Barriers to entry

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: Remember 1982, when the Soviet threat haunted America and China was still a giant backwater that had only just started reforming its economy? Few will recall that it was also the last year in which the volume of world trade shrank. Twenty-seven years later, it is likely to fall once again—by 2%, the World Bank predicts. It is not just that China’s export juggernaut has stalled. Caroline Freund, an economist at the bank, says that most countries for which data are available have reported double-digit declines in exports in the year to November.

Exports from Chile, South Korea and Taiwan dropped by about 20%. November’s figures may have exaggerated the gloom because of a precautionary rundown of inventories and a shortage of trade finance, both of which may be short-lived. But there is little dispute that a serious slowdown in trade is under way.

Overlaying the worsening economic outlook is the lingering threat of protectionism, which could drive trade volumes even lower next year. It is always tempting for politicians to throw up new trade barriers when jobs and wages are at risk, even if such a response, though individually appealing, is collectively futile.

Few fear a return to the punitive tariffs of the Depression, but Richard Baldwin, policy director of the Centre for Economic Policy Research, notes that during the Asian crisis in the late 1990s, some of the afflicted countries raised tariffs and rich countries responded with higher anti-dumping fees. It could be worse this time, he believes, because the crisis is more widespread. India, Russia and Vietnam have raised tariffs already this year. Trade litigation has also picked up. Mr Baldwin says the number of anti-dumping cases jumped by 40% in the first half of 2008.

Tariff increases may be the protectionist’s barrier of choice, despite limits agreed by members of the World Trade Organisation (WTO). This is because in the past decade many countries have unilaterally cut tariffs to well below those limits. They have plenty of room to raise them without breaking any rules. If all countries were to raise tariffs to the maximum allowed, the average global rate of duty would be doubled, according to Antoine Bouet and David Laborde of the International Food Policy Research Institute in Washington, DC. The effect could shrink global trade by 7.7%.