The Expert: Protectionism Hinders Global Trade, Economic Recovery
- Mar 31, 2009
Free trade enables economies to realize their greatest potential, but heads of state are not taking this long view when establishing protectionist measures in response to the current downturn. Industrial real estate companies are keeping a close watch because global trade levels and demand for distribution facilities are highly correlated, as I have explored in previous columns. The $787 billion stimulus plan that President Obama signed on Feb. 17 originally contained a “Buy American” provision, raising the specter of protectionism. This clause generally limits the use of foreign building materials for infrastructure projects funded by the package, bringing troubling reminders of the Smoot-Hawley Act. That legislation, which raised tariffs on thousands of imported goods in the 1930s, led trade partners to retaliate with increased barriers of their own that worsened the Great Depression.The United States is not alone in giving in to recent protectionist pressures. A World Bank study published on March 2 concluded that 17 members of the G-20 had adopted measures restricting trade since November 2008, when the group last met in Washington. And while it is difficult to distinguish the trade policy measures taken in response to the current crisis from those that might have been taken anyway, the global downturn is used as leverage to increase trade barriers. Recent protectionist measures and their impact on trade flows are concerning. However, we are confident that, over time, the benefits of trade as one of the main engines for global economic growth will be acknowledged. The G-20 has the opportunity to commit to trade-friendly practices when reconvening this week in London, thereby avoiding a repeat of the mistakes made in the 1930s. Most economists agree that trade is resilient and tends to rebound sharply during economic recovery. Current trade declines—and the International Monetary Fund’s most recent forecast of negative 2.8 percent trade growth in 2009—represent a temporary setback in an otherwise strong, long-term trend that will drive demand for industrial real estate. David Twist is director of research for AMB Property Corp.