Post by walkingstick » June 14th, • Jun 14, 2013 ASIA
Can’t Win a Currency War? Try Protectionism Instead
As financial markets sputter and the global recovery once again comes into question, countries are looking for a new way to stimulate growth.
And some of them appear to have already found it: protectionism.
According to the latest report from Global Trade Alert, an independent monitoring group, the incidence of protectionist policies in one form of another has risen over the last six months to its highest level since the start of the global financial crisis in 2008.
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“In our last report, published in June 2012, our first estimate of the number of protectionist measures imposed in the second quarter of 2012 was just 26.5. In this report, our first counts for the fourth quarter of 2012 and the first quarter of 2013 are almost five times higher, at 127 and 125, respectively,” the GTA report said.
The most high profile of these include the euro zone’s trade spats with China over German solar panels and French wine but they stretch all the way to less headline-making laws in Venezuela on developing the petrochemical industry and a Colombian tariff on imported milk and cream.
The report comes just ahead of the latest summit of G-8 leaders being held in Northern Ireland but there is little reassurance that the group will issue any more than the usual warnings about erecting trade barriers.
This is hardly surprising given that the G-8 itself, along with other members of G-20, account for the “lion’s share” of the measures, according to GTA.
In many ways, the rise in protectionism is hardly surprising.
It is now nearly five years since the financial crisis struck, pushing many of the world’s economies into recession. But a global recovery from the crisis has yet to be secured.
Unprecedented pump-priming by major central banks has swamped global financial markets with liquidity but this has had limited success.
Competitive currency devaluations, the so-called currency wars, have also proved to be largely unsuccessful.
Take Japan, the most recent country to adopt policies that have sent its currency reeling. Its economy remains mired in deflation, a recovery remains elusive and the government is now talking of fresh measures later in the year.
Even many of the emerging-market economies that had once been doing well now appear under pressure at the slightest hint that liquidity levels may start to be reduced by the U.S. Federal Reserve.
And then there is China.
Not only is growth in the world’s second largest economy still slowing more than expected. But, according to GTA, “China is being harmed by protectionist measures more frequently than any other jurisdiction.”
So there it is: a world that has yet to stage a recovery from the worst crisis it has faced in decades but one in which the obvious tools for staging that recovery appear to be failing.
Steve Barrow, senior strategist at Standard Bank, is among those that are worried that this will mean more protectionism and more concern about the global recovery in the longer run.
“The bottom line, in our view, is that protectionist pressures will continue to rise at least until global growth picks up and that’s something the market should be concerned about,” Mr. Barrow said.
It remains to be seen whether G-8 will voice similar concerns and prevent the erection of more trade barriers that will damage global growth, and prevent a recovery from the financial crisis, over time.