Oliver Griffiths

Trade at the London Summit

One of the headline aims for the London Summit on 2 April is to put the world on track for sustainable growth. Central to this aim will be reiterating the importance of open markets to the economic recovery (a point made by the Prime Minister in his address to Congress last week) and addressing the threat of protectionism. 

The communique from the G20 Summit in Washington contained useful standstill language on protectionist measures, with leaders agreeing to 'refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO inconsistent measures to stimulate exports.' Most G20 countries have kept to the spirit of the pledge. Uri Dadush at the Carnegie Endowment for International Peace has this week made a number of policy recommendations for trade at the coming Summit.

There has been some interesting debate about what constitutes protectionism, as this voxeu piece looking at 'murky protectionism' highlights. Many governments have taken necessary and unprecedented domestic action to stimulate their economies.  However the impact of this patchwork of bailouts and stimulus packages on international trade flows is not always clear. There is a clear onus on governments to bear in mind the dangers of behind-the-border protectionism.  

The London Summit will be looking for a recommitment to keep away from the edge of the protectionist abyss and to ensure that effective monitoring mechanisms are put in place. For a thought-provoking piece on the role that the US Administration could play on trade at the London Summit, see this article in the Wall Street Journal.

For those in Washington, Dominick Chilcott, Deputy Head of Mission at the British Embassy, will be speaking at a roundtable hosted by the German Marshall Fund at 12.30 on Friday 13th March on the topic of 'The London Summit and the Fight against Protectionism'. Please contact Mark Allegrini on mallegrini@gmfus.org if you would like to attend - though beware that space is limited.

Posted at 11:10 12 March 2009 by Oliver Griffiths  |  Comments[0]

American attitudes to trade

I have been looking at the recent Gallup poll on trade. The interesting story to write on US public attitudes to trade is that support is falling off a cliff and the US is about to pull up the gangplank to global trade. So the Gallup headline - 'Americans more negative than positive about foreign trade' - writes itself. But I have a couple of observations on the data which do not fit well within the narrative of a calamitous and unprecedented collapse in US support for trade: first, this year's figures (47% seeing trade as an opportunity, 44% as a threat) are almost exactly the same as in President Clinton's first year (46% and 44% respectively); second, support for trade improved significantly between 2007 and 2008, from negative 11 to negative 3. As an aside, it is also worth noting the exquisite mercantilist framing of the question: 'do you see foreign trade more ... as an opportunity for economic growth through increased American exports or a threat to the economy from foreign imports'. Under this formulation, bananas and coffee beans - both barely produced in the US - are somehow an economic threat. The logical conclusion of the question is that the best thing for the US is to export as much as possible and import nothing, which is a self-evident nonsense.

But it is notable how international trade, which is seen as being at the centre of 'Anglo-Saxon capitalism', has so little support in the US compared to other countries. The US public is consistently among the most suspicious of the effects of trade. See, for example, page 19 of the Pew Global Attitudes survey from last June, where US support for trade stood at 55%, compared to 79% in France (a country which is often rolled out as being instinctively anti-trade). Quite why US support for international trade is so low is a puzzle. Has America, which maintained high tariffs throughout the nineteenth century, retained a Hamiltonian appreciation for the benefits of protection - in which case, why have other countries which followed a similar developmental pattern not? Has trade had more baleful impacts on the US economy than on others - in which case, why has this effect been felt most keenly in the US, with a ratio of trade volume to GDP much lower than most other developed countries? Is free trade tainted by being a relatively partisan issue in Washington - in which case, why is there so little distance between the views of those polled who identify themselves as Democrat or Republican? Do supporters of international trade talk the wrong language - in which case, how has the dialogue been so different in other countries? Is it because employers provide many benefits provided by the state in other countries, making the loss of a job more traumatic - in which case, why is it international trade, which is estimated to cause under 5% of American job losses (and create many more), that bears so much of the criticism? I think this is a fascinating topic.

Professor Doug Irwin notes that before the second world war most self-respecting US Congressmen prefaced comments on international trade with the proviso 'I'm not a free trader but ...' and that this switched during the 1950s to 'I'm not a protectionist but ...'. I think and hope that we are some way from the first proviso coming back into fashion (though the last few months have shaken the firmness of my conviction on that). In that regard the Gallup poll is relatively reassuring.

Posted at 10:35 05 March 2009 by Oliver Griffiths  |  Comments[5]

Deglobalisation

Gordon Brown's speech on the global economy yesterday contained a very interesting section on the dangers of deglobilisation (it starts at 11.30 on the video clip, if you don't want to watch the whole thing).

The traditional worry is that during tough economic times trade and investment barriers are put up - this was what the G20 leaders sought to address through a standstill clause in the G20 Washington Summit communiqué in November. The WTO has been collecting data in the interim looking at recent instances of countries raising barriers: the 'periodic reports on global trade trends' referred to by Pascal Lamy during a speech at the Department of International Development last week. The hope is that scrutiny and some powerful arguments about the negative economic and public policy impacts of traditional protectionist measures will stop them in their tracks.

A different, and more subtle, threat is of government and corporate behaviours that, taken together, have the potential to balkanize the global economy. The most stark example is in capital markets, where financial markets (often nudged this way by politicians) have retrenched to the familiarity of their home markets. In the most globilised of sectors, countries' borders matter again. Similarly, as governments put in place fiscal stimulus packages and intervene to support individual sectors, the focus will inevitably be on the domestic market. Unfortunately you can easily imagine the net effect being the partial fragmentation of the global economy without governments touching tariffs on foreign investment rules. Food for thought in the snowfields of Davos and during the run-up to the London G20 Summit in April.

Posted at 14:31 27 January 2009 by Oliver Griffiths  |  Comments[0]

Trade at the G20 Summit

As we all wrestle with policy responses to the financial crisis, one of the dangers is that failings in financial regulation are somehow seen as repudiating the economic and philosophical bases of Anglo-Saxon capitalism. But we need to be careful. How to regulate structured financial products - which, at least in their recent scope, are a new phenomenon - is a very different question from whether to keep borders open to international trade. The latter is an old debate and one that free traders feel that they have won twice before - first in the UK in the 1840s and second after the second world war. Comparisons between the current times and the Great Depression are already starting to feel hackneyed. But it is worth remembering how border restrictions ushered in by the Smoot-Hawley Tariff Act of 1930 stemmed trade flows and deepened the recession. US exports plummeted from $5bn in 1929 to $1.6bn in 1933.

I spoke with someone from the WTO Secretariat recently about my concerns of brand contamination between the financial crisis and trade liberalisation. His view was that, since its inception, the GATT / WTO has been about setting parameters for international trade, with many painful negotiations over the appropriate rules of the multilateral trade road, rather than letting unregulated markets rip.

Trade is not going to be at the forefront of this week's G20 Summit in Washington. But it will be on the agenda. And rightly so, given the importance of maintaining open markets in propelling us out of the economic downturn. Leaders can send a strong signal - to a sceptical world and to their own sceptical bureaucracies - about the importance of locking in a deal on the Doha Development Agenda this year. Some doubt how much good another exhortation on Doha can do. However, we were tantalisingly close to a deal in July and one thing that the intervening period has impressed on me is the value of tariffs being bound in Geneva. Reducing the level of bound tariffs has real value that we overlooked when the economic going was good. It is our insurance policy against protectionism. Senator Reed Smoot and Representative Willis Hawley didn't have the restraint of the WTO.

Posted at 13:02 13 November 2008 by Oliver Griffiths  |  Comments[0]

Moral markets

It is a fairly reliable rule of thumb that a financial crisis will be blamed on greed. But the enormity of the current challenges has led some people to signpost this as the high-water mark of this particular tide of globalization (see Irwin Stelzer's argument) that the era of free trade has ended) and question the future of capitalism itself.

President Sarkozy's recent speech on the financial crisis has received a fair amount of interest. It did not feel to me like the broadside against capitalism that some have portrayed it, although there was some therapeutic knocking down of straw-men: 'the idea of the all-powerful market which wasn't to be impeded by any rules or political intervention was a mad one'. It would indeed be a mad idea, which is why we have lots of rules (including a legal code) and regulations (even if they didn't work very well in some cases) to channel markets. The part that has received most attention was President Sarkozy's assertion that 'if we want to rebuild a viable financial system, raising the moral standards of financial capitalism is a priority'.

The idea of moralising the market is an idea as old as the hills, of course. During a crisis it is a natural step on from talking about regulation (which, let's face it, is pretty dull). Regulation changes the duties and incentives faced by a company. At its purist, moralisation aims to change the motivations of the people working in the company. But it hasn't been very successful.

Defenders of free markets argue that moralisation isn't necessary and could do harm. Adam Smith famously said that 'it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest'. But Smith was by no means the first in the game. Perhaps the most notorious rebuke of moralizers was written by Bernard Mandeville, a Dutchman living in London during the birth of modern finance. His Fable of the Bees, written to rile the self-explanatory Society for the Reformation of Manners, argued that it was private vice itself that led to public economic benefits. A libertine kept an array of tailors and innkeepers in business in a way that a church-going spinster did not. You can draw a straight line from Mandeville to Gordon Gekko. Greed is good.

The interesting middle ground is moralizing the mission of the company. Free marketers argue that profits are a company's good works for society and companies trying to deliver public interests will be distracted from their core business. But there is mounting evidence that consumer dollars are interested in the social responsibility footprint of individual companies. So far this - to borrow shamelessly from Google's logo - seems primarily to be on the basis that a company should do no evil. So multinationals have queued up to manufacture in Cambodia because of the ILO's excellent Better Factory Cambodia initiative. If it says 'Made in Cambodia' on the label, you can be fairly certain as a consumer there was no child labour involved. The Kimberley Process, established in 2003 and covering 99% of rough diamond trade, is another good example: you don't want a conflict diamond to be forever. The next step up the ethics chain is to buy from a company because it does good. Consumers may start to reward more systematically companies that get out ahead on addressing climate change, for example.

Going back to Sarkozy's aim of raising moral standards in financial capitalism, I wonder whether corporate social responsibility has had less bottom-line traction among financial services companies than in other sectors of the economy. There have been a few virtue funds launched (though also some counter-veiling vice funds). Some entities run ethical investment policies.  But they feel like a vanishingly small minority. In policy terms, the proxy we seem to have hit on for raising moral standards in banks is to oversee executive remuneration.

Posted at 09:40 20 October 2008 by Oliver Griffiths  |  Comments[0]