Want a sure indicator that that global economy is facing a tough slog? Politicians and business lobbyists are starting to talk about trade as economic stimulus.
With governments broke and the world economy sputtering, signing new trade agreements is “one of the only avenues we have to improve growth,” John Manley, president of the Canadian Council of Chief Executives, told an audience in Washington on Thursday. Canada’s trade minister, Ed Fast, made similar comments Wednesday during a visit to the U.S. capital.
It’s odd to think of trade negotiations in terms of economic stimulus. Certainly, the reduction of trade barriers multiplies the movement of goods and services, boosts productivity and increases jobs. But stimulus, at least as we’ve come to understand it over the past few years, is something that jolts economic activity quickly. There is nothing quick about trade negotiations, where momentum depends entirely on whether domestic political conditions produce a tailwind or a headwind.
The obvious example is the Doha round of world trade talks, which is comatose after more than a decade of negotiations, despite estimates that it could add 0.5 per cent a year to global gross domestic product by opening new markets.
Yet there are so many others. Consider the North American free-trade agreement. The arrangement is 18-years-old and never has been updated, which Mr. Manley, who was a cabinet minister in the Liberal government that signed NAFTA, called a “great disappointment.” Even obvious adjustments are too daunting. NAFTA has a clause that would allow other countries to join. Chile has separate free-trade agreements with Canada, the United States and Mexico. “Chile should have acceded to NAFTA,” Mr. Manley said. Except it hasn’t, and it probably won’t. No politician in North America has the courage to open the agreement out of fear of what might happen during the legislative process.
The other odd thing about the sudden enthusiasm for trade agreements is that it is coming amidst a significant rise in protectionist sentiment. “There is an increase in protectionism in parts of the world, which appear to be generally a knee-jerk reaction to the economic challenges arising out of the world economic crisis,” Mr. Fast said Wednesday in an interview.
That’s a significant admission. The Group of 20 has taken pride in its ability to constrain the impulse to block imports in the aftermath of the financial crisis. Argentina, Brazil, China, India and the U.S. are among the countries that either have implemented new tariffs, or are threatening to do so. Both candidates in the U.S. presidential election are threatening to put China in its place once elected. Hedgeye, a research firm, on Wednesday told its clients that political tensions between China and Japan could lead to a “string of international protectionism” that would deal a blow to a trading relationship that was worth more than $316-billion (U.S.) last year, as measured by shipments of goods between the two countries.
By trying to light a fire for free-trade agreements, ministers like Mr. Fast and influential lobbyists like Mr. Manley may be trying to offset the protectionist impulse. And to be sure, engaging in trade talks is an inexpensive way for politicians to show their citizens that they are trying to boost economic growth even though they no longer have any money to spend. These two factors even could lead to a new era of free trade as proposals such as the Trans Pacific Partnership and the International Services Agreement cut open markets over wide swathes of the global economy. But even under the best case scenarios, it will be years, not months, before businesses and consumers benefit from these efforts. The economy could be stronger in the long run. In the short term, what you see is what you get.