Protectionist measures around the world are on the rise due to geopolitical and climate changes. Our interlocutors believe they should be applied with caution, considering their ultimate impact on global trade and on every consumer’s pocket. They also believe that reform of the World Trade Organization (WTO) is necessary for positive change.
Protectionist measures worldwide are increasing. Global tariffs have fallen, but non-tariff measures, which create trade challenges, are on the rise. Over the past decade, global tariffs have decreased from 13% to 7%, while the frequency of non-tariff measures has increased from 53% to 72%. According to data from the statistical portal Statista, from 2009 to September 2023, subsidies were the most common protectionist measure implemented by governments worldwide, with over 25,000 subsidies granted during this period. Export-related measures were the second most frequently used policy against liberalization.
There are many examples of protectionist measures worldwide, with real battles occurring in the fields of food, modern technology, and the automotive industry. The fierce competition in the chip industry and electric vehicle market is ongoing. China, with its favorable car prices, threatens to “flood” the global market. The EU has announced it will increase tariffs from 17.4% to 38% on the import of these cars to protect its own automotive industry. The EU has also been forced to announce tariffs on cheap goods from Chinese online platforms like Temu, Shein, and AliExpress.
On the other hand, the UN Conference on Trade and Development (UNCTAD) points out that developing countries have increased their share in global trade, becoming key players in global value chains. There is an explosion in maritime traffic, growth in electronic commerce, an increase in plastic trade, and a sharp rise in demand for key minerals.
China is by far the largest global trader. In 2023, China’s export value was nearly 3.4 trillion USD. The US follows with an 8% share of global trade, and Germany with 7%.
IMF estimates suggest that if there were a separation of American and Chinese trade, there could be a global GDP loss of up to 5%, while WTO researchers estimate a welfare cost of up to 12%.
Katarina Zakić, Head of the Belt and Road Studies Center at the Institute for International Politics and Economy, believes that it is certain we will have a world divided into several trade blocs in the future, and that this is a reality we must adapt to. “Regionalism is a feature of modern times, and judging by the results of certain regional integrations like the EU, ASEAN, RCEP, and USMCA, their survival seems assured as they are achieving excellent results. It is clear that the benefits of such integrations outweigh the negative effects, so it is likely that other economic regions will attempt to establish their own regional integrations,” says Zakić.
According to her, the World Trade Organization (WTO) is not at its end, but a fundamental reform of the system is necessary. The reason is the difficulty in aligning states’ views on regulations intended to correct market distortions, whether they are due to dumping, protectionism, tariff and non-tariff measures, environmental protection, or intellectual property.
She states that protectionism cannot contribute to reducing inequality within countries; only a different, fairer economic system could do that. Balancing between national and global interests implies that each country must carefully define its national interest in a way that does not harm others, which is often not the case in practice.
Slobodan Aćimović, a professor at the Faculty of Economics in Belgrade, is concerned about the growing polarization between Eastern and Western economic powers. He does not believe that the role of the WTO will strengthen globally, rather, each country will use it according to its own needs. The essence is that the global economic center is shifting eastward and to the global south, while the Western world faces challenges. He also notes that this is reflected in growth rates. “China’s growth rate is 5.5% and India’s is 8.5% this year, while growth rates in the EU are barely above zero or negative,” he points out, concluding that all this clearly indicates changes in the global economic landscape.
He adds that protectionism in the EU and the US will have some negative but also positive consequences for our country. If the Serbian economy takes advantage of new nearshoring opportunities and integrates into trade and logistics chains, it could be in a favorable position. “Serbia could position itself as a mediator between the East and the West and use opportunities to attract FDI. We must be smart in adapting to new economic realities and market needs,” he believes.
Zakić argues that the long-term effects of protectionism are evident: more expensive products and services in final markets, layoffs due to lack of work, and deepening disparities between developed and developing regions. Small and medium-sized enterprises face difficulties expanding their business due to high tariff and non-tariff barriers, and there is also an increase in work inefficiency due to a lack of healthy competition.
“Protectionism makes sense when protecting activities that are essential and for those with potential who want to shield themselves from foreign competition. Measures should be in place when something is being protected or liberalized. There needs to be a strategic assessment of what is done if another pandemic or extreme circumstances occur. What form of production is important, such as medicine and food, agriculture, energy,” Zakić notes.
She emphasizes that subsidies are not unknown in the global economy and that numerous disputes are ongoing within the WTO, including between the US and the EU, which are political allies.
“No one can prevent a state from providing incentives to producers, as this is a strategy for economic development. Just as China supports economic development, the EU protects its farmers, and it is difficult to compete with EU agricultural producers. In China, the state provides incentives, but not all entrepreneurs survive in the market due to such subsidies. Given the strong domestic competition, some companies fail, but the best survive and can compete on the global market. Success in the domestic market provides better chances abroad. China believes this approach is correct and that, despite some failures, successful ventures make up for them. It is a strategy of risk diversification in investment, allowing for the selection of the best through internal competition,” explains Zakić.
The Battle for the Car Market
Regarding the EU’s latest measure and the imposition of tariffs on Chinese car imports, Zakić views this as a temporary solution since China has already responded by imposing additional tariffs and halting the import of products crucial for European exports to the Chinese market. Such types of trade wars are a way to react to certain phenomena and demonstrate a country’s negotiating power. The biggest losers are the end consumers, who end up paying higher prices for products or services that they could have bought at significantly lower prices. In some situations, producers are also affected.
Zakić believes that the dominance of certain economies over others will only be avoided if a system is introduced that requires greater adherence to laws and acceptance of penalties for identified violations.
Professor Aćimović highlights the absurdity of Western countries’ behavior towards China. The protectionism pushed by Europe seriously threatens its economic interests and the long-term prosperity of Europeans themselves. “Weaker players go against the larger ones, but paradoxically, they are also going against their own companies. Germany will suffer the most, as its companies, like BMW, have their production facilities in China,” Aćimović emphasizes.
He warns of potential Chinese retaliation in the form of increased tariffs, which are already significant for certain products. On the other side of the Atlantic, measures are even more drastic. Americans have raised tariffs up to 100% on certain models of electric vehicles.
Aćimović points out that it is a misconception to think that China threatens global trade with state subsidies. China’s main advantage lies in its progress in modern technology, not just the subsidies its manufacturers receive. “The EU has not proven those ‘high subsidies,’ and Germany acknowledges this in challenging these measures. In fact, those high subsidies are larger and more widespread in the EU than in China, especially in the aviation industry, agriculture, and particularly in the auto industry, especially in Germany,” says Aćimović.
He also notes that Hungary is witnessing two significant Chinese investments: one is a factory in Debrecen, and the other is an electric vehicle factory in Szeged. These investments represent a significant step in expanding China’s manufacturing capacity in Europe, showing their strategy of expanding and diversifying production beyond their borders.
Who Leads Protectionism?
Protection from unfair foreign competition caused by the import of products that receive high subsidies in their country of origin must be implemented through reciprocal measures such as anti-dumping and countervailing duties.
It is difficult to say with certainty which country currently leads in applying protectionist measures. Under Donald Trump’s administration, the US imposed tariffs on steel, aluminum, solar panels, and other products from China and Europe. Intellectual property protection is a key aspect of American protectionism, especially against competition from China. Currently, America is focused on protecting chip production. Interestingly, Taiwan is home to the world’s largest chip factory, and the battle for this island is cited as a potential cause of future conflict between China and the US.
The US has also strongly opposed the rise of Huawei in its market, particularly concerned about the potential for espionage. To preserve national security and technological superiority, numerous protectionist measures were imposed against the company.
US protectionist policy under Joseph Biden’s administration has continued with similar trends, including high tariffs on vehicle imports and key components for the automotive industry, as well as a ban on technology transfers to China to protect American innovations and security.
On the other hand, China frequently uses subsidies, tax incentives, and other measures to enhance competitiveness, particularly in high-tech sectors like IT, the automotive industry, and energy. It applies high tariffs, import quotas, and production localization requirements to limit foreign companies’ access to its market. The “Made in China 2025” initiative represents a strategy for transforming Chinese industries and achieving technological dominance by 2025. Chinese protectionism includes strict controls over foreign investments, particularly in key sectors like telecommunications and IT.
Citizens Bear the Consequences
Professor Aćimović also believes that the outcome of the upcoming US presidential election in November will be crucial for the future of global trade. He notes that citizens are the ones who pay the price for these measures.
“Protectionism increases inequalities within countries, and the greatest beneficiaries of free trade are the poor and middle class, as numerous studies have shown. Cheap Chinese goods have reduced living costs for hundreds of millions of people in the West and improved their standard of living, as well as in Africa, Asia, and the Global South. China produces half of all goods manufactured in the world, including half of all vegetables,” Aćimović emphasizes.
Milenko Krajišnik, a full professor at the Faculty of Economics in Banja Luka, points out that protectionist measures, if excessive, hinder international trade and, in the long run, global economic development. “The negative impact on economic growth will be particularly pronounced in countries exposed to strong protectionist measures such as dumping, large subsidies that create unfair competition, high tariff and non-tariff barriers, or political measures like sanctions, embargoes, and boycotts. This could be a particular problem for small and open economies. All protectionist measures that exceed the need to protect domestic production are a sort of ‘stake in the heart’ for global trade, while ‘the magic wand’ for economic security is only economic growth,” Krajišnik states.
He emphasizes that the future of international trade depends on the development of global geopolitical relations, and if the world is divided into geopolitical blocs, we will also have trade blocs and trade wars. “To prevent this, a reconstruction of key international institutions, including the World Trade Organization, is necessary. The WTO has significantly contributed to the growth of global trade but has proven ineffective in resolving disputes among major players like the US and China,” says Krajišnik.
Forecasting the future of international trade is complex and depends on many factors, including economic, political, technological, and social changes worldwide. However, some trends and perspectives can be observed. Protectionist measures will not disappear but will multiply, as indicated by current trends. Geopolitical tensions, climate, and demographic changes are driving the world toward potential “food wars,” recently highlighted by the company Olam Agri, one of the leading global agricultural product traders.
Author: Maja Jovanov
Source: Svet osiguranja