Simon J. Evenett | 20 Jul 2011

In 2011 the world economy has been buffeted by a number of developments that were not foreseen at the time of the Seoul G20 Summit. These unanticipated, adverse macroeconomic developments now coincide with election cycles and political leadership transition cycles in a number of jurisdictions, increasing the risk that some political leaders will court short-term popularity by resorting to protectionism. Moreover, now that many governments are cutting government budgets and interest rates cannot fall much further in many countries, restricting foreign competition is one of the few tools available to policymakers when responding to pleas from domestic firms and trade unions. The sooner global economic growth recovers its previous pace the better. One welcome side effect would be taking the some of the wind out of the protectionist sails.

Plenty of evidence is presented in this, the 9th GTA report, to show that the pick-up in protectionism since the Seoul G20 summit coincides with the deterioration in economic sentiment. Moreover, the information that has come to light since November 2010 calls into question the rosier assessments of protectionist dynamics in 2010. It now seems that the only third quarter of 2010 saw a dip in the resort to protectionism. Otherwise, the 2010 data are on track to be as bad as the latter half of 2009 in terms of closing borders to trade. The optimism of many observers about falling protectionism in 2010, which we shared, now seems misplaced.

The message is clear: Policymakers—in particular from the larger G20 countries—must renew their vigilance against protectionism. Otherwise, a 'people in glass houses' dynamic will reassert itself, whereby governments won't criticise others that close borders to trade precisely because they know their own protectionist acts will come under scrutiny. The global trading system does not need another bout of collective non-compliance that it suffered during 2009.

 

Release date: 20 July 2011