What America’s protectionist turn means for the world
In recent months, the United States has taken a sharp turn towards protectionism and away from global trading norms. For a country that has been historically open to free trade, this shift will have far reaching implications for the world. Through tariffs, quotas, and other measures, American protectionism could affect global trade, investment, and employment around the world. In this article, we will explore the potential effects of America’s protectionist turn and the implications for global markets.
1. An Uneasy Time for Global Trade
The global trade community is in the throes of a tumultuous time. The world economy is facing brewing protectionism, with countries introducing tariffs and other protectionist measures to safeguard domestic industries and markets. The scourge of global trade is having a ripple effect on the cost and availability of goods, services, and resources.
Amidst the growing sources of uncertainty, the trade agreements between countries have also come under strain. Countries looking to renegotiate or eschew trade agreements altogether has injected a healthy amount of doubt in the global trade scenario. The situation is aggravated further by looming political risks, with more regional instabilities springing up in recent times.
- Protectionism raising costs and reducing availability of goods
- Trade agreements held in limbo
- Political risks leading to further instability
2. America’s Turn Toward Protectionism
America’s drive for protectionism began during the great depression in the early 30s. Large industries such as stock and banking were closing across the country, causing mass unemployment and leaving the nation grappling for solutions. In response, President Herbert Hoover initiated the Smoot-Hawley Tariff Act of 1930. This piece of legislation imposed hefty tariffs on thousands of imported goods, from fruit to vehicles to manufactured items. In doing so, it provided necessary safeguards and restrictions in order to protect the American economy from any further harm.
Hoover’s policy was the start of a long road towards the re-emergence of the protectionist spirit in one of the world’s strongest economic and political forces. The policy set a precedent that other nations soon replicated, and this trend has continued right up to the present day. Protectionist measures have been apparent in policy developments in the automotive, steel and agriculture industries, among others. By protecting home-grown industries through import tariffs, subsidies and other trade barriers, America has been able to not only sustain its economy but also to create jobs, stimulate production and maintain a competitive edge on the international market.
- Smoot-Hawley Tariff Act – The foundation of America’s protectionist stance.
- Automotive industry – High tariffs aimed at protecting America’s automobile sector.
- Steel industry – Subsidies granted to domestic steel companies.
- Agricultural industry – Imposition of quotas and subsidies to shield farmers from foreign competition.
3. Dire Consequences for the Global Economy
The global economy has seen dramatic changes as a result of the coronavirus pandemic. While some countries were able to take drastic measures to combat the virus, most were not. The consequences of this are enormous and far-reaching, with dire long-term outcomes for the global economy.
The disruption of international trade and labour markets has resulted in significant economic losses that have rippled through the global supply chain. Job losses and business closures are rampant, leaving not just individuals but whole economies in distress. Moreover, global stock markets have been devastated, erasing years of advancements in economic growth and employment.
- Cross-Border Trade: The drop in global trade has led to lost revenue for businesses, necessary protectionism and shrinking consumer demand.
- Decreased Investment: Stock markets have dropped and businesses have canceled plans for new investments. This further pushes down economic growth.
- Malign Health Outcomes: Millions of people in developing countries will suffer from both the health effects of the pandemic and the economic effects that follow.
More alarmingly, the full effects of the crisis have yet to manifest. The consequences of the coronavirus have polarized the global economy, creating uncertainty and increasing the risk of further recession.
4. Looking to the Future of Trade
As the trade landscape continues to evolve, there are some key trends that are emerging to optimise efficiency, increase sustainability and maintain a healthy trading environment:
- Technology: Automation of process, data collection and analysis are all being used to speed up the process of trading and identify possible fraud with greater accuracy.
- Sustainability: Tighter regulations from international bodies are reducing trade deficits, resulting in fairer markets for developing nations and more sustainable development over the long term.
- Security: With the introduction of biometric data, blockchain technology and encryption, trades are becoming more secure, reducing the risk of fraud and theft.
It’s clear that the future of trade is going to be largely focused on efficiency, security and sustainability as the world becomes increasingly interconnected. With new technologies and regulations being developed, the business environment is quickly becoming more transparent and secure. In the years ahead, we should expect to see further improvements in trade processes, paving the way for more efficient and equitable global trade.
It’s clear that if America’s protectionist turn continues, the whole world may well feel its effects soon enough. The best thing now is to prepare for the realities of the new protectionist age while keeping the long-term goals of a more equitable, prosperous global economy in mind. Who knows? It may just be that a new wave of protectionism will bring some much-needed balance and security to a world in flux.