Wednesday, February 3, 2010

Threat of Protectionism - Silly or Systemic?

I went to this lecture in January (by the way, where did January go?!) on rising protectionism in global trade.  The speakers were Simon Evenett and Ed Gresser with whom I have spoken about the KORUS FTA back when I was working at the Embassy. He was also a guest speaker at the WTO Academy here at GULC. (Blogged about him here before too. He's really nice and funny!) He is of the belief that the threat of protectionism is being exaggerated and that it is not systemic as many, including Simon Evenett, would suggest. Here is a brief outline of Simon's arguments and Ed's counterarguments.  After you read them, take the poll at the end!

Simon Evenett [CEPR, Co-Director in International Trade and Regional Economics] - Simon has taken part in initiating a Global Trade Alert which draws research from seven regions of the world.  Its goal is to present an objective view of the rise in protectionism during the economic crisis.  The full report can be found here.
  • A WTO study showed that almost all major trading jurisdictions exceeded the normal four percent increase in tariff lines. Are these increases permanent?
  • The current economic climate has precipitated a new mix of protectionist measures. Always question studies that look at only one form of protectionist measures because in order to truly understand that threat of protectionism, one must look at the entire mix of measures that are being implemented.
  • About 1/7 (46 out of 332) of protectionist measures are tariffs.
  • Ordinarily, in recession, the most popular form of protectionist measures is trade defense. This includes AD, CVD, safeguards, etc.  However, bailouts and subsidies now account for 136 out of 332 protectionist measures making them the most popular.  (Is anyone surprised?)
  • Interestingly, (but maybe not surprisingly) less than half of these bailouts and subsidies apply to the financial sector; most apply to manufacturing. The sectoral incidence of protectionism has not changed. (The sectors that have traditionally been good at receiving protection continue to receive it)
  • Even if the overall impact of new protectionist measures on trade is miniscule now, these measures may be difficult to remove in the long run and affect future trade activity. Congress seems to want to include Buy American provisions in more permanent bills.
Edward Gresser [Democratic Leadership Council, Senior Fellow and Director of Trade and Global Markets Project] - Ed presents a different view on the rise of protectionism in the midst of the economic crisis.  You can read his post about the fall of U.S. imports here.
  • The decrease in imports is roughly parallel to the overall decrease in world trade.  The decrease may not necessarily be a good measure of the impact of protectionist policies.  Rather, it may simply reflect the fall in global demand.
  • Last year, there were 34 cases of protectionism.  This figure is higher than those of 2005, 2006 and 2007 (~10-15), but still coincides with the long term average since 1979.
  • Are bailouts and subsidies necessarily bad for trade?  Allowing the financial sector to fail would have likely been more harmful to trade than any combination of tariffs.
  • People draw many parallels between now and the 1930s, but the mentality then was very different. In the 1930s there was a broad decision to move towards autarky and away from the global economy. That is not the case now. Countries are motivated to become more integrated in the global economy.
  • There are factors outside of policy that work to liberalize trade. (Ex: cost of moving goods and information goes down every year)
Additional things to consider:
  • GTA has not yet studied whether the increase in protectionist measures would be considered normal had there not been a financial crisis. (They still need to see how the financial bailouts/subsidies creates a bias in their results.)
  • It is difficult to substantiate information regarding technical standards and regulatory interventions.
  • How has FDI changed? How does this affect trade?
  • Data on public procurement needs to be improved.  It is difficult to find how much of the decrease in imports was in the private or public sector.
Random Fact: When you google search GTA, you won't immediately find Global Trade Alert. You find Grand Theft Auto. Ha.

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