Trade Winds—Has the Spectre of Protectionism Blown Away?
IMF Blog, January 5, 2012
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Bibliographic details
- Authors: Tamim Bayoumi
- Published: January 5, 2012
Overview and context
- Author: Tamim Bayoumi
- Date: January 5, 2012
- Central thesis: While fears of a widespread resurgence of 1930’s-style trade protectionism after the 2008 financial crisis proved unfounded, rising unemployment and prolonged crisis conditions create renewed pressure for protectionist measures; now is the time to resist protectionist pressures and re-energize trade integration.
Rising pressures and evidence
- Protectionist actions cited:
- Brazil: actions at the World Trade Organization (WTO) aiming to use trade remedies to offset currency misalignments.
- China: imposed duties on cars made in the United States.
- United States: pending legislation to use trade measures to defend against “undervalued” currencies such as the renminbi.
- Empirical pattern observed:
- Advanced economies experiencing the largest increases in unemployment were also those most inclined to impose trade restrictions, as suggested by the number of cases of anti-dumping and countervailing duties initiated against China.
- There was a big uptick in these measures in recent years (chart referenced in source).
Macroeconomic importance and IMF engagement
- Rationale: The IMF takes interest in trade due to its macroeconomic importance; trade integration can be an engine of growth and trade wars can put millions of jobs in jeopardy (quote from David Lipton).
- Joint action: The IMF, together with the World Bank and WTO, held a trade conference in December 2011—the first such event—focused on prospects for the global recovery and risks to the multilateral trading system.
- Fund staff papers presented at the conference:
- "Changing Patterns of Global Trade"
- Examines the growing role of vertical integration through global supply chains.
- Highlights the importance of value-added analysis (as opposed to gross exports) for examining trade inter-linkages and implications for the response of trade flows to exchange rate changes.
- "Protectionist Responses to the Crisis: Damage Observed in Product-Level Trade"
- Finds evidence that, while there was no widespread protectionist action and only a limited generalized impact on trade, protectionist measures had a strong impact on trade in the particular products to which they were applied.
Developments in trade integration (recent bilateral and regional initiatives)
- United States actions:
- In October 2011, the United States ratified three bilateral free trade agreements with Columbia, Panama, and South Korea.
- Trans-Pacific Partnership (TPP):
- In November (2011), nine Asia-Pacific countries embraced the Trans-Pacific Partnership.
- Japan’s commitment to join the TPP talks is noted as particularly important for opening up sensitive sectors.
- With the world’s third largest economy, the TPP would be the largest free trade zone, representing close to 40 percent of the world economy.
- Broader point: Trade integration is regaining strength through bilateral and regional initiatives; multilateral agenda needs to address emerging issues to avoid unilateral “trade remedies” and exclusive smaller-group deals.
IMF work program and policy tools in the pipeline
- Three main lines of work:
- Trade finance monitoring:
- Launched in December an ad-hoc trade finance survey, in collaboration with the International Chamber of Commerce, in light of recent deleveraging by European banks.
- Purpose: to monitor risks to global trade credit and provide timely input into ongoing discussions by the Group of Twenty advanced and emerging market economies.
- Global supply chains:
- Ongoing work to examine value-added trade flows and implications for trade interconnectedness and exchange rate assessments.
- Index of protectionist pressure:
- Developing a new index to summarize key macroeconomic variables—such as growth rates, unemployment, imports, and exchange rate regimes—that help foreshadow protectionism.
- The index would be amenable to regular updates in line with revisions to the IMF’s global projections and could serve as the Fund’s own gauge on trade winds.
Policy implications and recommendations
- Resist protectionist pressures during protracted crises when unemployment is high.
- Re-energize trade integration to support global recovery; trade should contribute to, not detract from, growth and jobs.
- Pursue multilateral progress on the Doha Development Agenda (launched in November 2001) while expanding the multilateral agenda to address open regionalism, and food and energy security.
- Use improved monitoring tools (trade finance survey, value-added trade analysis, and an index of protectionist pressure) to inform policy and multilateral discussions.
IMF Blog — Trade Winds—Has the Spectre of Protectionism Blown Away?
Content in this bundle
- Changing Patterns of Global Trade ; IMF Policy Paper; June 15, 2011
- wp11139
