Do Not Retreat
At times of crisis, should economies open up or retreat? Most of the economies tend to clam up, but in the medium term, this could spell disaster. Economies that are more open will be better placed to stage a faster and stronger recovery once the global crisis comes to an end. Only national stimulus packages that many countries such as the United States have put in place alone cannot help bring about a solution. The world is now confronted with the worst economic crisis in generations -- a crisis which threatens to undo the economic development achieved by many countries and to erode people's faith in an open international trading system. Trade has been a major casualty of this crisis, with WTO economists foreseeing a decline this year of nearly 10% in volume terms, its worst result since the end of the Second World War. The fear that has stemmed out of this situation is that trade openness has made economies more vulnerable to the crisis. But truly, trade cannot be the cause of the collapse in demand. This is only the result of the simultaneous reduction in aggregate demand across all major world economies. In addition, trade finance, which lubricates the wheels of international trade, is evaporating, thereby contributing to the friction.
This exponential decline in demand and its fears have made some countries hike tariffs, enact new non-tariff measures, and launch more anti-dumping actions. Some of the measures that have been taken up to stimulate economies contain provisions that favour domestic goods and services at the expense of imports. Though these measures fall within the ambit of WTO rules, they have had some adverse effects. So, the only solution is to open markets further, and not to retreat, though opening markets may pose a risk of greater volatility to many countries. More open trade is essential. A surge in protectionism should be prevented at all costs.