"The last Global Trade Alert report back in July 2011 raised concerns that a deteriorating macroeconomic climate would lead to greater protectionism. The fear has come to pass. This column, which introduces the latest GTA report, shows that the incidence of protectionism in the third quarter of 2011 is as high as during the most troubling of 2009, when protectionist fears were at their peak. Several large trading nations have taken across-the-board measures that adversely affect many trading partners. The world trading system may face its greatest test in the year ahead.
The 10th Global Trade Alert report documents several factors that together imply that the protectionist threat to the world trading system is probably as significant as it was in the first half of 2009, when such concerns were last at their peak. In our last report, published in July 2011, concerns were raised that a deteriorating macroeconomic climate would lead to greater protectionism. This fear has come to pass. The initial reports of the quantum of protectionism in the third quarter of 2011 are as bad as comparable early reports on protectionism in the first half of 2009. Less than a third of these protectionist measures taken are tariff increases or trade defence measures; worse, some of these measures have been taken by large trading nations and affect many sectors or trading partners. Recent protectionism cannot be dismissed as a large number of small pinpricks.
Looking forward, the macroeconomic climate is expected to deteriorate further. For example, it is telling that the most recent estimate for growth by the EU economies in 2012 was only half a percentage point, and that was on the assumption that the Greek and Italian sovereign debt concerns are contained and will abate quickly. The European Commission's forecast openly acknowledged that worse outcomes, i.e. a recession, were possible and, in a telling aside, noted that they could be worsened by growing protectionist pressures.1 The growth slowdown in Europe has already caused the pace of Chinese export growth to Europe to lessen. A recession in Europe would also affect North American multinationals, many of whom still earn a disproportionate amount of sales and profits from European customers.
What is particularly troubling is that in recent months, trade disputes between leading trading nations have widened in scope. For much of 2010 and early 2011, the highest profile disputes concerned so-called currency wars and misalignments - and arguably these were only taken so far. Nowadays, many of the subsidy regimes instituted early in the crisis are becoming the subject of disputes between leading trading nations (see Box 1). The disagreements between China, India, the US, and the EU over local content requirements, technology transfers, and subsidies in the solar power industry are cases in point.2
Now that the scale of discriminatory government intervention in markets during the crisis is adding to trade tensions, one has to ask how strong are the domestic political restraints should another global economic downturn lead to pressures on governments to "save jobs," "protect local industries", etc. As remarkable as it may seem given the tumult of 2008 and 2009, the open world trading system may face its greatest test in the year ahead..."
at http://www.voxeu.org/index.php?q=node/7297
The 10th Global Trade Alert report documents several factors that together imply that the protectionist threat to the world trading system is probably as significant as it was in the first half of 2009, when such concerns were last at their peak. In our last report, published in July 2011, concerns were raised that a deteriorating macroeconomic climate would lead to greater protectionism. This fear has come to pass. The initial reports of the quantum of protectionism in the third quarter of 2011 are as bad as comparable early reports on protectionism in the first half of 2009. Less than a third of these protectionist measures taken are tariff increases or trade defence measures; worse, some of these measures have been taken by large trading nations and affect many sectors or trading partners. Recent protectionism cannot be dismissed as a large number of small pinpricks.
Looking forward, the macroeconomic climate is expected to deteriorate further. For example, it is telling that the most recent estimate for growth by the EU economies in 2012 was only half a percentage point, and that was on the assumption that the Greek and Italian sovereign debt concerns are contained and will abate quickly. The European Commission's forecast openly acknowledged that worse outcomes, i.e. a recession, were possible and, in a telling aside, noted that they could be worsened by growing protectionist pressures.1 The growth slowdown in Europe has already caused the pace of Chinese export growth to Europe to lessen. A recession in Europe would also affect North American multinationals, many of whom still earn a disproportionate amount of sales and profits from European customers.
What is particularly troubling is that in recent months, trade disputes between leading trading nations have widened in scope. For much of 2010 and early 2011, the highest profile disputes concerned so-called currency wars and misalignments - and arguably these were only taken so far. Nowadays, many of the subsidy regimes instituted early in the crisis are becoming the subject of disputes between leading trading nations (see Box 1). The disagreements between China, India, the US, and the EU over local content requirements, technology transfers, and subsidies in the solar power industry are cases in point.2
Now that the scale of discriminatory government intervention in markets during the crisis is adding to trade tensions, one has to ask how strong are the domestic political restraints should another global economic downturn lead to pressures on governments to "save jobs," "protect local industries", etc. As remarkable as it may seem given the tumult of 2008 and 2009, the open world trading system may face its greatest test in the year ahead..."
at http://www.voxeu.org/index.php?q=node/7297
