A crash course on how global economics works for the G-20

Trade policies over the past 25 years have generally accommodated this new reality. According to the World Bank, between 1983 and 2003 only three countries (out of 136) increased overall trade restriction, while developing countries were some of the biggest reformers, having reduced their weighted average tariffs by 21 percentage points (from 29.9 to 9.3 per cent). To emphasize how these reforms are self-helping, two-thirds of those cuts were unilateral. Trade has also benefited from huge improvements in transport and communications.

These gains are often discussed in terms of their impact on producers but the consumer is by far the biggest winner, getting a more consistent supply and better choice of cheaper, better products.

This global factory has changed the old “Us versus Them” characterization of international trade for good — and for the good. Trade is increasingly the process of importing a good, adding value to it, and then exporting it to another producer further down the production chain. These complicated production and supply chains rely upon the rapid flow of goods and services across borders.

The current economic crisis, however, has tested our leaders' commitment to these reforms. Political leaders condemned protectionism at the G-20 meeting in November 2008 and then again in April 2009. They returned home to yield to vested interests, imposing anti-trade measures that add complexity, cost and delay to internationalized production and supply chains.

Such an approach made no sense when times were good. It is especially wrong-headed when times are tough.

Banning containerised shipping (perhaps the most important technique in 20th century trade) or broadband Internet connections (which have paved the way for millions of call-center jobs) would clearly be ridiculed. Yet it is equally ludicrous for governments to promote “temporary” tariffs to shelter “domestic” industries, or subsidies for “local” producers, or “environmental” regulations that hobble foreign competitors.

World leaders need to understand this in time for Pittsburgh. The only real stimulus the global economy needs is to continue the reforms that have guided the past thirty years of unprecedented global expansion: reduce trade barriers and remove the regulations and administrative burdens that prevent people from maximizing their potential in the global economy.

Ikenson is Associate Director of the Cato Institute's Center for Trade Policy Studies and author of “No Longer Us versus Them: Trade Policy for the 21st Century,” published by International Policy Network and the Freedom to Trade Campaign. Alec van Gelder is Project Director at International Policy Network.

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