Now that world leaders and finance ministers have met in London and declared their support for open markets and reform of global financial rules, what's next for the world economy?
Right now, attention is focused largely -- and with good reason -- on the ongoing global financial crisis. But the fate of the global economy may actually rest on the actions of U.S. Trade Representative Ron Kirk and his counterparts around the world. World leaders and their trade ministers must keep in mind the importance of establishing policies for an open and equitable trading system and ensure that history does not repeat itself.
Leaders sent the right message in London, reaffirming their commitment to avoid new restrictions on international trade and support for open trade and investment. The London Summit joint communiqué also calls for hundreds of billions of dollars in trade finance for developing countries. Unfortunately, as a new report by the World Trade Organization notes, protectionist measures have increased since the crisis began. The report also suggests that further risks to trade are increasing.
When the Great Depression unfolded in the early 1930s, the United States and its trading partners responded to global economic uncertainty through isolationism and protectionism, setting off a downward spiral of reciprocal tariff and subsidy increases that required decades to untangle. While the system governing the world economy is much different now than it was then, giving preference to domestic markets and industry in the context of the current crisis could still ignite a global trade war and deepen an already catastrophic economic downturn.
Our organizations have joined with others from the development, faith-based, and business communities to urge President Obama and Congress to reject protectionism and re-claim the mantle of leadership in the global trading system. The groups, which included Business Roundtable, the ONE Campaign, and the United States Conference of Catholic Bishops, also delivered a strong message that forward-thinking trade policy can be a powerful tool to encourage economic growth in developing countries.
Concluding the Doha Development Round at the World Trade Organization, as an example, could open major markets for both developed and developing countries and spur investment and opportunity in the world's poorest countries. A complementary policy would be to review and reform U.S. trade-preference programs to ensure that they are effective and broad in coverage, giving special attention to the least-developed and uniquely vulnerable countries such as those in sub-Saharan Africa.
The time is right for a renewed commitment to trade. The current economic crisis is having a terrible impact on American workers and has brought devastating damage to developing countries. It has led to sharp decreases in investment flows, export demand, export credits, and commodity prices, which reduces export opportunities and economic growth. A recent World Bank report states that for each one percent drop in global economic growth, another 20 million people are trapped in poverty. Millions of families have lost the gains they have made over the last decade.
The current economic climate presents a real danger to international stability and, ultimately, to U.S. national security. As Director of National Intelligence Dennis Blair pointed out to Congress earlier this year, the global economic crisis represents the greatest threat to U.S. national security. A prolonged recession could create political instability and humanitarian crises that would only exacerbate this trend.
This scenario, while alarming, is avoidable. The United States has an opportunity to respond strategically to these challenges by emphasizing a set of innovative policies that offer an economic vision for American workers, open major markets through effective trade agreements, and create the foundation for economic growth, poverty alleviation, and political stability in the international system. Anything less would be short-sighted and counter-productive.
In this globalized world, the fates of working families are inextricably linked. The anxiety we feel in America over jobs, healthcare, and economic security is being replicated in spades around the world. While the instinct to turn inwards in times of crisis is understandable, such "beggar-thy-neighbor" policies will only increase instability and uncertainty. As the United States and the world take additional steps to address the crisis, it is important to remember that economic cooperation offers the only viable path to economic recovery and sustainable growth.