Editorial: Keep the door open to global trade

• Source: Global Times
• [10:26 June 18 2009]
• Comments

When the global economy was booming, it was easy to see the benefits of international trade. Cross-border trade, under the theory of comparative advantage, brought prosperity to nations on the global commerce chain.

But now the world is in the grips of a global economic crisis that shows no sign of ending soon. Governments are under pressure to slam the door to trade. Protectionist measures are being written into stimulus packages. It is hoped that blocking trade and buying locally will support local economies and jobs.

Politicians are pressed to appease the electorate by taking quick actions that seem superficially effective. But protectionism will more seriously damage the global economy, and exert a negative impact far and wide.

One country’s restriction of imports means a decline in the exports of another. This causes a chain reaction that could freeze world economic activity. Global trade is the backbone of the world economy, and if measures checking it are not halted immediately, the recession will be prolonged.

China, without a doubt one of the biggest winners of globalization, is bearing the most severe burden of the new wave of protectionism. It has seen trade volume drop 24.7 percent during the first five months of this year. The decrease was heightened in May, raising more alarms over trade barriers.

Hostility against goods manufactured in China is on the rise. Chinese companies have been targets of more than 38 anti-unfair trade investigations in overseas markets from January to April of this year, up 26.7 percent year-on-year.

The New South Wales state government of Australia has just announced that $4 billion AUD ($3.2 billion) in government money can only be spent on domestic goods and services, a move widely seen as discriminating against Chinese-made products.

But in the meantime, the Chinese government is facing more calls from domestic companies to give preference to Chinese manufacturers in government purchasing, especially with funds from China’s gigantic 4 trillion yuan ($570 billion) stimulus package. Chinese companies are often discriminated against instead of being favored in government-funded projects, industrial associations claim.

Giving favorable treatment to a few key Chinese enterprises in this special time makes some sense. It is also an international practice to give preference to domestic goods in government procurement. But governments need to keep a cool head when it comes to surging domestic protectionism.

Despite its huge trade volume and crown as the “world’s factory,” China is still at the low end of the global trade chain, with millions of jobs depending on low value, high quantity exports. A slowdown in world trade harms China far more than it helps it. Bowing to domestic pressure to buy local isn’t a good choice for any government.