NS3040 Fall Term 2014 The New Protectionism

New Protectionism I “New Protectionism Will Hit Business,” Oxford Analytica, December 14, 2012 The emergence of global protectionism With the world economic slow-down: the loss of jobs and the rise of new global competitors More sophisticated forms of protectionism are emerging New protectionism moves beyond traditional trade protection Encompasses various forms of international business activity Foreign direct investment Offshore sourcing Even labor movement Its geographical scope is broader than that of trade protection Targets are increasingly businesses form large emerging markets 2

New Protectionism II Global protectionism rarely based simply on objective economic calculation Rationale underpinning it is predominantly political and strategic Seeks to allow countries to benefit from globalization while minimizing exposure to its challenges Retain control over critical resources Ensure national security Manage economic prosperity in an increasingly competitive environment Maintain national identity seen under threat from globalization Such aims are encouraging economic nationalism – the use of economic policy instruments to increase national power and unity Governments are increasingly developing new policy interventions to protect what they define as their national interests. 3

New Protectionism III Global protectionism used to facilitate not just economic adjustment and adaptation but also to support Economic patriotism National security State led industrial policy Takes many forms Calls at the EU level to evaluate foreign direct investment on strategic grounds Brazil reviewed eligibility criteria for investment in agriculture 4

New Protectionism IV Forms (contd.) China has developed rules covering foreign acquisitions from a national security perspective Foreign investment review rules have been amended in countries including Russia, Canada, and Australia to embody national interest concerns Different Stakeholders Pressure for traditional trade protectionism cam from adversely affected firms and industries Demand for global protection – a variety of sources National leaders Industry groups Employees and consumers 5

New Protectionism V In many cases – focus is on a single firm or deal which in turn triggers broader demands A key characteristic of global protectionism is its selective view of globalization Accepts globalization’s best features while Avoiding the worst Selectivity can lead to incoherent positions lacking a clear rational for intervention For businesses – understanding and isolating the determinants of global protectionism is difficult Main consequence -- it increases the uncertainty for businesses, especially market entry Major difficult of global protectionism is anticipating its likely incidence, source or form. With increased uncertainty comes lower world investment and growth. 6