Chart of the Month – Protectionism problem?

In the World Bank’s 25th anniversary edition of their flagship report, Global Economic Prospects, the risk of increased protectionism was highlighted as a major downside risk to the global economy over the medium term.

One graph they feature which looks particularly concerning suggests that from 2009 to 2015, there were nearly three times more discriminatory trade measures implemented over the period than liberalizing measures.



Trade Measures 2009 - 2015


An interesting feature of these trade barriers is that they largely have not come in the form of tariffs. As the World Bank states in their report: “Since the global financial crisis, highly visible tariff barriers have not been erected on a large scale, but more subtle micro-restrictions such as local content requirements, public procurement discrimination against foreign firms, export taxes and quotas, and trade distorting subsidies have proliferated (Hufbauer and Jung 2016).”

A particular worry for the freight forwarding sector is that protectionist measures of late have most often been imposed on manufactured goods, whose trade has suffered the most as a consequence.

To top it off, it is worth emphasising the downward spiral that can arise: low economic growth often gives rise to greater protectionism which in turn exacerbates growth prospects. With the situation of prolonged stagnation in advanced economies and weaker growth potential in emerging markets that characterises the global economy at present, this is a concern.

Recent headlines also tend to suggest a move away from free trade or a failure to move towards it. Among other examples, just yesterday (29/08/2016), senior German and French politicians declared TTIP negotiations (the proposed US-EU trade agreement) as “failed” and “dead”.

The following graph illustrates the cost of protectionist measures. The World Bank estimates that a 50% reduction in tariffs and trade barriers would improve real income in advanced economies by about 6%, while for emerging market and developing economies (EMDEs) the figure is around 10%.



Effect of 50%


Before getting carried away though, it is worth noting that the World Bank also stated that there was no clear evidence of an acceleration in trade restrictions in 2015.

While much of the recent rhetoric and headlines suggest protectionism is alive, well and intensifying, and it may well be that over the coming years the global economy and logistics sector increasingly suffers because of it, at the moment that is not clear cut. It is best described as the World Bank describes it – a major downside risk, but not a foregone conclusion.

More Insight?

Source: Transport Intelligence, 30 August, 2016

Author: David Buckby