World Leaders Act to Stimulate Economic Growth Through Trade

Leaders of countries with twenty largest economies pledged to strengthen international trade at an important meeting in London last week. Their actions could prove beneficial for smaller companies.

The so-called “G-20” (group of twenty) — meeting amid the world economic downturn — agreed on a series of joint actions to revive growth. The group, which includes the U.S., several major European nations, as well as China, Japan, India, Brazil, and others, made four important pledges relating to trade:

• “We will not repeat the historic mistakes of protectionism in previous eras.” The leaders agreed to refrain from creating new barriers to trade and investment, restricting exports, or illegally subsidizing exports, through the end of 2010. Instead, the leaders pledged to take “whatever steps we can to promote and facilitate trade and investment.”

• “We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries.” This will critically support many developing countries that lack fully functioning capital markets.

• “We will ensure availability of at least $250 billion over the next two years to support trade finance.” This support will come through the export credit agencies of the G-20 nations (such as the Export-Import Bank in the U.S.) and from multilateral development banks like the World Bank and the Inter-American Development Bank. The leaders also said they would ask regulators to be flexible in their requirements for financing trade.

• “We remain committed to an ambitious and balanced conclusion to the Doha Development Round [global trade agreement], which is urgently needed.” The G-20 estimates that a Doha agreement would boost world trade by $150 billion annually.

Many of these initiatives will be welcomed by smaller companies. They are among the most promising steps that world leaders could have taken on behalf of small business exporters.

The ban on new trade barriers helps because trade barriers often hit smaller companies hardest and fastest. Such barriers rapidly raise the minimum sizes of deals can be financially viable.

The commitment to trade financing will be vital because many small exporters cannot afford to extend loans to their buyers, but their buyers cannot afford to pay cash. Commercial banks will only underwrite these “foreign risk” transactions when government backing is available. The G-20 nations now have pledged to raise that government backing by a quarter of a trillion dollars.

The G-20 pledge to keep capital flowing in developing countries will also help. It will assure that buyers in those countries (who are often small businesses purchasing from small business sellers abroad) will have access to the capital they need.