NEOAVATARA

President Obama and Prime Minister Gordon Brown

http://www.cnn.com/2009/POLITICS/04/01/us.obama.g20/index.html

In the first and second pieces of my coverage of the G20, I have clearly stated where the difficulties lie for President Obama to make any international progress on the world’s recession.  As thousands keep protesting in London, some of those being violent, real issues confronting the world remain. You gotta love people that are so ignorant that they still think Marxism and Socialism are viable philosophies.  Some of these yahoos actually broke into a RBS branch in London.  The London police, in their stupidity, thought that putting riot police on the streets would antagonize these buffoons, so instead put out plainclothes policeman.  Brilliant.  So instead, their policemen are now getting their heads bashed in.

And I am sure that Mr. Obama would be unlikely to endorse this use of his slogan; well, since he is no the epitome of the man in charge…

Oh well.  Anyway, there has been one key issue that has been conspicuous in its absence.

International free trade.

The World Trade Organization has predicted that global trade will plunge by 9% this year…the most since 1945, the last full year of World War II.  As an example:  Japan’s exports dropped by 1/2 since 2008.   But there are bigger issues.  Of the 20 nations that are in the G20, seventeen have imposed some level of trade restrictions this year.  Russia raised tariffs on cars, India on steel; China outright banned imports of Irish pork and Italian brandy, citing safety concerns.

This has a small inkling of Smoot-Hawley.  The Smoot-Hawley Tariff Act was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.  In retrospect, this was probably the singular worst economic decision by Congress in our nation’s history.  It virtually shut down international commerce, and U.S. exports in the years following fell by 75%.  It alone stimulated the spread of the American recession overseas, making it a worldwide depression.

The G20 must decide what to do about the dramatic collapse in financial flows to developing and emerging economies, the largest of which are represented in the group. The least contentious part of the response is likely to be commitments to meet aid budgets and support more lending by institutions such as the World Bank and the regional development banks, possibly through greater rich-country lending to these institutions.  But maintaining free flow of goods and currencies, instead of putting up trade restrictions, will be key to keep the global economy moving forward.

Now, no one is saying that these small actions by individual countries is going to have the widespread effect of Smoot-Hawley.  But restriction of international trade on any level during an economic downturn will hasten further recessionary pressures.