There is a growing realisation across the business press that the Global Economic Crisis is transforming the international trade environment to one that is much more protectionist than we’ve seen in recent decades.
The general push for freer trade has been a strong driver of globalisation since the mid-1970s at least. Tariffs have tumbled along with other barriers to trade and investment. Through the GATT and WTO, and a huge swathe of other multilateral and bilateral trade agreements, goods and services have been easier to move around than ever before (particularly once we factor in lower transport costs).
While the US in not alone in imposing some trade-restricting provisions within their proposed stimulus packages, they certainly have the biggest flow-on effects in terms of triggering likely tit-for-tat responses from other governments.
The bailouts and nationalisations were seeing around the world in banking and auto sectors are conceivably just the tip of the iceberg in terms of measures that would certainly be seen as subsidies under any sensible definition. They are trade-distorting and trade-preventative in terms of impact.
The question that is too often ignored in these discussions is what likely impact this will have on the behaviour of multinational firms. It perhaps shouldn’t surprise given the complexity of their choice sets.
Much of the protection push revolves around shielding industry and jobs in domestic economies. A sizable chunk of the firms being protected and subsidised are themselves firms who trade goods across borders, both as exports and also via imports of inputs, intermediate goods (and sometimes final goods).
Increased protection at home may shift the balance back towards domestic activity. Any advantage in international markets derived from subsidies may be undone by retaliatory responses from other national governments (lobbied by their own local players). Any rises in tariffs and other trade barriers may serve to untangle existing value chain configurations as multinationals abandon internationally distributed production processes as too costly, unwieldy and/or unpredictable.
For so long the movement of productive activities around the globe was derided as a race to the bottom. What will we call a retreat to home base?
And what about those multinationals for whom home is but a small portion of their global markets? Are they part of the protection plan of other nations? That would certainly seem to be the case in Australia.
Tags: automobile industry, banking, business, Global Economic Crisis, International business, International economy, international trade, multinationals, protectionism, recession, Strategic management