Dec. 18 (Bloomberg) -- One month after world leaders vowed to avoid raising trade barriers, governments around the globe are moving to aid their struggling industries at the expense of foreign competitors.

Russia this month increased duties on automobile imports, China reintroduced tax breaks for exporters, and India imposed caps on steel imports. On top of that, the U.S. is considering rescuing its automakers, and France pledged $7.6 billion to shield its companies from “foreign predators.”

The moves signal that the global recession may be leading to a protectionist backlash, undercutting the pledges that the leaders of the Group of 20 nations made in Washington on Nov. 15 and jeopardizing an economic recovery.

“From the day after they made that promise, members of the group began implementing new measures that distort trade,” said Jeffrey Schott, a former U.S. trade official who briefed officials at the World Trade Organization last week. “This makes it more difficult to manage the crisis.”

Economic historians blame a trade war during the Great Depression, starting with the U.S. passage of the Smoot-Hawley Tariff Act in 1930, for deepening a worldwide economic slump.

“Smoot-Hawley wasn’t a huge policy shock, but it turned into one because it led to retaliation,” said Dartmouth College economics Professor Doug Irwin. “It opened the door to trade protection in other countries.”

With the lessons of the Depression, leaders who gathered in Washington last month said they would refrain from imposing obstacles to trade for at least a year.

No ‘New Barriers’

“We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty,” read the statement by the G-20, which consists of top industrialized nations as well as emerging markets such as Brazil and China. “We will refrain from raising new barriers to investment or to trade.”

The promise to avoid the pitfalls of the 1930s was applauded by the U.S. Chamber of Commerce, which represents companies dependent on global commerce such as Nike Inc., FedEx Corp., Cargill Inc., Pfizer Inc. and Las Vegas Sands Corp.

The International Monetary Fund predicts that the first recession since World War II to simultaneously hit the U.S., Japan and Europe will push global growth below 2.2 percent next year. The World Bank says trade will slump by 2 percent, only the third decline since 1971.

To be certain, the new protectionism hardly rivals the 1930s.

That’s partly because trade barriers are much lower than they were then. The average tariff on manufactured goods among developed nations dropped to less than 5 percent today from 40 percent in 1947, the IMF says. And under WTO rules, countries are limited in the size of the import taxes they can adopt.

Stoked by Recession

“The magnitude of the new protection is modest,” Richard Baldwin, policy director for the Centre for Economic Policy Research in London, wrote in a book of essays released this month. “However, as the recession spreads and deepens globally, this could change.”

WTO regulations allow many developing nations to increase tariffs without running afoul of trade rules, he wrote. The U.S. and other rich nations are allowed to respond to industry complaints and impose anti-dumping duties. And while bailouts of domestic industries may violate the rules, it would take years to litigate before the WTO in Geneva.

Still, even if these barriers are technically legal, they present an economic threat, said Schott, a senior fellow at the Peterson Institute for International Economics.

“WTO legality shouldn’t matter when you are considering the implications to the world economy,” he said.

EU, Russia, Vietnam

Examples of new protection abound.

Russia raised import duties on autos and buses to 30 percent from 25 percent. The European Union said it may reimpose duties of 79 percent on a paper-binder component from China after a request by Austria’s Ring Alliance Ringbuchtechnik GmbH.

Vietnam will raise taxes on steel to 12 percent from 8 percent as it tries to boost the use of domestic products. Ukraine, Ecuador and Argentina have considered similar moves.

India restricted imports of some steel products and wood materials in late November, requiring companies to get a license to import them. It’s also considering antidumping measures to protect against steel and chemical imports, particularly from China.

A bigger worry is that rich nations will steer fiscal spending toward domestic companies, said Robert Lawrence, a Harvard University professor and former Clinton administration economist.

‘Foreign Predators’

France created a $7.6 billion fund to invest in companies so it can help them stave off what President Nicolas Sarkozy called “foreign predators.”

China has reinstated an export rebate on a value-added tax and let its currency depreciate, making its exports cheaper.

U.S. steel, textile and paper makers plan to file complaints against Chinese imports, lawyers say. And groups representing those companies will try to persuade Congress to mandate that stimulus funds be limited to American companies.

Meanwhile, the Bush administration is working out terms of a bailout of automakers, which would exclude foreign makers. Like Smoot-Hawley, any retaliation may undermine the world economy, analysts say.

“The bailout could turn out to be the torch that lights the fuse of a general resort to protectionism,” Joe Guinan, a trade analyst at the German Marshall Fund in Brussels, wrote Dec. 9.

By Mark Drajem

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

Last Updated: December 18, 2008 00:01 EST

Source: www.bloomberg.com