Trade – the return of protectionism

The rise of protectionism amongst countries is estimated to reduce global economic output by about 7% or $7.4 trn in today’s prices. Trade barriers have increased by over 30% since 2019 – 2022 = approximately 3,000 barriers introduced, see graph below. According to the IMF global flows of goods and capital have leveled off since the global financial crisis. Their research shows geopolitical alignments increasingly influence both foreign direct investment and portfolio flows. Not all countries benefit from trade – particularly those with poor international competitiveness. If a country is not benefiting from participating in free international trade, it is more likely to want to introduce some form of import control or protectionist measure. “Policymakers need to focus on the issues that matter most not only to the wealth of nations but also to the economic well-being of ordinary people,”. They must nurture the bonds of trust among countries wherever possible so they can quickly step up cooperation when the next major shock comes.” IMF Managing Director Kristalina Georgieva. Reasons for the recent increase in protectionism:

• Trade war between USA and China starting in 2016

• Covid-19 saw a return to nationalism and reshoring activities and more regional supply chains. Hoarding of masks and medicines.

• Recession in many industrialised countries prompted governments to give subsidies to protect domestic businesses. Countries can go to the WTO to see challenge whether the subsidies break trade agreements.

• Conflicts around the world have seen technology and military prowess restrict exports of high-tech products

Below is a mindmap outlining the arguments for selective and general import restrictions.

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