Post-crisis protectionism more than WTO acknowledges, IMF research finds (August 2011)

Rethinking Bretton Woods | Wed, Aug 10, 2011

By Aldo Caliari

A recent IMF Working Paper by Christian Henn and Brad McDonald finds new evidence of growing protectionism after the global financial crisis.

A recent IMF Working Paper by Christian Henn and Brad McDonald finds new evidence of growing protectionism after the global financial crisis.

In “Protectionist Responses to the Crisis: Damage Observed in Product-Level Trade,” authors Christian Henn and Brad McDonald observe that while a 2010 World Trade Organization report acknowledges “instances of trade restrictive measures” it concludes that “governments have largely resisted resort to trade barriers.” In fact, the most recent WTO report to the Group of 20, while worrying about trade restrictions, claims that the various important challenges confronting the world economy “have not resulted on the whole in a significant increase of trade barriers.”

 But, the IMF researchers say, a more accurate picture is obtained by going beyond stocktaking of measures to quantifying their impact on trade flows. They conclude that protectionist measures were implemented worldwide in response to the global crisis and have remained prevalent evens as trade flows began to recover.  They estimate such measures have produced a decline in trade flows by about 7% according, or between USD 30 and 35 billion dollars annually (or a 0.2% of global trade flows, annually).

It can be argued that the methodology employed in this IMF paper is vulnerable to the same critique as the WTO methodology. Namely, by applying the “protectionist” label to restrictions undertaken by countries at vastly differing levels of development and with vastly differing ranges of tools to develop, it is unable to provide much of a useful guide for policy-making, both locally and globally. 

But the IMF methodology seems better tailored to capture at least some dimensions of the development divide. According to the study, tariffs, quotas and other traditional trade barriers were not as harmful to global trade flows as were non-traditional barriers such as non-tariff barriers, consumption subsidies and discriminatory purchasing measures.  Given that developing countries tend to rely more on tariff than on other barriers that are expensive to implement, it is not surprising that the report goes on to find trade barriers introduced by advanced countries were more disruptive to world trade than the measures introduced by developing countries. The study also reveals that exports decreased by a 0.05 point of world trade for developed and developing countries, but because developing country exports are less than half of world trade, this impact represents a higher proportion for them. Border measures applied to developing country exports were more deterring at the product level, and within developing countries, the relatively poorest nations were the most affected, it says.

Looking at sectors, the research finds that protectionism introduced in the textile, machinery, and transportation equipment industries had the largest impact.

Restrictive border policies in North America especially accounted for about 75% of the aggregate trade distortion.  Furthermore, measures enacted within the first nine months after the Lehman collapse in September 2008 were particularly harmful and will continue to distort international trade if not removed, the authors argue. They call on policymakers to be aware of the disproportionate hardship that befalls developing nations as a result of the global financial crisis and the resulting protectionist measures of advanced economies. 

Read full IMF Research Paper.