AMID THE CRISIS, THE MYTH OF RISING TRADE PROTECTIONISM

       THERE WAS a dog that didn't bark during the financial crisis: Protectionism. Despite much hue and cry about it, governments have in fact imposed few trade barriers on imports. Indeed, the world economy remains as open as it was before the crisis.
       Protectionism normally thrives in times of economic peril. Confronted by decline and rising unemployment, governments are more likely to pay attention to domestic pressure groups than to upholding international obligations. As John Maynard Keynes recognised, trade restrictions can protect or generate employment during recessions. But what may be desirable under extreme conditions for a single country can be highly detrimental to the world economy. When eveyone raises trade barriers, the volume of trade collapses. No one wins. That is why the disastrous free-for-all in trade policy during the 1930s greatly aggravated the Depression.
       Many complain that something similar, if less grand in scope, is taking place today. An outfit called the Global Trade Alert (GTA) has been raising alarm bells about what it calls "a protectionist juggernaut". The GTA's latest report identifies 192 protectionist actions since November 2008, with China the most common target. This number has been widely quoted in the press. Taken at face value, it seems to suggest that governments have all but abandoned their commitments to the World Trade Organisation and the multilateral trade regime.
       But look more closely and you will find less cause for alarm. Few of those 192 measures are in fact more than a nuisance. The most common among them are the indirect (often unintended) consequences of the bailouts that governments mounted as a consequence of the crisis. The most frequently affected sector is the financial industry.
       Moreover, we do not even know whether these numbers are unusually high when compared to pre-crisis trends. The GTA report tells us how many measures have been imposed since November 2008, but says nothing about the analogous numbers prior to that date. In the absence of a benchmark for comparative assessment, we do not really know whether 192 "protectionist" measures is a big or small number.
       What about the recent tariffs imposed by the US on Chinese tyres? President Obama's decision to introduce steep duties (set at 35 per cent in the first year) in response to a US International Trade Commission ruling (sought by US unions) has been widely criticised as stoking protectionist fires.
       But it is easy to overstate the significance of this case, too. The tariff is consistent with a special arrangement negotiated at the time of China's accession to the WTO, which allows the US to impose temporary protection when its markets are "disrupted" by Chinese exports. The tariffs that Obama imposed were considerably below what the USITC recommended. And, in any case, the measure affects less than 0.3 per cent of china's exports to the US.
       The reality is that the international trade regime has passed its greatest test since the Depression with flying colours. Economists who complain about minor instances of protectionism sound like a child whining about a damaged toy after an earthquake that killed thousands.
       Three things explain this resilience: Ideas, politics and institutions.
       Economists have been successful in conveying their message to policy-makers-even if ordinary people still regard imports with considerable suspicion. Nothing reflects this better than how "protection" and "protectionists" have become terms of derision. After all, governments are generally expected to provide protection to citizens. But if you say that you favour protection from imports, you are painted into a corner with Reed Smoot and Willis C Hawley, authors of the infamous 1930 US tariff bill.
       But economists' ideas would not have gone far without significant changes in the configuration of political interests in favour of open trade. For every worker and firm affected by import competition, there is one or more worker and firm expecting to reap the benefits of access to markets abroad. The latter have become increasingly vocal and powerful, often represented by multinational corporations. In his latest book, Paul Blustein recounts how a former Indian trade minister once asked his American counterpart to bring him a picture of an American farmer: "I have never actually seen one," the minister quipped. "I have only seen US conglomerates masquerading as farmers."
       But the relative docility of rank-and-file workers on trade issues must ultimately be attributed to something else altogether: The safety nets erected by the welfare state. Modern societies now have a wide array of social protections - unemployment compensation, adjustment assistance, and other labour-market tools, as well as health insurance and family support - that mitigate demand for cruder forms of protection.
       The welfare state is the flip side of the open economy. If the world has not fallen off the protectionist precipice during the crisis, as it did during the 1930s, much of the credit must go the social programmes that conservatives and market fundamentalists would like to see scrapped.
       The battle against protection has been won - so far. But, before we relax, let's remember that we still have not addressed the central challenge the world economy will face as the crisis eases: The inevitable clash between China's need to produce an evergrowing quantity of manufactured goods and America's need to maintain a smaller current-account deficit. Unfortunately, there is little to suggest that policy-makers are ready to confront this genuine threat.