Protectionism Increasingly Stunting Trade Growth, U.S. Tops List

Trade is traditionally a target or “go-to whipping boy” for politicians, particularly those facing a near-term election, NACM Economist Chris Kuehl, Ph.D. notes in the upcoming edition of Business Credit magazine. “It is always an easy target when the goal is to sound like a champion of the constituent,” Kuehl wrote. “Winners in terms of foreign trade are often rather diffuse, and losers are easy to identify.” A new study suggests this is an ongoing, if not a worsening trend, and along with other factors has hampered trade growth even more than predicted.

World export volumes have reached a plateau since January 2015, a situation “practically unheard of since the Berlin Wall fell,” and the situation is deteriorating, according to the new Global Trade Plateaus released by the United Kingdom-based Centre for Economic Policy Research. The researchers note the primary factor responsible for stagnant trade growth and threats of contraction, other than much-discussed, oversupply-caused freefall of energy commodity prices, is protectionism. Tactics such as tailoring import licensing procedures to encourage domestic purchases, conditioning contracts and financing on “local sourcing,” and requiring data to be stored and analyzed locally as well as requiring products to be tested locally are among those most frequently implemented by government, especially in G-20 nations, since 2014.

“One of our biggest concerns about a world in which trade is no longer growing is that governments will be more tempted to ‘steal’ market share by resorting to beggar-thy-neighbour [sic] activity. … Overall, the evidence is mounting as to the adverse trade-, investment-, and welfare-related costs of the spread of localisation [sic] measures during the crisis era,” the trade alert notes. “Given the prevalence and likely effects, it is not so surprising that firms have begun to react to the growing fragmentation of world markets.” General Electric is an example of a large corporation that has addressed the trend by moving some operations to other parts of the world and increasing direct foreign investment instead of trade—however, small- and medium-sized enterprises may struggle significantly more so than larger counterparts in attempting this.

The United States topped, by far, those nations that either used existing or new protectionist policies or are doing the most to “distort commerce” by unilaterally altering access to its markets, according to Centre data. It was followed by Russia and India. Such practices were not a one-way street. For example, the United States also faced the greatest number of protectionist policies against it since January 2015, with the majority coming from the four emerging economies of the BRIC (Brazil, Russia, India and China) block. Japan and Argentina were among the few nations overall that have reduced protectionist or other access-distorting measures during that period.

The industries affected most by protectionism since January 2015, per Centre data, are as follows:

· Basic metals

· Transport equipment

· Agricultural products

· Fabricated metal products

· Special purpose machinery

· Basic chemicals

- Brian Shappell, CBA, CICP, managing editor


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