Bali. Well-known economist Jeffrey Sachs on Sunday urged the business community to raise their voice against increasing protectionism which erodes confidence in the international trading system and may lead global trade back to the inward-looking policies of the Great Depression era.
He made the call as US President Joe Biden, his Chinese counterpart Xi Jinping, and other leaders of the world’s largest economies grouping in the G20 are slated to convene on the resort island of Bali from Tuesday.
Increasing protectionism especially in the United States and some other countries is “a huge mistake and a huge danger”, Sachs told delegates of a major business forum called the B20, which was held in tandem with the G20 Summit in Bali.
Both Biden and his predecessor Donald Trump have been influenced by protectionist and anti-China sentiments because of widening income inequalities over the last 30 years and declining manufacturing jobs at home.
“The Trump administration began this with a number of unilateral trade actions against China that were utterly against WTO rules. Now the current Biden administration has legislated in a number of ways that were clearly in violation of WTO but are playing the same protectionist sentiments,” Sachs said.
“There simply is much more protectionism now than it was 10 years ago.”
Sachs, who leads the UN Sustainable Development Solutions Network, said the will for keeping open trade has diminished in the United States, which is increasingly using a variety of trade and technology instruments in its perceived battle against China, especially limiting finance between the two countries and now limiting the exports of technology, especially advanced semiconductors.
“All of this is breaking the global value chain, trying deliberately to decouple the economies,” the Columbia University economics professor said.
“It makes no economic sense and it’s even worse from the geopolitical point of view because it’s raising tension tremendously between the two countries even to the prospect of open conflict which is unimaginable but not impossible, I’m sorry to say.”
He said rising protectionism will rip apart the supply chain that has been built over the past 25 years or more and it’s not a small part of the stagflation in all of the major regions of the world right now.
“So I would say to the business community: your voice really matters and it’s not being adequately heard right now,” he said.
“They need to hear from the business community that business cannot function in a highly protectionist and increasingly protectionist environment.”
The White House has announced that Biden will hold a bilateral meeting with Xi on the sidelines of the G20 Summit.
“The protectionism will be terrible for the world if we go down that course. We did it in the Great Depression era and we are at the risk of doing it again in the current geopolitical tension,” Sachs warned.
Clean Energy System
Protectionist policies by major economies also will impede the global efforts to have a clean energy system that requires a physically interconnected network.
“There should be submarine cables from Australia to Indonesia, there should be interconnections across the Asian region, there should be interconnections between Southeast Asia and Northeast Asia,” he said.
“The larger is the physical grade, the more stable, resilient, and low-cost is the green transition. You cannot do this country by country. This has to be regional and that means cooperation, it means trust,” Sachs added.
“You can’t have an American bloc and a Chinese bloc and expect this to work. It’s impossible.”
The energy transition is unlikely when countries in the world fall into this kind of geopolitical division and there will be no clean energy system feasible unless they are interconnected, he said.
Unfortunately, energy transition by and large is outside of WTO boundaries.
“There should be trade in green electrons. There should be physically interconnected trade and there should be the confidence to be able to send electrons back and forth across national borders,” Sachs said.
“The terrible, useless, and senseless war in Ukraine which was stoked by NATO enlargement which should never have been pushed to Ukraine and stoked by other tensions is an example of what can go terribly wrong. We just had a major pipeline exploded in international waterways -- not good for international trust,” he said.