During the 1930s, the upheaval of the Great Depression spurred a wave of protectionist trade policies and created a global atmosphere of isolationism that further exacerbated the contraction of economic activity. Many observers feared that the Great Recession of 2008-09 might similarly prompt nations hurt by the financial turmoil to erect barriers around their economies.
A 2011 World Bank report, “The Great Recession and Import Protection: The Role of Temporary Trade Barriers,” examines the results of the 2008-09 financial crisis on the global economic system. The study looked at 11 of the world’s largest economies — including four developed and seven emerging nations — that collectively accounted for nearly three-fourths of world GDP and nearly two-thirds of global imports.
The report’s findings include:
- Protectionism has indeed been occurring in the wake of the financial crisis; between 2007 and 2009, the 11 economies studied “collectively increased by 25% the imported products that they subject to temporary trade barriers (TTB) import protection.”
- Most of the new trade barriers were erected by developing countries. Those emerging economies “used TTBs to cover 39% more imported products by the end of 2009 compared to 2007, whereas recession-ravaged high-income economies surprisingly increased their coverage by only 4%.”
- During the period 2007-09, the largest percentage increases in the number of products covered by new trade barriers took place in India and Argentina.
- Some high-profile protectionist policies were the subject of controversy, including “the European Union’s treatment of imported footwear from China, the United States’ safeguard on imports of tires from China, and China’s retaliatory use of antidumping — in one instance on E.U. exports of steel fasteners and in another on U.S. exports of autos and chicken parts.”
- Overall, however, such barriers “arguably made substantial contributions to the stability of the trading system during 2008-09” by preventing “potentially more draconian protectionist measures” from being implemented.
The evidence has become “unequivocal,” the report states, that the 2008-09 Great Recession “did not lead to a set of catastrophic protectionist policies on anywhere near the scale of the 1930s Great Depression.” There is an “evolving consensus” that the response by the World Trade Organization to monitor and manage this new wave of barriers resulted in “positive” outcomes and kept the global trading system intact.
Tags: economy, financial crisis