Protectionist Dynamics: Form and Consequences. Simon J. Evenett October 2017

Transcription

1 Protectionist Dynamics: Form and Consequences Simon J. Evenett October 17

2 Purpose and contents of this presentation Having laid out global trade and protectionist dynamics, my goal is to get you think again about which policies really matter (and why) and to persuade you not to fall for the Smoot Hawley Illusion. Presentation proceeds as follows: World trade dynamics. Incidence of protectionism and leading examples. Trade covered by crisis-era protectionism. Effect of crisis-era trade distortions. Policy implications.

3 The Smoot Hawley Illusion (Allusion?) The multilateral trading system was the world s response to the chaos of the 1930s, when rising protectionism wiped out two thirds of global trade. The 08 financial crisis tested the system, and it passed. We did not see a significant rise in protectionism. Roberto Azevedo, Director-General, World Trade Organization, March 17. Other overlooked lessons from history, in particular the sharp global economic downturn of the 1980s. Implicit focus above on trade restrictions. Implicit assumption above that avoding a fall in global trade is sufficient to claim success for the multilateral trading system. Trade can significantly distorted without its level falling.

4 World Trade Dynamics Simon J. Evenett October 17

5 Export volume index, normalised to lowest value in 08 and 09. Four phases of crisis-era trade volumes Collapse Recovery Plateau World Advanced economies Emerging economies Source: CPB, latest data through July 17.

6 Export prices index, normalised to lowest value in 08 and 09. Strangely, export price dynamics have been given little attention 140 Collapse Recovery Plateau World exports Advanced economies Emerging economies Source: CPB, latest data through July 17.

7 Returns on FDI by OECD firms have fallen sharply Source: The Economist, 28 January 17.

8 Incidence of Protectionism Simon J. Evenett October 17

9 What is the Global Trade Alert? Goal: Support better public policy, corporate, and social decision making on commercial policy by providing the best available source of information on trade distortions and trade reforms implemented since November 08. Documented just under 11,000 government interventions (150% more than the WTO). IMF stated in 16: GTA has the most comprehensive coverage of all types of trade-discriminatory and trade liberalizing measures. Reports of government acts viewed over 7.7 million times. Covered in major media outlets all over the world. Used in speeches by political and corporate leaders as well as heads of international organisations. Referred to in 1,2 studies and reports. New website available with far better data download facility.

10 Number of measures implemented in first 8 months of a year Protectionism accelerated since 12 Before Trump Liberalising Discriminatory Total 10

11 Localisation requirements have spread since the onset of the crisis Source: Global Trade Alert database.

12 Bad practices spread fast example of 09 Buy America measures Source: Global Trade Alert database.

13 China scaled up significantly export incentives early in the crisis Source: Evenett, Fritz, and Jing (12).

14 The Chinese subsidy juggernaut (as reported in Chinese financial accounts) Number of firms receiving more than $10 million (left axis) Total value of reported subsidies (USD billion) (Right axis) 0

15 US policy turned inward in 17

16 Meanwhile the rest of the G inflicted less harm on trading partners

17 Change in number of trade distortions introduced this year compared to Obama II G members that curbed protectionism more in 17 hit US interests more before Number of hits to US commercial interests in force end 16

18 Number of hits to US commercial interests imposed since November 08 that are still in force on 31 December of the year in question If the US looks for evidence on foreign trade distortions, then they will find it G- Non G-

19 Trade Covered by Protectionism Simon J. Evenett October 17

20 Share of G exports facing a trade distortion in a foreign market associated with The growing scale of crisis-era trade distortions faced by G exporters Subsidies (except export subsidies) Government procurement Import tariff increases Recall: 10% of G exports exceeded $900 billion in 16.

21 Share of G exports facing a trade distortion in a foreign market associated with But then add in the impact of 230+ crisisera export incentives schemes Subsidies (except export subsidies) Government procurement Export incentives Import tariff increases

22 Effects of Crisis-Era Trade Distortions Simon J. Evenett October 17

23 The Smoot Hawley Illusion tempts you to think in terms of market access barriers only Traditional market access barrier Exporter i Importer j

24 Third parties affect the volume of bilateral trade market share stealing is possible Traditional market access barrier Exporter i Importer j Bailed out nonexporting firms Exporter k Export incentives

25 Billions of US dollars USD billions, nomimal dollars Foreign trade distortions reduced LDC exports by 31% during % 11.2% 5.7% Export loss $bn Export gain $bn Source: Evenett and Fritz (15) 0 Worldwide total LDC exports Pre-crisis trend LDC exports absent crisis-era trade distortions

26 Export growth differential from 09 to 14, % Crisis-era trade distortions reshuffled Extra-EU trade: Zero sum dynamics China 46.4 USA Japan Actual export growth differential Without protectionism hurting EU exports With all crisisera trade distortions Actual export growth differential Without protectionism hurting EU exports With all crisisera trade distortions Actual export growth differential Without protectionism hurting EU exports With all crisisera trade distortions Source: Evenett and Fritz (17) for the Government of Sweden.

27 Policy Implications Simon J. Evenett October 17

28 Thinking straight about protectionism 1. Don t fall for the Smoot Hawley Illusion trade distortions can be pervasive without substantially reducing the level of global trade. 2. Resort to trade distortions has accelerated since Little unwinding of trade distortions witnessed in sectors with overcapacity a game of chicken is under way. 4. Crisis-era trade distortions more often took the form of export incentives and other state aid rather than import restrictions. 5. Growing evidence of reshuffling of global trade flows. Stealing market share is the name of the game. 6. If the Trump Administration goes looking for evidence of foreign trade distortions, they will find it.

29 Essential to have realistic expectations about what trade rules can deliver 1. Most trade rules that allow protectionism slow down the process of favouring domestic firms. 2. But political and business timetables for action when times are tough are much shorter than those envisaged in trade rules. 3. So pressure for protectionism will manifest itself somewhere else not in policy actions which involve blatant violations of international rules. 4. Expect the commercial playing field to be tilted in favour of domestic firms in new areas or areas less well regulated by international rules. 5. Need to keep up with protectionist innovations by policymakers. Don t underestimate their creativity. 6. International trade rules will tend to lag such innovation.

30 Don t take my word for it...roll up your sleeves and dig into the data yourself Check out the source at Data freely downloaded at Available reports and studies include those: 1. On crisis-era distortions to FDI and trade in investment goods. 2. On effect of crisis-era distortions on LDC exports. 3. On latest G resort to protectionism and scale of exports involved. 4. On effectiveness of Kazakh Industrial policy.