The IMF published a report on the harmful impact of protectionism on world trade

The search for tools to overcome the crises of recent years for a number of countries has resulted in a return to protectionist policies – special measures to protect the domestic market are increasingly being introduced by both developing and developed countries, the International Monetary Fund (IMF) records in its review. During the first year of the project to study protectionism, the fund’s analysts collected data on more than 2.5 thousand such measures, at least 70% of which can seriously affect or are already affecting global trade. An analysis of government decisions has shown that the main pretext for launching protective mechanisms is often the desire to increase the competitiveness of their products on the world market.

Published by the IMF, the working paper “Revisiting Industrial Policy Analysis” provides a detailed description of a new project to study protectionism. With the support of the fund, the New Industrial Policy Observatory (NIPO) monitoring system was launched, its content is handled by the Global Trade Alert (GTA, an international organization that studies the impact of individual government decisions on global trade).

Let us note that the problem of returning to the practice of protectionism in the context of increasing geopolitical tensions is known and has been widely discussed before, but has not yet been studied so specifically. NIPO accumulates data on “government interventions in the economy aimed at supporting specific industries and individual companies.” The database allows you to track who is most likely to launch protective support mechanisms, what measures are chosen and what explains their introduction. The analysis of statistics is a recording of how the local use of instruments by individual countries ultimately affects world trade.

It is too early to draw conclusions about the nature of the “new” protectionism – monitoring has only been running for a year. However, the first results are described and allow us to judge at least trends. In total, in 2023, the study area included 2,500 economic policy measures, more than 70% of which (about 1,800) could negatively affect (or are already affecting) world trade. China, the EU and the US together account for 48% of the total number of such measures.

The most popular protective tool is providing subsidies to its producers. Developed countries more actively stimulate exports and conduct government procurement, while developing countries limit imports and strive to replace foreign products with their own. The sectoral breakdown of measures shows that the focus of support is on the production of dual-use (military and civilian) goods (such assistance accounts for 25.7% of the total number of measures), as well as medical devices and semiconductors (20.6%).

Interestingly, most often the authorities explained the deployment of protectionist measures in 2023 by the desire to ensure the competitiveness of domestic products – this argument was given in 37% of the analyzed cases. Just over 28% of the mechanisms were launched under the pretext of mitigating the consequences of climate change. The argument for another 15.2% of measures was concern for the sustainability of supply chains, for 19.7% (in total) – countering geopolitical risks and upholding national security.

The last two arguments are increasingly heard when countries introduce so-called retaliatory measures, which the authors of the document call “tit-for-tat”: according to their calculations, in 70% of cases the launch of protective mechanisms by one country leads to their launch by another (as an illustration, the document provides relations USA and China – for more details see “Kommersant” dated December 8, 2023). In general, the current degree of government intervention in the economy actually returns developed countries to “aggressive” protectionism, the IMF concludes and invites them to think about alternatives.

Kristina Borovikova