CHICAGO – As governments do more to try to coax the world economy out of recession, the danger of protectionism is becoming more real. It is emerging in ways that were unforeseen by those who founded our existing global institutions. Unfortunately, the discussion between countries on trade nowadays is very much a dialogue of the deaf, with countries spouting platitudes at one another, but no enforceable and verifiable commitments agreed upon. There is an urgent need to reform global institutions – and more dramatically than envisaged by the G-20 thus far.
Protectionism is not just about raising tariffs on imports; it is any government action that distorts the global production and allocation of goods, services, and capital to favor domestic producers, thereby reducing overall efficiency. So, for example, government pressure on multinational banks to lend domestically, or to withdraw liquidity from foreign branches, is protectionism, as are capital injections into multinational companies with the explicit requirement that domestic jobs be preserved.