Multilateralism under threat: Causes,impact, and the policy debate on government intervention in trade

Several forces fostered trade liberalization since the end of World War II. Production and trade interacted quite favorably during the period. In the past quarter century real income in the OECD economies grew at almost 4% yearly, while the volume of export increased by almost 7 percent. However, in the first half of the 1980s, the chemistry of the situation seems to have changed as protectionist tendencies developed almost everywhere in the world. The very same multilateral nature of the world trading system is under threat, as illiberal discriminatory practices are being implemented bilaterally and, even more often, unilaterally. What are the forces at play to increase the pressure towards government intervention in trade? The paper reviews (i) macroeconomic issues and policy situations, as well as (ii) structural issues concerning the working of the economic systems of industrial countries. The pressure for trade intervention in the U.S. is addressed separately with respect to Europe, given the structural and cyclical differences between the two economies The case of Japan is dealt with with reference to the alleged interrelation between Japan's international competitiveness and its macroeconomic policies. Matters of more direct concern to the LDCs are covered at the end of the paper, with emphasis placed on the restructuring process under way in response to, and as a consequence of, the external debt. The paper ends with a recommendation to all countries to make efforts to preserve and strengthen the multilateral and liberal foundations of the international trading system.