The Global Financial Crisis and Protectionism

1. Why do you think calls for protectionism are greater during sharp economic
contractions than during boom periods?
Sharp economic contractions are of course directly linked to slowdowns in demand forcing
companies to adopt new strategies. One such strategy may be to lobby for protection from
imports. Another action may be to lay off workers. In an effort to protect their jobs, unionized
workers may also lobby their governments for protection from foreign competition; Market
activity can be emotionally driven; Discouraging import may not be the most beneficial idea
when attempting to protect domestic jobs; Panic raises assumptions that these measures will
protect jobs; Example: Non-tariff barrier by India with regards to the Harley Davidson
motorcycle.
2. Despite the sharp economic contraction during 2008-2009, the increase in
protectionist measures was fairly modest. Why do you think this was the case?
Thanks to the greater number of trade agreements in place today as well as WTO rules,
many countries found they had limited options when they tried to respond to the recent global
recession. In the past, countries had more freedom to implement protectionist policies like tariffs
designed to help domestic companies remain competitive and protect domestic jobs. Now
however, countries must be more creative with their efforts or risk violating trade agreements.
During the recent economic slump, some countries focused on bureaucratic changes that
effectively limited imports while other countries provided subsidies to give domestic companies
a competitive edge over global competitors; Treaties in place in WTO to monitor the actions of
the countries; WTO holds governments accountable and serves as a cushion of insurance against
protectionism; The world economy is interdependent due to fast economic globalization. Recent
EU bailout situation shows the effects of independent world; Protectionist measures was modest
because they were implemented in the form of non-tariff barriers (i.e.: bans, restrictions,
licenses, subsidies, etc.);
3. During 2008-2009 many developed nations gave subsidies to their automobile
producers. How might this have distorted international trade? Was this a reasonable thing
to do given the circumstances?
During the financial crisis in 2008, developed nations provided subsidies to their the
automobile industry (i.e.: US Government bailing out American Automobiles); Gave an edge to
this industry through various ways; Protection of local industries, avoid unemployment and hold
off bankruptcies; This gave rich countries an advantage; Kept business alive through state
support; Viewed as reasonable due to sharp economic decline; Billions of dollars invested into
automobile industry at this time; The impending negative results could have been believed to be
the next Great Depression;
4. What might occur if a renewed economic slowdown triggered a wave of
protectionist measures around the world? Would protectionism actually protect jobs, or
would it make things worse?
Possible repeat of 1930's; Low demand, unemployment = market plunge; Trade barriers
increase, tariffs increase; Does not protect jobs; Increases barriers which slows down demand;
Delays the inevitable; Markets in China and the United States dipped amid fears that the world
economy may be weak;
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