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The threat, though, still isn’t great enough to cause a worldwide trade war

GENEVA, Switzerland – 04/07/09 – World Trade Organization head Pascal Lamy is warning of increasing trade restrictive measures which could undermine efforts to buttress the sagging global economy.

There is now a danger of "an incremental buildup of restrictions that could slowly strangle international trade and undercut the effectiveness of policies to boost aggregate demand and restore sustained growth globally," said Lamy in a 47-page report recently circulated to WTO members.

Over the past year, "there have been increases in tariffs, new non-tariff measures and more resort to trade defense measures such as anti-dumping actions," he cautioned. But, he was quick to state that the danger of protectionism was still “not so high as to cause a global trade war, which was the case in previous economic downturns.”

In the report, Lamy, who previously served as European Union Trade Commissioner, said it was still “not clear when the current economic crisis would bottom out, but it was essential to avoid an escalation of trade protectionism,” adding that “government stimulus packages would be helpful in the current crisis, but many measures, such as subsidies and government aids, could be harmful to imports.”

The main risk, he said, “is that governments will continue to cede ground to protectionist pressures, even if only gradually, as long as the global economic situation continues to deteriorate," Lamy said.

"In that case, the negative impact on trade will mount as the number of new measures accumulates. This will worsen the contraction of world trade and undermine confidence in an early and sustained recovery in global economic activity," he said.

The report was released at the same time as a forecast by several WTO economists stating that the collapse in global demand brought on by the biggest economic downturn in decades will drive exports down by roughly 9% in volume terms in 2009, the biggest such contraction since the Second World War.

The contraction in developed countries, they said, will be particularly severe with exports falling by 10% this year. In developing countries, which are far more dependent on trade for growth, exports will shrink by some 2%-3% this year.

Economic contraction in most of the industrial world and steep export declines already posted in the early months of this year by most major economies – particularly those in Asia – makes for an “unusually bleak 2009 trade assessment.

Signs of the sharp deterioration in trade were evident in the latter part of 2008 as demand sagged and production slowed. Although world trade grew by 2% in volume terms for the whole of 2008 it tapered off in the last six months and was well down on the 6% volume increase posted in 2007.

”The question must be asked as to how far trade could conceivably fall in the months ahead,” the economists concluded, citing China’s high level of exports as an example. In February these were down 26% compared with the same month in the previous year and 28% compared with January.

“If one were to extrapolate this downturn, China’s exports would be approaching zero within ten months to a year. This is obviously a highly implausible scenario and emphasizes the reality that such steep declines as those we have witnessed recently will not persist,” they said.

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''Stronger'' Sino-US Trade Ties Urged

WASHINGTON, DC – 04/28/09 – China’s Commerce Minister, Chen Deming, has called for stronger trade relations between China and the US and a joint effort by both countries to battle protectionism; the Chinese official’s visit to Washington, DC coincided with the signing of more than 30 business contracts valued at billions of dollars between members of a Chinese business delegation and a number of US-based firms.