Spike in pro­tec­tion­ism, says new IMF study

Jamaica Gleaner - - ENTERTAINMENT - Mcpherse.thomp­son@glean­erjm.com

ANEW study by the In­ter­na­tional Mone­tary Fund (IMF) has found that the slow­down in trade growth since 2012 is largely be­cause of weak growth, but also fewer trade deals and a re­cent uptick in pro­tec­tion­ism.

Fur­ther trade re­forms, to­gether with mea­sures to help those who stand to lose would help rein­vig­o­rate trade, which helps spread tech­nol­ogy and know-how, said the Fund in the study pub­lished in the Oc­to­ber 2016 World Eco­nomic Out­look.

Since 2012, it said growth in the vol­ume of world trade in goods and ser­vices has been tepid at around three per cent, less than half the rate dur­ing the pre­ced­ing three decades. World trade has barely kept pace with world gross do­mes­tic prod­uct and the slow­down has been wide­spread, it added.

SLUG­GISH RE­COV­ERY

Ac­cord­ing to the study, slow trade is mostly a symp­tom of the slug­gish eco­nomic re­cov­ery. Em­pir­i­cal anal­y­sis sug­gests that up to three-quar­ters of the short­fall in real trade growth since 2012 com­pared with 2003 to 2007 can be traced to glob­ally weaker eco­nomic growth, notably sub­dued in­vest­ment.

Be­yond changes in the level and com­po­si­tion of eco­nomic growth, other fac­tors are weigh­ing on trade growth, col­lec­tively shav­ing up to 1.75 per­cent­age points off global real im­port growth each year since 2012. Among these fac­tors, trade costs – caused in part by pro­tec­tion­ist poli­cies – and the ex­tent to which coun­tries are in­volved in global sup­ply chains ac­counted for al­most half.

The ap­par­ent slow­down in the re­lo­ca­tion of pro­duc­tion across coun­tries is also putting the brakes on trade, though it is dif­fi­cult to de­ter­mine whether ex­ist­ing op­por­tu­ni­ties to ex­ploit sup­ply chains have been ex­hausted, or whether they have been ham­pered by tradedis­tort­ing poli­cies, it said.

The study sug­gests that trade and eco­nomic growth are closely linked: faster growth typ­i­cally ac­com­pa­nies greater trade. With only a limited pickup in global ac­tiv­ity on the cards for the next five years, slow global trade growth, there­fore, will most likely per­sist.

And even as the global econ­omy even­tu­ally gath­ers mo­men­tum, trade is un­likely to post the sorts of growth rates seen prior to the global fi­nan­cial cri­sis, the study found. At that time, in­vest­ment growth in China and many other emerg­ing mar­kets was un­usu­ally high, trade costs were fall­ing due to pol­icy co­op­er­a­tion and tech­no­log­i­cal ad­vances, and global value chains were rapidly de­vel­op­ing.

Ac­cord­ing to the study, ad­dress­ing con­straints to growth should lie at the heart of the pol­icy re­sponse. “This would not only boost over­all global ac­tiv­ity but also help grease the wheels of in­ter­na­tional com­merce, cre­at­ing a vir­tu­ous cy­cle as trade stim­u­lates fur­ther gains in pro­duc­tiv­ity and growth across bor­ders,” it said.

PRO­TEC­TION­ISM

The IMF study said, how­ever, that with the weak eco­nomic out­look al­ready weigh­ing on trade, trade poli­cies – for ex­am­ple, free trade agree­ments – them­selves re­main rel­e­vant, and all forms of pro­tec­tion­ism should be re­sisted. At the same time, dis­man­tling re­main­ing bar­ri­ers would pro­vide much­needed sup­port for trade, pos­si­bly by jump­start­ing a new round of global sup­ply-chain de­vel­op­ment.

Fu­ture trade re­forms should also fo­cus on the area’s most rel­e­vant to the con­tem­po­rary global econ­omy, such as reg­u­la­tory co­op­er­a­tion, re­duc­ing bar­ri­ers to trade in ser­vices, and tak­ing ad­van­tage of the com­ple­men­tar­i­ties be­tween cross-bor­der in­vest­ment and trade, the study said.

“To pre­serve the ben­e­fits of trade in­te­gra­tion, pol­i­cy­mak­ers should ad­dress the con­cerns of work­ers and in­dus­tries that have trou­ble ad­just­ing to greater over­seas com­pe­ti­tion and take steps to ease their tran­si­tion. Such poli­cies in­clude suf­fi­ciently broad so­cial safety nets, as well pro­grammes to sup­port re­train­ing, skill build­ing, and oc­cu­pa­tional and geo­graphic mo­bil­ity,” it added.

United States Repub­li­can pres­i­den­tial hope­ful, Don­ald Trump, who has ad­vo­cated trade pro­tec­tion­ism, has pledged to with­draw the coun­try from global trade al­liances, say­ing he would exit the North Amer­i­can Free Trade Agree­ment if it isn’t rene­go­ti­ated, and would kill the Trans-Pa­cific Part­ner­ship, a Pa­cific Rim trade deal.

Last month, Chi­nese Pres­i­dent Xi Jin­ping called for lead­ers of the United States, Ger­many and other ma­jor economies to re­sist pres­sure to raise trade bar­ri­ers as they opened a sum­mit amid slug­gish global growth.

“Group of 20 coun­tries should abide by their com­mit­ment to avoid tak­ing new pro­tec­tion­ist mea­sures, strengthen in­vest­ment pol­icy co­op­er­a­tion and take ef­fec­tive ac­tion to pro­mote trade growth,” Xi said.

FILE

A sec­tion of the Kingston Con­tainer Ter­mi­nal.

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