has his defenders. At the New Republic, Noam Scheiber argues that:

The political context looms incredibly large here. Simply put, it’s incredibly difficult to defend, much less expand, free trade in the middle of a deep recession. And this is the deepest since the 1930s. In that context, the best you can probably do is beat back the worst protectionist excesses and live to fight another day.

There are several problems with this argument. First, it’s not clear that sentiments about protection are driven purely by economic fundamentals; leadership and rhetoric may play a big role. Second, this runs entirely counter to the president’s behavior on issues he really believes in, like healthcare reform. When public sentiment turned against his reform plans, he did not concede, but rather argued that the public was misinformed. Finally, the president’s failure to lay the groundwork for trade negotiations (e.g., by seeking Doha trade negotiating authority from Congress) will preclude progress far in the future, when the administration forecasts that we will be out of our current downturn.

For the sake of argument, though, let’s imagine that right now it is politically impossible to avoid moderate protection and hopeless to try to advance the Doha talks. Then what is the point of issuing repeated G-20 declarations to the contrary? At first, the empty words may be reassuring, but when the leaders subsequently violate their pledges, it casts doubt on their credibility. Ultimately, we could reach a point where they issue a communiqué, and no one really cares.

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