The Monkey Cage , one of our favorite political science blogs, has shared an interesting article from Soo Yeon Kim of the National University of Singapore (from Political Economist ). Kim argues that the latest global recession was different from previous ones in that "that dreaded specter of protectionism did not materialize." And she says the primary factor seems to be organizations like the IMF and WTO working hard to discourage change in policy that would scale back global trade: There is widespread agreement regarding the critical role of international institutions as “firewalls” against protectionism during this recession. Economic and non-economic international institutions have served as conveyors of information and mechanisms of commitment and socialization. Their informational function enhances the transparency and accountability of states’ trade policies, and they mitigate uncertainty when it is running high. Specialized international institutions devoted to trade, such as the WTO and preferential trade agreements (PTAs), also lock in commitments to liberal trade through legal obligations that make defections costly, thus creating accountability in the actions of its members. Equally important, international institutions are also arenas of socialization that help propagate important norms such as the commitment to the liberal trading system and cooperative economic behavior. In this connection, the degree to which a particular country was embedded in the global network of economic and non-economic international institutions has been found to be strongly correlated with fewer instances of protectionist trade measures. Information provided to date by international institutions, with the exception of the GTA project, largely agree that states have not resorted to large-scale protectionism during this recession, in spite of the fact that the “great trade collapse” at the beginning of the current crisis was steeper and more sudden than that of its Great Depression predecessor. The WTO Secretariat, in addition to its regular individual reports on members’ trade policies under the Trade Policy Review Mechanism (TPRM), has issued more than a dozen reports on member states’ trade policies during the crisis. At the request of the G-20 countries, which pledged not to adopt protectionist trade measures at the onset of the crisis in 2008, the WTO, the OECD, and UNCTAD have produced joint reports on the trade and investment measures of the world’s largest trading states. They, too, find that G-20 countries had largely adhered to their commitment not to raise trade and investment barriers. In the World Bank’s Temporary Trade Barriers (TTB) project, an important and unique data collection that includes information on pre-crisis and crisis trade policy behavior, Bown finds that temporary trade barriers such as safeguards, countervailing and antidumping duties saw only a slight increase of usage by developed countries, in the neighborhood of 4%. In contrast, emerging market economies were the heavy users of TTBs, whose usage rose by almost 40% between 2008 and 2009. As scholarly insights accumulate on the current recession and its impact on protectionism (or lack thereof), two questions emerge for further research. First, to what extent have governments employed policy substitutes that have the same effect as trade protectionism? International institutions may appear to have been successful in preventing protectionism, but governments may well have looked elsewhere to defend national economies. This question can be seen in the broader context of the “open economy trilemma,” in which governments may achieve only two of three macroeconomic policy objectives: stable exchange rates, stable prices, and open trade. Irwin argues that governments that abandoned the gold standard during the Great Depression were less protectionist, and their economies also suffered less from the recession. Existing scholarship also indicates that governments are likely to employ policy substitutes, opting for monetary autonomy when facing trade policy constraints, for example, due to membership in a preferential trade agreement. Moreover, at the time of writing, the International Monetary Fund (IMF) has announced that it has dropped its objections to capital controls, albeit cautiously and only under certain conditions, thus potentially providing another policy alternative for governments to achieve economic stability during this crisis. Future research may further extend the application to policy substitutes that are deployed during economic downturns. Read the full article here .
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