Global Trade Slowdown and Protectionism

This term project presents the main theme, two subthemes, and global connections. Global trade, or international trade, which involves the import and export of goods and services across international borders, is now slowing down since 2012 (International Monetary Fund, 2016). It is shown that the trend is much worse than previously noted, with notable declines in volumes of trade in the last 18 months as protectionism, which is a system of imposing duties on imports to protect domestic industries, continues to increase (Donnan, 2016). Further, the declines are also observed in overall economic performance and historical data. According to the IMF (2016), the overall weakness related to economic activity, specifically in investment, has been the major contributing factor to the slowdown. Nevertheless, other factors have also negatively impacted trade. The dwindling aspect of trade liberalization and the recent surge in protectionism are now slowing down trade growth, although their overall effects thus far have been marginal. Changes are also noted in value chains. In this term project, the focus is on an article that appeared in The Financial Times, “Global trade slowdown worse than thought” (Donnan, 2016). The main theme of discussion is the slowdown in global trade.

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The first subtheme is related to protectionism. Economists and policymakers have observed that protectionism is rising, and world trade is slowing to a worse level than previously observed (Donnan, 2016; Einhorn, 2016). By reacting to complaints from the European Union (EU) steel manufacturers, the EU introduced “antidumping duties as high as 81.1% for Chinese traders who sell steel below cost” (Einhorn, 2016, p. 1). Excess goods do not have ready markets because of slow economic growths in the US, Europe, Japan, and China. The US also introduced high tariffs in 2016 for steel from Taiwan, China, South Korea, India, and Italy. In July 2016, China also announced penalties for “electrical steel obtained from used generators in Japan, the EU, and South Korea” (Einhorn, 2016, p. 1).

Further, on November 2, 2016, India introduced new tariffs for Chinese steel after the accusation of dumping. It also observed that even emerging economies had adopted some protectionism measures. For instance, in May 2016, Malaysia announced new tariffs for steel from Korea, China, and Vietnam, while Peru introduced antidumping tariffs for biodiesel imported from Argentina (Einhorn, 2016). Further protectionism measures are expected as Donald Trump took office in January 2017. The president-elect had earlier promised to renounce major trade deals, such as the North American Free Trade Agreement, to introduce additional punitive measures against China and Mexico, and to scuttle the Trans-Pacific Partnership (Donnan, 2016). The World Trade Organization reported that member states implemented 17 trade barriers on average every month in the last five months until the middle of October 2016.

The cause of slow growth in world commerce is also treated as a subtheme. Economists are yet to agree on the exact causes of the slowdown. Whereas other economists have focused on the rising protectionism that has started to inhibit the growth, others have observed some long-term trends associated with the declining global supply value chain (goods are designed in one country, but parts are obtained from various countries) (Donnan, 2016; International Monetary Fund, 2016). Further, the growing role of the digital trade as the contributing factors is also noted (Buttonwood, 2016). The IMF and the WTO have generally focused on protectionism and warned the G20 trade ministers against such measures as possible threats to slow-growing global commerce.

The global connection is witnessed in trade. It is based on the free flow of goods and services across international borders with minimal government interference. However, when protectionism is applied, then negative impacts of such practices are felt across the world and by specific affected states. For instance, China’s export had declined to $1.7 trillion, representing a decline of 6.3 percent relative to the year 2015 (Einhorn, 2016). Further, imports also declined by 7.5 percent (Einhorn, 2016).

Second, the role of global bodies in advancing global trade is imminent. The WTO, the IMF, G20, the EU, developed nations, and multinational firms have continued to support or define global commerce. The WTO, for example, admitted China in 2001, which led to increased investment in the Chinese manufacturing sector as multinationals sought cheap labor.

The third aspect of global connection involves technology. In this case, the nature of industrial competitiveness is now a function of international production networks rather than international boundaries of countries, and technologies have made this possible. Such practices were not observed in the past when cutting-edge technologies were not available. Manufacturers could not rely on outsourcing without understanding the quality and technical specifications they would get. However, IT has made it possible for firms to outsource and coordinate their works in real-time irrespective of the distance. These emerging practices may have affected the growth of global commerce.

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In summary, the slow growth of global commerce has been attributed to protectionism, the slowdown in the global value chain, and technologies. The global connection revolves around restrictive trade barriers that advance protectionism, the role of international bodies, powerful unions, countries, and multinationals, as well as technologies and the global supply chain.

References

Buttonwood. (2016). The changing face of global trade. The Economist. Web.

Donnan, S. (2016). Global trade slowdown worse than thought. The Financial Times. Web.

Einhorn, B. (2016). Global trade is slowing. Bloomberg. Web.

International Monetary Fund. (2016). Subdued demand: Symptoms and remedies. Washington, DC: International Monetary Fund.

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