Spike in protectionism, says new IMF study
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.
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.
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.
A section of the Kingston Container Terminal.