Post-Crisis Protectionism: The Dog That Didn’t Bark

Or so an article in the Telegraph put it this week.

The great fear in the immediate aftermath of the financial crisis of 2008 was that countries would throw up protectionist barriers as they did in the aftermath of the Great Depression, choking any hope of global trade lifting floundering economies out of the mire.

The greatest threat was that mature economies, those that had long been the destination for low-cost goods manufactured in emerging economies, would close their borders in a bid to protect precious domestic jobs. To their credit, those economies recognized the global nature of modern supply chains and resisted the temptation to block out foreign competition even as they came under pressure at times from their domestic manufacturing base and the media.

But as the credit cycle turns in Asia and Latin America, there is growing evidence than many emerging markets are employing those same protectionist tactics avoided by the West.

BRICs’ Dirty Protectionist Measures
EU trade commissioner Karel de Gucht said in a 190-page report that there have been more tariff barriers of one form or another spring up in the last 12 months than in all the time since the crisis. Argentina, Brazil, India, Indonesia, Russia and South Africa have been singled out as the top offenders over the past year, with (interestingly) China no longer viewed as the villain it once was.

For example, according to the article, Brazil raised tariffs on 100 sectors last October to defend its declining industrial base, with fees of up to 25% on machinery, iron and steel, plastics, chemicals, paper and wood products. Meanwhile, Argentina imposed tariffs of up to 35% in January to stem a balance of payments crisis, followed by Ukraine imposing duties on 131 tariff lines.

Nor are tariff barriers the only tool being employed to keep foreign products out. The report apparently identifies a range of techniques including licensing barriers, technical regulations, procurement rules and internal stimulus measures that distort competition. For example, Russia keeps out imported cars through the use of a recycling fee that shields local producers.

Currency Rates: Great White Hope?
With little sanction available to the “law-abiding” majority in the WTO, the only hope is this year’s currency crash will help restore emerging markets’ competitiveness and reduce the incentive to protect their domestic markets. As currencies such as the Indian Rupee and Brazilian Real slide lower and lower, imports become progressively less attractive, tariff or no, while domestic manufacturers can compete more effectively on the international stage, pushing the political imperative towards globalization and free trade.

by Stuart Burns