In the past, major recessions and depressions have seen countries resorting to tariffs, quotas and other protectionist measures. Still, the Great Recession appears to have been faced without the urge to resort to protectionism. The on-going spat between China and the European Union, for example, is a rare exception.
Stealth Protectionism Is Actually On The Rise:
Still, watchdog Global Trade Alert has released a report stating that “stealth Protectionism” is actually on the rise. What could this mean for the global economy and what measures are countries actually taking?
According to GTA, tariffs and other obvious protectionist measures actually accounted for less than 40 percent of all protectionist measures over the last 12 months. With most countries now belonging to the World Trade Organization, protectionist measures are more difficult to install without serious repercussions. Still, governments have other means by which they can restrict trade and show favoritism to local firms.
These stealth forms of protectionism can include export subsidies, wage subsidies, discriminatory investment policies, and discriminatory bail outs. Worse yet, the 2011 GTA report found that protectionist measures actually outnumbered liberalizing efforts by a magnitude of 3 to 1. The new report suggests that this trend is actually speeding up.
Protectionism: Countries Devaluing Currencies Through Quantitative Easing
At the same time, some countries are also devaluing their currencies through quantitative easing. If a country, such as Japan, lowers it currency by a significant amount, it essentially slashes the prices of exports. One well-run quantitative easing program can provide a boost for just about every export oriented product, though it is worth noting that material import costs will rise, which could impact the final cost of the product itself.
Indeed, now tensions are increasingly spilling into the public limelight and protectionism could increase. Japan has come under criticism for devaluing the Yen and has been forced to defend its policies numerous times. China has also warned Japan against devaluing the Yen, but the country, which strictly controls its currency’s exchange rate, has little room to talk. Many analysts accuse China of falsely devaluing its currency. Meanwhile, the United States has announced plans to ease up on its quantitative easing program, but so far words have not translated into action.
Further, the U.S. heavily subsidies its agricultural industry, provided massive bailouts for its automobile and financial sectors, and reinforces low wages with its massive food stamp and programs that aid the poor. Europe’s track record is very similar to America’s and by the looks of it, more bailouts and increased social aid programs may be on the horizon. That’s not to say that governments should not run such programs, but they do need to be recognized as a form of subsidy and actions that stand against trade.
Still, free trade deals have been moving forward and existing trade zones have been held together. The European Union, for example, has been rocked by numerous crises but the foundations of the free trade area seem as strong day as ever before, even if the Eurozone itself might collapse. While globalized trade has brought about increased prosperity the world over, many groups have suffered.
Now countries and peoples will need to figure out how to reposition themselves, and hopefully they can do so without resorting to protectionist measures.