A New Era Of Trade Wars Is Putting The Global Recovery At Risk

Protectionism has been on the rise among both emerging and developed markets ever since the financial crisis. Countries around the world have unleashed tariffs, quotas and other restrictive trade policies in their efforts to boost their own economies.

In a new report, Societe Generale’s Patrick Legland points out that G8 economies accounted for 30% of all protectionist measures announced in the last 12 months. They were also the main targets of such measures, according to Centre for Economic Policy Research (CEPR). 

Protectionist measures are often met with retaliation in the form of more protectionist measures.

All of this is bad news for the global economy, which is struggling to maintain growth.

Recently, the European Commission tossed anti-dumping duties on Chinese solar panels.  Not long after, China said it could levy taxes on luxury car imports. Considering the weakness in Europe’s auto market — sales fell to a 20-year low in May — this raised concerns for Germany.  

“As protectionism was one of the key factors that aggravated the 1929 crisis, the recent return of beggar-thy-neighbour policies could hamper the fragile recovery in world economies. Thus, with the end of cheap money from the Fed, one of the major threats for global growth now stems from the rise in protectionism. Moreover, the international spillover from unconventional monetary policies could increase this risk in the future.”

The concern is that with global central banks preparing to wind down their easy money policies, the next shock could come from global trade and protectionism.

“…Global growth (and employment) is highly correlated with international trade. In the EU, which suffers from a high unemployment level, world trade represents 30 million jobs, according to the European Commission (EC). Given the persistent trade slowdown since the crisis and its impact on global growth, the G8 summit put the issue back in focus last week, with the launch of negotiations for a transatlantic trade agreement between the US and Europe.”

Here’s a chart from Societe Generale that shows an estimate of new protectionist measures implemented each quarter:

rising protectionism chart

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