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Rising Trade Protectionism and its Impact on Hong Kong

Since the financial crisis, the economic recovery remained sluggish globally, which could, to a certain extent, be directly attributable to the slowdown of global trade flows. Rising protectionism was the main reason for the sluggish trade flows and environment globally over the past few years. According to the WTO’s World Trade Report, the global trade flows only increased by a mere 3.1% annually between 2008 and 2015. It was not only lower than the annual GDP growth during the same period, but also lower than the 6.7% annual growth in the decade before the financial crisis when it was 3 percentage points higher than the global GDP growth. This clearly showed that its contribution to the global economy has been waning. Therefore, the rapidly rising and spreading protectionism was one of the major causes for the sluggish global economic growth currently.

1. Three characteristics of trade protectionism

The new phase of trade protectionism is a by-product of the global financial crisis. With the increasing pressure from the social and political environment in the Western countries, the ever rising trade protectionism is the result of a desire for global rebalancing and protection of local employment. Specifically:

First, trade protectionism has an ever rising trend. Trade protectionism and economic crisis are mutually complementary with each other. Since the global financial crisis in 2008, the economic environment worsened rapidly and the drive of trade protectionism became much stronger. According to the relevant statistics, there were over 5,000 trade protection measures implemented globally between October 2008 and end-2015. These trade protection measures became more boardbased, which not only included traditional trade barriers like tariffs, prohibition orders and quotas etc, but also new protection measures like export supportive measures, emergency trade subsidies, government procurement rights, government subsidies and localization requirements etc.

It should be noted that even though the negative impact of the financial crisis has been waning over the past few years, and the policy focus around the world also shifted from crisis management to long-term economic sustainability, the impact of trade protection on global economic growth became more prominent. However, trade protectionism did not have any sign of fading. It even gained increasing support around the globe. The Centre for Economic Policy Research in the UK recently published a report called Global Trade Alert, which showed that the number of trade protection measures globally increased by 50% last year from the preceding year, i.e. three times more than the trade liberalization measures. This means that the force of trade liberalization was lagging far behind those numerous exclusivity trade protection measures.

Second, some G20 countries also became the leaders of trade protectionism. According to European Council’s report on Trade and Investment Barriers and Protectionist Trade in June 2016, the trend of trade protectionism has been rising globally, with some advanced G20 countries even taking the lead. Based on the statistics, the G20 countries implemented 1,583 trade restrictive measures between 2008 and May 2016, with only one-fourth having been repealed currently and 1,196 measures still in force. In June 2016, the UNCTAD, OECD and WTO issued a report on G20 Trade and Investment Measures. The report stated that the G20 countries introduced 21 trade restrictive measures on average monthly between October 2015 and mid-May 2016, the fastest pace since the financial crisis in 2008. With the G20 countries accounting for 85% of global GDP and 80% of global trade volume, they have a dominant position in the global economy and world trade. Thus, their lead in trade protectionism would have profound effect on the world economy.

Indeed, the US, an advocate of free trade among the G20 countries, implemented the most trade protection measures. Since 2008, the US has introduced over 600 trade protection measures against other countries or regions, accounting for 40% of all measures implemented by the G20 countries. It also introduced 90 measures in 2015, the most in the world, and that was roughly one measure for every four days. Their pace of introducing trade protection measures was unprecedented. Moreover, the US also introduced numerous trade protection measures this year. Even though many of these measures were introduced against unfair trade treatments by the foreign companies on the surface, it was a kind of trade protection behavior in reality, with the aim of restricting foreign imports. Moreover, their trade protection measures included not only anti-dumping, anti-subsidy and other protection measures, but also a wide range of implicit requirements, such as product safety, technology restrictions, environmental protection, intellectual property protection, and labour protection etc.

Third, China is the victim of trade protectionism. The recent reports by the WTO and European Council both held the view that protectionism is rising around the world, with around one-third of those protection measures directly targeting China-related trade. The Ministry of Commerce stated that China has long been an investigation target, claiming that China provided trade subsidies to its companies. Since the establishment of WTO in 1995, 48 of its members opened 1,149 investigation cases accusing China of providing different types of trade subsidies, accounting for 32% of the world total. China was also the largest target of anti-dumping and anti-subsidy for the past 21 and 10 consecutive years respectively, losing tens of billions of dollars in trade value. This can best support the WTO and European Council’s conclusion that China mainly relied on its continuous opening policy, strengthened international cooperation and stronger international competitiveness rather than trade protection to gradually achieve its largest trade entity status.

The US and India, the largest advanced economy and second largest emerging economy respectively, were the ones which launched the most investigation cases on trade subsidies against China. According to the relevant statistics, the US launched 13 rule enforcement cases against China in the WTO. In late June 2016, the US International Trade Commission announced that the US domestic industry was being hurt by the imports of corrosion-resistant plates and cold rolled sheets from China and, thus, they introduced anti-dumping and anti-subsidy tariffs against relevant products from China. In mid-July, the US Department of Commerce also launched trade subsidy investigation against imports of stainless steel belts from China and stated that China provided 57.3% to 193.9% of subsidies to its companies. India also launched five cases of trade subsidy investigation against steel products from China this year, and it became the one which opened the most trade subsidy investigation cases against Chinese steel products.

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Content provided by Bank of China (Hong Kong)
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