In an earlier blog post, we highlighted concerns that recent currency interventions by central banks and national governments might feed into more serious economic conflicts?potentially involving a 1930s style protectionist cycle of tariff and quota restrictions.
A range of commentators and decision-makers have picked up this theme recently, including the Chancellor, George Osborne, in an op-ed for the Financial Times. The stock response has been to call for greater currency coordination, with some going as far to suggest that the G-20 should commit to a new Plaza-style accord.
But if the focus on currency is motivated?in part at least?by concerns about trade, then the response may be insufficient to halt creeping economic nationalism. The reason for this comes in two parts. One, recent protectionism hasn?t been driven purely by the impact currency appreciations on domestic producers. Indeed one of the worst offenders on the Global Trade Alert scoreboard is Russia, which has actually seen the value of the ruble decline against a basket of other currencies over the past year.
Two. What?s clear is that concerns over currency are being used to add a veneer of respectability to what are ultimately protectionist policies. Contrast the muted response to the new ?Buy Brazil? policy?unveiled against the background of a rising real?with the scorn heaped on the Obama administration for its ?Buy America? policy back in 2009. Moreover, experience shows that, once introduced, many trade restrictive measures will remain in place for decades regardless of how domestic circumstances change.
That?s why it?s essential in our view that trade is placed back at the centre of the G-20 agenda. The recrudescence of protectionism may be a symptom of other problems, but it certainly deserves its own, distinct response. This is a message we will continue to press throughout our international network in the coming weeks.