Growing Trend of Protectionism Threatens Global Trade

Growing Trend of Protectionism Threatens Global Trade

A new slowdown in world trade has been much worse than previously estimated, and highlighted the rise in protectionist measures as a key factor.

According to the report, for April of this year, both exports and imports globally have remained below where they were in January 2015. In today’s blog, we will cover the data presented in this report and look at how anti-trade sentiment is fueling this trend of protectionism.

GLOBAL TRADE ALERT

Opinion remains divided on the cause of this slowdown. While some have blamed digital trade or a shortening of the global supply chain, others have pointed the finger squarely at the rise in protectionist measures. Indeed, the topic dominated last week’s G20 meeting.

In recent weeks, the International Monetary Fund (IMF) and World Trade Organization (WTO) have also expressed concerns over protectionism. The WTO said protectionist measures are being introduced at an accelerating rate, while the IMF identified it as a serious threat to the global economy.

The GTA report shows that restrictive trade measures grew by 50 percent in 2015 compared to the previous year. Since 2010, in the first four months of each year, between 50 and 100 protectionist measures have been implemented. In the first two months of 2016, that figure was 150.

The steel industry is a prime example. China is currently producing 325 million metric tons of excess steel each year, which is more than twice the total amount of steel produced in Europe. In response, countries are attempting to protect their domestic producers by imposing high tariffs on the Chinese. According to the report, the number of protectionist measures implemented in 2015 was 118, exceeding the two worst years since the financial crisis, 2009 and 2013.

EXPORTS FOR GROWTH

Like China, protectionism also poses a severe risk to the South Korean economy. Despite efforts to boost domestic demand, the country still relies heavily on exports for growth. The country’s overseas shipment fell for 18 straight months in June and exporters worry that demand will be further affected by Britain’s decision to leave the European Union.

According to the Korea Herald, a recent survey of 251 foreign branches of major Korean corporations found that more than 25 percent believe they have been facing tougher regulations this year. They attributed this to a strengthening tendency of protecting indigenous companies.

The finance ministers of South Korea and China have sought to allay some of these fears by strengthening policy cooperation in curbing the rise of protectionism. Aside from Europe and the Brexit situation, a growing concern for countries that rely on trade like Korea is the possibility of the United States shifting to a protectionist policy following the presidential election in November.

US TRADE AGREEMENTS

Donald Trump, the presumptive Republican presidential nominee, has championed anti-trade policies throughout his campaign. The former television personality has stated on numerous occasions that he wants to get rid of trade deals and impose tariffs on goods from Mexico and China.

In a speech at the Republican convention last week, Trump vowed to review all of the free trade agreements that the United States has with foreign countries and withdraw from the Trans-Pacific Partnership trade deal. He also pledged to levy a tax up to 35 per cent on the products of US companies that move their production jobs overseas. And, there was still time for him to criticise the WTO, calling it a “disaster”, as well the trade policies of former President Bill Clinton and rival Hillary Clinton.

World leaders, economists and others have gone on record that a protectionist movement could severely damage global growth. IMF Managing Director Christine Lagarde gave an interview to the Financial Times, in which she said Donald Trump’s anti-trade policies and isolationist attitude will have dangerous consequences for the global economy.

If he does take office following November’s election, Trump is also expected to target the Trans-Pacific Partnership (TTP) deal recently concluded between the US, various Asian countries and Australia. It has received widespread criticism within the United States, and still awaits congressional ratification.

CONCLUSION

There is a clear anti-trade sentiment growing in both Europe and the United States, as evidenced by the Brexit referendum and the Trump campaign. It is already having an impact on countries that rely on their trade agreements with these countries, and these protectionist measures are on the rise. If this trend persists, it will be interesting to see how it affects the already struggling global economy.

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Published by Research and Markets

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