>CURRENT ISSUES (DEUTSCHE BANK)

Back to the bad old days?
The return of protectionism

The WTO and the World Bank report a rapid increase in protectionist measures since the beginning of the economic crisis. The World Bank has registered 89 new restrictions on trade since October 2008, 23 since the London G20 summit in early April alone, and the WTO an even greater number still. Protectionist measures have increased particularly since the spillover of the crisis to the real economy. Protectionism is more topical than ever.

There is still a lobby for protectionist measures. In times of slumping national and international demand, countries and companies will continue to favour beggar-thy-neighbour measures which will (unjustifiably) make their products more competitive than those of foreign rivals or else shield them from competition from the outset.

Tariff hikes account for “only” about one-third of the measures recorded world-wide – protectionism has many faces: non-tariff barriers to trade and the abuse of anti-dumping measures, subsidisation of national industries or, very lately, calls to favour domestic products and companies in national economic stimulus packages, and restrictions on international capital flows or immigration.

The competition and trade-distorting effects of subsidies pose the biggest risk. In times of strong intra-industry trade the focus of protectionism is shifting away from discriminating against foreign competitors by imposing tariffs towards actively providing preferential treatment to domestic firms via financial aid. The global automobile industry is a case in point. Retaliatory measures are the response.

These factors threaten to unleash a spiral of protectionism that perhaps may not choke off the global recovery, but it will partly delay its progress. As regards monetary and fiscal policy, the authorities have learnt the right lessons from the Great Depression. What this means here is that policymakers must not sacrifice medium-term growth opportunities for near-term protection interests. Shoring up open markets and free trade is the next major challenge in a globally coordinated drive to cope with the crisis.

To see full report: CURRENT ISSUES