World trade now ‘has 1930s parallels’

Press, 4 September 1982, Page 9

World trade now ‘has 1930s parallels’

NZPA Geneva World trade is showing increasingly dangerous parallels to the 19305. with the international banking system under threat and protectionism on the rise, the General Agreement on Tariffs and Trade said yesterday. A boom in bank lending in the 19705. similar to that which preceded the Great Depression, had left many countries and companies over-indebted and loaded down the world financial system. it said in a report reviewing the last. 18 months. Protectionism had proceeded apace, as governments tried to maintain industries under severe pressure from high inflation, interest rates and energyprices. and cheap foreign competition. The report, which appears three months before a main G.A.T.T. Trade Ministers' meeting, said that these two trends were now converging and could lead to deflation —

a collapse in prices such as that which plagued the world economy in the 19305. Protectionism still posed a grave threat to world trade, the report said, “but the more immediate danger may be that it will trigger a severe disturbance in the already troubled international financial system. “Protectionism could cause an international liquidity shortage, one severe enough to produce a series of insolvencies. “When anti-inflation policies are pursued in conjunction with increasingly restrictive commercial policies, and with domestic economic policies which tend to inhibit market adjustment, it must be admitted that a high degree of deflationary danger exists.” The report by G.A.T.T. which strives to free up world trade, emphasised that much recent international lending had been “deadweight debt” — debt to

finance imports rather than increase productive capital. It estimated current debts of the oil-importing Third World at more than SUSSOO billion and for Eastern Europe at SUSBO to SUS9O billion. The inter-allied war debts and German reparations which had accounted for the surge in international indebtedness in the 1920 s had also been “deadweight debt.” In another worried look back to the 1930 s it noted that the trade restrictions of the period had pushed many businesses into insolvency as the export markets they depended on were cut off. A renewed effort to liberalise world trade and reduce government subsidies which hindered industrial adjustment would be the first step toward world economic recovery, the report suggested. Such a reaffirmation of world trade rules would signal a return to stable economic conditions, boost sagging

investment rates, and help countries adjust their industries to changing conditions. “There is little doubt that uncertainty caused by protection against imports, in the form of trade barriers and/or subsidies of one kind or another, is among the most important factors causing the backlog of adjustment,” it said. Freer trade would also help ensure that surplus funds, such as the “petrodollars" of the- oil-producing countries, were recycled into productive investments. “We now see that the recycling of current account surpluses to deficit countries can be carried out in a financially sound way only if the borrowers are guaranteed secure access to their main overseas markets," it said. The first half of this year had showed no improvement on 1981. when world trade contracted by 1 per cent in value in its first decline since 1958.