One on One with C. Fred Bergsten, of the Peterson Institute for International Economics
Tuesday, July 07, 2009
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SUSIE GHARIB: The worst social and political effects of the economic crisis are still to come. That's what the head of the World Trade Organization said today. Pascal Lamy is worried about a surge in trade protectionism. So he's urging G-8 leaders meeting in Italy tomorrow to resist making restrictive trade moves as they combat the global recession. Lamy also repeated a call for approval of the Doha negotiations, measures proposed back in 2001 to open up world trade.
Joining us now with a preview of what to expect from that G-8 summit, C. Fred Bergsten, director of the Peterson Institute for International Economics. Dr. Bergsten, nice to have you on the program tonight.
C. FRED BERGSTEN, DIR., PETERSON INSTITUTE FOR INT'L ECONOMICS: Good to be here.
GHARIB: Everyone always talks about the risk of protectionism. But this time are the risks real?
BERGSTEN: The risks are real. The actions taken by government so far have not been severe though there has been increased resort to trade barriers in lots of countries. The fear is that with the continuation of the recession, unemployment continuing to rise in a lot of countries probably for another year or so, that we could get something much more serious. That means the G-8 does need to stiffen its resolve against any new barriers, but more important needs to take some forward initiatives. History shows that you can only stop backsliding on trading if you're moving forward, if you're liberalizing markets. So I think the G-8 countries might well come out with some serious declarations to get the Doha rounds started again, start once again the process of reducing barriers. That's the best defense against protectionist backsliding.
GHARIB: President Obama has talked for a while that he's going to give a major speech about trade. He hasn't done it. Do you think he'll use the G-8 summit as a platform to make a stand, take a stand on trade?
BERGSTEN: I think he'll continue to do what he has so far, which is to resist protection, sign onto pledges not to put on new barriers and to contribute his full part to the resistance against trade back sliding. What the president has not yet done, however, is the second part of the equation, to move forward, to put out a positive agenda, to start aggressively pursuing the trade agenda that will resolve the protectionist problem in the United States. I don't think he'll do it at this meeting. I suspect he will make his speech on trade before the G-20 summit in September. That's the occasion where I think he will lay out a design for an Obama trade policy. I think it will be in the right direction. But we'll have to wait for that to get a clear picture of his strategy.
GHARIB: What do you think the direction will be?
BERGSTEN: I think he will undertake some serious new initiatives to resume U.S. leadership of global trade liberalization. I think the Doha round in the World Trade Organization is important to the United States. I think he'll want to change some of the details on it. But I think he'll support it strongly. I think he'll also want to pursue new international negotiations on climate change. The climate change issue has a big trade dimension, because if countries cannot agree to avoid protectionism in the climate change context, Congress here, other national legislatures, may put controls onto discriminate against imports from countries that are not as aggressive in trying to limit climate change. That means that the WTO agenda would have a big -- I suspect that will be part of it.
GHARIB: Let me jump ahead onto more about this economic crisis. It's certainly still topic A among every country around the world. And today a report from the European Union warned that economic growth may be quote permanently damaged by the financial crisis. Is there anything more that these world leaders or central bankers can do to fix the problem?
BERGSTEN: I don't think the G-8 per se will do a lot to move forward on resisting the economic crisis now. But they will have to debate the crucial issue of continuing the stimulus programs like our own budget stimulus here and the expansionary monetary policy by central banks. The Europeans, particularly Germans, are beginning to call for reining back the stimulus programs. They are genuinely concerned and rightly so about big budget deficits that result. But the Europeans are prematurely talking about exit strategies from the stimulus approaches.
GHARIB: How is that debate going to play out at this summit? More stimulus or exit strategy?
BERGSTEN: I don't think there will be either. But the Europeans are starting to talk about exit strategy. The U.S. wants to continue the stimulus effort at least for another six months or so. I think the United States is right. It would be very risky to cut off the stimulus now. It would be particularly risky to start tightening budgets, increasing interest rates and taking restrictive action. That would be like Japan did in the 1990s. It prolonged their decade, their lost decade by several years. So that debate may be a centerpiece at the G-8 summit.
GHARIB: All right, interesting analysis. We appreciate your time tonight. Thank you so much.
BERGSTEN: Good to be here.
GHARIB: My guest tonight, C. Fred Bergsten, director of the Peterson Institutes for International Economics.
JEFF YASTINE: As those G-8 leaders get set to meet in Italy, there's a different voice calling for economic change -- Pope Benedict XVI. He says the global economy should be run in a way that protects the environment, ensures world peace and helps the poor. The pope said the world's financial systems need ethics to function properly, ethics that are centered on the needs of people. Over recent months, the German-born pontiff has talked about how the financial meltdown has hurt the world's poor. His comments today included a call for a new way of understanding business, one that respects the dignity of workers and looks out for the common good.
