By Nayan Chanda, For The Straits Times

ALMOST a year into the global economic crisis, it is time to consider the dog that did not bark. Since Wall Street imploded in September last year, triggering a global recession, there have been dire warnings against protectionism. Many, including myself, saw the world facing the risk of a 1930s-style beggar-thy-neighbour policy that would drive the Great Recession into another Great Depression.

But now it appears we have overblown the fears. The under-appreciation of global interconnectedness, which once fed the theory of 'decoupling', may have led others to exaggerate the power of countries to put up protectionist walls. While protectionism's allure as a tool to combat unemployment remains undiminished, most countries are now too interdependent to employ trade barriers.

Protectionist rhetoric has risen in direct proportion to the deepening crisis in the developed world. But a survey of trade measures undertaken in the past nine months shows the actual impact to have been rather limited.

In July, the Global Trade Alert, a portal that tracks trade-restricting measures globally, listed 67 measures with indistinct consequences. The report said the measures taken by countries such as India, Indonesia and the United States could affect hundreds of countries. However, the tangible impact of the measures has been minimal until now - so much so that economist Patrick Messerlin has warned that crying wolf could end up helping protectionists.

In their recent report, The Fateful Allure Of Protectionism: Taking Stock For The G-8, Mr Messerlin and fellow economists explain why the feared protectionist tsunami has not occurred.

One of the main reasons is that governments today are not bound by the fixed exchange rates of the gold standard era and the orthodoxy of balanced budgets. As a result, they have more policy tools to revive the economy, and need not seek shelter behind protectionist tariffs. Instead, they have deployed the tools of fiscal stimulus. And central banks have pumped vast sums of money into the financial system to jump-start the global economy.

Perhaps the most important counter-protectionist factor has been the World Trade Organisation (WTO). The habitual critics of the organisation should note that had it not been there with its threat of sanctions, many countries would surely have launched protectionist measures, triggering retaliation and countermeasures that could have precipitated a Great Depression.

The existence of the WTO, however imperfect its mechanism, has allowed trade to grow fast. Over the past 30 years, the simple average of trade-to-gross domestic product (GDP) ratio has grown from 55 per cent to 96 per cent.

The changing nature of the world economy, with agriculture and manufacturing increasingly becoming the less critical components of GDP, has meant that fewer workers are directly affected by trade barriers. Consequently, protectionist measures have brought only limited benefits - and that too at a high cost.

Trade safeguards offered to countries affected by foreign imports have also acted as guardrails against protectionism. A case in point is the relief provided to countries when China joined the WTO. When the end of the multi-fibre agreement produced a surge of Chinese textile exports to the US and Europe, WTO allowed safeguards against Chinese exports for a three-year period.

Similar provisions may be accorded to the US tyre manufacturers affected by cheaper Chinese tyre imports. While denounced as protectionist in intent, the circumscribed nature of the safeguard provides a short-term cushion that could help protect free trade in the long term.

The changing nature of trade too has imposed new restraints on governments tempted by the easy solution of tariff barriers. In the past two decades, distributed manufacturing methods and the rise of large-scale supply chains have seen trade in parts and components more than double as a proportion of total trade.

With the economies of the world being integrated and interdependent, action against one trading partner in a particular sector can produce unanticipated consequences in other sectors of the economy. Hence, it is no coincidence that the countries that have taken trade restrictive measures are mostly the ones with limited involvement in the supply-chain economy.

As the crisis continues, countries will keep flirting with protectionism. On present evidence, however, it looks as though they will think carefully before stumbling into a potentially 'un-winnable' trade war.

The writer is Director of Publications at the Yale Centre for the Study of Globalisation and Editor of YaleGlobal Online.

This article was first published in The Straits Times.