NCPA - National Center for Policy Analysis

World Trade Grows, but Protectionism Still a Concern

July 26, 2012

Following the financial crisis, the majority of the world's developed economies rightly reaffirmed their dedication to open trade principles. In this way, they helped prevent the protectionist tendencies that deepened the economic collapse of the 1930s. This effort, coordinated by the G20, has manifested itself in a number of trade agreements and continuing progress toward lower barriers to trade, says The Economist.

  • In 2010, a trade deal covering close to 30 percent of the world's population -- the China-ASEAN Free-Trade Area -- was struck.
  • Additionally, despite the deep suspicions between them, trade between the two emerging giants, China and India, is booming.
  • Further, Russia, the single largest emerging market that is not yet a member of the World Trade Organization (WTO), is expected to become a full member by the end of the summer after 19 years of negotiations.
  • Even the European Union, mired in economic turmoil and political conflict, managed to make side deals with Colombia and Peru earlier this month.

The proliferation of these regional agreements and greater grassroots participation in imports and exports paints a bright future for international trade. In a new long-run forecast, the global banking firm HSBC predicts that world trade will grow by close to 90 percent over the next 15 years -- advancing modestly at first, because of the euro crisis, then vigorously.

However, crucial warning signs suggest that barriers to trade may be sneaking back into public discourse. The WTO's director-general, Pascal Lamy, has detected subversive moves by individual nations to protect domestic industries, signaling that the fight for continued openness may be more conflictive than previously recognized.

  • The motivation for such protection stems from the economic downturn, which offers a pernicious justification for targeted protectionism.
  • The new restrictions range from higher tariffs to costly import licenses and customs controls.
  • An increasingly popular method is to strangle traders not with high tariffs, which are easy to spot, but with red tape, which is not.
  • Moreover, because barriers are easier to put in place than to remove, the share of trade held back by protectionist measures tends to grow over time.

Even the growth of regional trade agreements may signal grim circumstances: some interpret them as a less-optimal replacement for global agreements that have repeatedly failed to come to fruition.

Source: "Protectionism Alert," The Economist, June 30, 2012.

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