Is Global Protectionism Really on the Wane?

Dr BK Mukhopadhyay

A noted magement economist and an intertiol commentator on business and economic affairs. He may be reached at m.bibhas@gmail.com

Is it not a fact that as the global economy continues to face tough times, a number of governments are increasingly playing politics with trade and giving in to protectionism? The latest round of protectionism has been triggered by US steep tariffs on imported steel and aluminum. US has imposed a 25 per cent tariff on imported steel and a 10 per cent tariff on aluminum, causing mounting dissent among business groups and trading partners around the world, inclusive of India and Chi. It is widely believed that countries become more vulnerable when their trading partners hold different convictions.

The current global going has not only affected most developed economies but also major emerging markets to a significant extent. It is rising protectionism that has been damaging and blocking the smooth trade path. The negative effects of protectionism are also widely gaining ground.

Though the reason behind the protectionist measures taken was a response to rising prices for agricultural products and export quotas on metals and mineral products with a view to securing domestic supply and addressing resource depletion, yet the protectionist measures taken by the G20 countries were, in turn, obvious enough, in contradiction with the G20 standstill pledge. It contradicts the promises made by the world’s leading and industrialized economies to resist protectionism and its negative fallout.

As  of now, though the merchandise trade is expected to grow in 2018, yet one has to bear in mind that the World Trade Organization has strong reasons/ responsibilities to caution its member countries against using protectionist measures such as limiting exports of food, agricultural commodities and raw materials and installing new barriers in the wake of the global fincial crisis.

WTO reiterated the importance of removing trade barriers, noting the link between the rise in protectionist actions and the slowdown in world economic activity.

WTO is convincingly now pushing anew for free trade — initiatives were mainly new trade remedy actions, including anti-dumping investigations, tariff increases, and more stringent customs procedures. Additiolly, fewer liberalizing or facilitating actions, such as tariff reductions and termition of trade remedy actions, had taken place from mid-May to mid-November 2013 than in the past.

In one of its recent reports that assessed the protectionist behaviour of more than 180 tions — between October 2010 and April 2011 — the WTO  pointed out that the rising protectionist trend by its members.

Incidentally, it may be mentioned that protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports and prevent foreign takeover of domestic markets and companies.

The historical trends are not difficult to locate.

Especially, Chi, which controlled 97 per cent of world supply on this score, imposed export limits on rare earth minerals, citing the environmental concerns and resource depletion. In the overall global context the sectors most heavily affected in terms of trade coverage of restrictive measures were machinery and mechanical appliances (refrigerators, freezers, and heat pumps), motor vehicles, meat and edible meat offal, electrical machinery, iron and steel, aircraft, ships and boats, plastic and articles thereof, and articles of iron and steel.

Besides limiting exports, trading tions have increasingly resorted to unconventiol import barriers [viz. lengthy customs procedures and food and health requirements]. WTO rules clearly state that the export restrictions are allowed if they alleviate food shortages or environmental risks, although these restrictions can hurt net-food-importing countries and even cause serious food shortages. The use of protectionist measures to address these problems is hazardous, obvious enough!

So it is not a fact that the member tions are fuelling the flame. In fact whatever is, the imposition of trade remedy measures covered around 0.5 per cent of total world imports and around 0.6 per cent of total G20 imports. If current trends are of any indication it is clear that high unemployment in developed economies and sharp fiscal belt-tightening in Europe is likely to fuel protectionist pressures. Again, besides the persistence of the effect of the fincial crisis and global recession, the sovereign debt problems, rising prices for food and other primary commodities, and unrest in major oil exporting countries generate uncertainties for the near future.

But before we conclude it must be mentioned that even under the ongoing facts and circumstances, India’s recent performance deserves appreciation. Though following the global fincial crisis, global trade picked up in fiscal 2010, yet Indian exports even in the rent past grew faster than global exports. The country changed its export destitions, slowly withdrawing from the still-sluggish US, and instead focusing on Asian destitions, including Singapore and the United Arab Emirates (UAE). Consequently, India’s trade basket changed, too, with a greater focus on crude/petroleum exports and less on gems and jewellery, a traditiol Indian stronghold. Whether this was a deliberate or not is debatable, but for now it seems to have helped keep Indian exports afloat.

Actually a number of steps are being taken by the government to bolster the foreign trade sector. For example, to provide certain operatiol flexibility in issue of shares, import payment by corporates could be done via shares. Foreign direct investment norms had thus been liberalized by the Reserve Bank of India (RBI), allowing corporates to pay for import of capital goods, machinery and equipment by issuing equity shares to their suppliers.

There is no reason to presume that the protectionist practices are going to be over in the short run and as such it is better to remember that ‘to break the rules one must know the rules’. Biggies or minnows should try to ensure transparency and mutual cooperation aiming at bolstering the global trade and taking guard against possible revisit of global recession.

Protectionism and a retreat from intertiol cooperation is clearly not the answer, but policymakers minimize the underlying mistrust of globalization and multilateralism at their peril. In order to promote sustaible and inclusive growth, policymakers have to focus on tangible changes that are responsive to the challenges we face.

While protectionism makes for good political sound bites, history is littered with examples of the failure of these policies. Yet it is true that changes to the intertiol trading system are needed, especially non-tariff barriers to trade that harm fair competition. Clearly, the crisis of confidence in the benefits of globalization and multilateralism is sure to  persist as long as rates of social and economic inequality remain stubbornly high.