Looming Protectionist Specter

Industrial Countries Should Set Example of Free Trade

Economists worldwide largely agree the current economic crisis, while serious, is not as severe as the Great Depression of 1929. But it looks as if the world could lapse into the situation of 80 years ago in no time, given how major governments ― developed and developing nations alike ― are coping with the global recession.

Since September, when U.S. investment bank Lehman Brothers went belly up, 16 countries have taken 19 steps to protect and promote their own industries by discriminating against imports. The rekindled protectionist fervor is affecting not just manufacturing industries but also financial and even labor sectors. And ironically enough, the protectionist specter is rearing its ugly head even among supposedly free trade partners, such as members of the European Union and the North American Free Trade Agreement.

Ongoing discussions at the U.S. Congress on the ``Buy American'' provision in the stimulus bill is a case in point. The revival of U.S. protectionism was widely expected when the Democrats occupied both houses of Congress at a time when America was hit by the worst recession in decades. Still, it is difficult to believe the U.S. congressional moves are coming from what was the global champion of free trade as recently as a few years ago.

It's of little wonder the protectionist virus is rapidly spreading not just to other industrial countries but to major emerging economies as well, including Russia and India.

The U.S. steel industry may be the only winner ― at least for the time being ― in succeeding to persuade or pressurize Congress to enforce the mandatory use of domestic iron and steel products in building contracts and other governmental spending. But it has long been conventional wisdom in foreign trade that if a country protects a specific sector, it adversely affects all other industries and consumers using its products, weakening the nation's industrial competitiveness as a whole.

It is all the more regrettable that the U.S. Congress, which must be well aware of this, is succumbing to the temptation of a shortsighted, populist remedy, even abandoning its moral leadership, when it is needed more than any ever to tide over the global recession.

The United States ― and other industrial countries, for that matter ― ought to practice what they have been preaching under the so-called Bretton Woods system since the end of World War II. The process of making financial bailouts and economic stimuli in the industrialized world is a rather embarrassing reminder of the Western world's poor economic leadership.

For Korea, which still relies on foreign trade for up to 70 percent of its gross domestic products and saw its exports plunge 32 percent in January amid dwindling global trade, the recent revival of protectionism comes as a particularly ominous signal. The country, which has too small a domestic demand basis to offset contraction in foreign trade to maintain economic growth, could also run into problems raising funds abroad amid soaring financial protectionism in industrial countries' money markets.

We hope the Barack Obama administration, which reportedly consists of supporters of free trade among U.S. Democrats, will withstand this reactionary and self-destroying temptation. President Obama is advised to dissuade Congress from inserting the Buy American provisions and veto the bill if they transfer them into one.