It sounded like an exaggeration, the words of a former journalist who hadn’t yet shed her bias toward hyperbole.
“This is this most protectionist period we have been living in,” Canadian Trade Minister Chrystia Freeland, a former writer and editor at Thomson Reuters, the Financial Times and the Globe and Mail, declared during an event at the annual meetings of the IMF and World Bank last week.
She qualified her statement to make sure the audience understood that she assumed no one present had lived through the Great Depression. Still. The Brexit vote and Donald Trump have freaked out the global establishment, yes; one or the other (or both) made its way into virtually every conversation at the meetings. But the most protectionist period in 80 years? With global institutions such as the WTO and the G20 in place? Could it be that bad?
The answer: probably. A day after Freeland shared her observation, Augustin Carstens, the head of Mexico’s central bank and the chairman of the IMF’s steering committee, revealed how little the men and women charged with overseeing globalization are willing to do to protect it. Carstens told a press conference that G20 countries had implemented more than 1,400 protectionist measures over the past year. That’s incredible. In the immediate aftermath of the financial crisis, the G20 boasted of how it had contained the Depression-era impulse to respond to tough economic conditions with trade barriers. And just last month, the self-described “premier” forum for co-ordinating economic policy used a summit in Hangzhou, China to reiterate its supposed commitment to open borders and extended an apparent moratorium on protectionist policies to 2018. There is no longer any reason to take such statements seriously.
Yet the world’s finance ministers and central bank governors were seized by the assault on globalization. The stakes are high: the IMF last week cut its forecast for trade growth in 2016 to 2.3 percent, almost a full percentage point lower than the fund’s estimate in April. It would be the third time in five years that the volume of imports and exports grew slower than gross domestic product, an inversion that happened only sporadically between 1990 and 2011. “Trade is the best driver of growth and poverty reduction,” Carlos Dominguez, finance secretary of the Philippines, told me in an interview in Washington on Oct. 8. “We would be concerned if trade slowed down.”
The Philippines is an interesting case study in the global mood. The country’s president, Rodrigo Duterte, often is placed on an axis of populism with Trump and the Brexiteers by the international press. Duterte’s campaign against the drug trade has resulted in the killing of more than 3,600 drug users and dealers since the end of June, according to Reuters. (“We’re making the country safer,” Dominguez said in response to a question about international condemnation.) The indiscriminate violence has been condemned by the Obama administration, among others, and creates the impression of a country that couldn't care less about being accepted by the international mainstream. Yet Dominguez says the Philippines is open for business. The government plans to loosen foreign investment rules and it wants to raise fuel taxes to discourage driving and raise money for social programs. The Duterte administration realizes that it needs to narrow the income gap to prevent a backlash against globalization, said Dominguez. All of these measures come straight from the IMF’s handbook, suggesting that there remains a strong undercurrent of support for globalization among poorer countries.
Still, Bank of Canada Governor Stephen Poloz, who previously led the country’s export-finance agency, told journalists on Oct. 8 that it would be a mistake to take the trade links that have been forged over the past few decades for granted. Companies have a low tolerance for political uncertainty and can be expected to do what they must to guard against surprises, such as Britain’s departure from the EU. “You can see all kinds of examples where people had a certain form of supply chain five years ago and that supply chain has been radically changed during that period,” Poloz said. “None of these things are locked in stone. In fact, they are often very easy to change because the company doesn’t own the supply chain, it is just a contractual arrangement with some other company. That contract could be a two-year contract, a five-year contract, a one-year contract, but either way it is subject to change whenever the conditions change.”
What is to be done? Roberto Azevedo, the head of the WTO, said in Washington that he would more aggressively counter the anti-trade crusaders with “the facts” about trade. Poloz called for a more honest debate. “Economists have a tendency to maybe oversimplify the case for liberalized trade to the point where we kind of take it for granted that people understand it,” he said. “We all owe it to ourselves and our constituents to dig a little deeper and explain better how trade benefits the economy at large, while at the same time that almost any change to trade arrangements will generate some winners and some losers.”
There was something close to a consensus in Washington that more must be done for the “losers” of trade. It is fair to say that leaders were late coming to that realization, but at least they are there now. The test will be whether a few days of soul searching in Washington will inspire action. The Philippines, at least on economic policy, offers a positive example, as does Canada.
Freeland has spent significant time in Europe lately trying to rally support for a free-trade agreement between Canada and the EU. But that’s not all that she is doing. Earlier this year, the Canadian government set aside $50 million over five years to help coax smaller companies into seeking markets abroad. The program, called CanExport, will reimburse 50 percent of eligible expenses up to a maximum contribution of $99,999. Freeland acknowledged in Washington that the name of the program is a little cheesy. Still, it is a smart policy that recognizes Canada’s companies are overexposed to the US, and underexposed to faster-growing emerging markets. More than 400 companies have signed up so far.
“If we want the middle class to support free trade, they have to have a stake in it,” Freeland said. “We have to be prepared to spend the money to bring them along with,” she added. “If we don’t do that, this open society we have now will break apart.”