The widening shadow of protectionism

THE Great Recession of 2008-2009 marked a turning point for trade. Restrictive trade measures introduced by G20 countries between October 2008 and October 2015 covered 4.8 per cent of world merchandise exports, valued at $851.8 billion . . .

PROTECTION, which has always been a “dirty” word when it comes to free and open trade, is on the rise as global growth remains stubbornly stuck in low gear.
Trade restrictive measures in all their different guises have been quantified as costing the global trading community billions of lost opportunities each year. Perhaps five per cent of all global trade is affected.
The B20 trade taskforce, the business advisory group to G20, says removing restrictive measures could boost global GDP by US$423 billion a year and support nine million jobs.
The World Trade Organisation (WTO) estimates that trade restrictive measures introduced by G20 countries between October 2008 and October 2015, and still in place as of October 30, 2015, covered around 4.6 per cent of world merchandise imports, valued at US$851.8 billion.
In a recent note on The Rise of Protection, two London-based analysts with HSBC — Douglas Lippoldt, Senior Trade Analyst, and Frederik Nerbrand, Global Head of Asset Allocation — wrote that further increases in protectionism could lead to a less competitive world, and greater inflationary pressure.
The authors say the Great Recession of 2008-2009 marked a turning point for trade.
In the aftermath, trade’s formerly robust performance slowed to a crawl. During the period from 2003 to 2008, overall goods and services trade expanded at a compound annual growth rate of 16 per cent, but in the five years from 2010, the annual pace was a mere 1.5 per cent.
Of course, protectionism is not to blame for all of the collapse for world trade. Other structural factors have contributed to the decline.
Investment in fixed capital — usually a leading contributor to recovery in the business cycle — has been relatively weak. This has reduced demand for some commodities, and is a factor in the commodity price weakness that has been a significant drag on trade values.
The authors of the report also point to:
n Post-recession adjustments in supply chains to manage risk (e.g., shortening of supply chains or reshoring of production);
n Maturing of production capacities in some emerging markets such that they are better able to supply inputs domestically (especially China);
n Expansion of the role of services in many economies, with services tending to be less trade- intensive;
n Difficulties in access to trade finance in some cases (e.g., SMEs and some developing regions may face limitations due to regulatory or capital requirements); and
n Shifting preferences by some consumers and producers in favour of domestic suppliers.
While it may be harder to try to quantify the impact of these other factors on global trade, the authors were able to cite studies by other groups, including the World Trade Organisation and the specialist news source, Global Trade Alert, showing the impact of restrictive measures on trade.
Lippoldt and Nerbrand believe that protectionism is becoming an increasingly important political issue in both the United States and
Europe. This is partly due to anxiety in the general population about job security, and stagnating incomes. At the same time, there have been an increasing number of actions globally to restrict certain trade flows, partly helping
explain the downturn in trade and weak
economic performance.
They say the G20 nations have recognised the risks and repeatedly said they would stop imposing new protectionist measures and roll back those imposed since the Great Recession of 2008-2009. But new measures are being
imposed faster than old ones are being
removed.
Protectionism is also taking new forms.
Traditional border measures — like tariffs, bans and quotas — are still used. But so, too, are Government procurement preferences, bailouts, State aid and localisation requirements.
According to Global Trade Alert, Argentina, Brazil, China, India, Indonesia and Russia are among the heaviest users of restrictive measures, often affecting each other’s trade as well as trade with EU members and Japan, Korea and the US.
The US and European nations are frequent users of trade restrictive measures as well,
often impacting China’s trade, among others.
And given his rhetoric on the campaign trail, if Donald Trump were to become the next US President, it is likely the US will be less open and more restrictive on imports.
Similarly, given her shift in support for the Trans Pacific Partnership, if Hillary Clinton were to occupy the White House, she may also pursue a different trade agenda to that of her predecessors. Interestingly, it was her husband, Bill Clinton, who was one of the great champions of globalisation and free trade in the 1990s.
More positively, Saudi Arabia has generally avoided such measures, and Australia and Mexico have relatively few.
The Global Trade Alert analysis has found that, among the G20, developing countries such as Argentina, Brazil, China, India, Indonesia, and Russia have been among the heaviest users of new trade-distorting measures. Their measures often affect each other’s trade interests as well as those of leading developed
nations, including as EU members.