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Wrong move
Non-traditional protectionism will delay economic recovery
Issue Date - 08/12/2011
Economic uncertainty seems to be the new normal of late. It started with the housing bubble bust and the sub-prime mortgage crisis in the US and, as the world recovers, the EU region has been hit by a severe sovereign debt crisis.

Such a situation would eventually lead to inward-looking policies and promote protectionism. As a matter of fact, developed nations have resorted to restrictive measures in terms of trade policies. Trade comes very low down in the list of priorities for the Obama administration with the presence of powerful protectionist forces in the White House, notably the unions. The picture is not different in the EU region with a GDP growth rate of 0.2% for Q2 and Q3, 2011 and a negative external trade balance of 10.33 billion for the first nine months of 2011. Even when the crisis hit the region last time in the 1970s and 1980s, EU policy makers went through a lot of navel gazing. As per a recent report, the EU is considering long-term import tariffs against goods from Chinese steel pipes to plastic from the Gulf States. Moreover, the commission is under pressure from protectionist members like Italy and France to introduce an EU vetting procedure primarily to block inward foreign investment.

As per WTO, obvious protectionism (mainly border trade barriers) has affected just over 1% of international trade. However, it does not take into account non-traditional protectionism by ways of introducing complex domestic regulations like public-procurement restrictions, subsidies, product and environmental standards, et al. Moreover, this type of regulatory protectionism is more opaque and less constrained by WTO.

Such protectionist measures would only delay recovery and deepen the crisis. With strong domestic demand and relatively sound banking systems, economies like China, India, Brazil & Russia will lead the way out of crisis. If developed nations have to heal their economies, trying to stop the ascent of the third world is definitely the wrong medicine. What will they do if these third world markets start refusing them?



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