Protectionism

A new protectionist era

We are at a defining moment in time for businesses – a new Protectionist era.

Surging further up the business agenda, Protectionism has shown sustained and continuous growth, forging deeper into global policy as a result, the positive and negative effects of which are being felt now more than ever.

The powerhouses China and the United States continue to vie for economic supremacy, employing restrictive import and export measures and prompting a major shift away from global free trade. Britain's Brexit from the EU in January 2020 heightened insecurity in European policy, the outcomes of which are sure to be felt in the UK, on the continent and internationally.

New frontiers have also emerged. Businesses and markets must navigate; increasing populism, the growth in importance of regionalisation, the limited access to capital and the disruptive impact of technology.

With growing uncertainty in global policy are we seeing the end of globalisation and trade liberalisation? Is the age of restriction and increasing regionalisation upon us? Has populist sentiment won out over openness in the world economy?

In our latest findings, we explore the data behind Protectionism's rapid acceleration, addressing the influences driving potentially discriminatory measures over liberalising policies in the move towards global protectionist sentiment.

What is protectionism?

For businesses, Protectionist policy has muddied the waters in recent years, making the landscape increasingly uncertain with growing complexities at national and international level affecting how industry interacts. But what is protectionism and what must businesses navigate?

Protectionism refers to the policy of protecting domestic industries against foreign competition through tariffs, import quotas and subsidies, or other restrictions placed on the imports of foreign competitors. Governments may implement protectionist policies with a view to improving economic activity in the main, but policies may also be the result of concerns by government or as a result of growing scepticism towards multilateral trade arrangements.

Beyond barriers to trade, protectionism is increasingly influencing national assets, including technology, which has become the latest battleground and the new frontier of global supremacy between the US and China and beyond.

Protectionist policies are implemented by many countries in a bid to redress competition and protect the economy at a localised, domestic level. However, many economists suggest that the world economy benefits from free trade more generally and protectionist measures are counterproductive on a global scale.

The advantages and disadvantages of protectionism

The merits and drawbacks of protectionism are the subject of much debate.

A protectionist trade policy may allow governments to promote domestic trade and production in goods and services, imposing tariffs subsidies, and quotas or otherwise limiting foreign goods and services in the marketplace. Over the long term however, moving away from free trade policies or by deploying protectionist actions, may be damaging to countries in slowing economic growth and increasing inflation.

So what are the advantages and disadvantages of protectionist measures?

Domestically, protectionist measures restricting imports could actively drive trade success and production for businesses accessing a less competitive market, which may seek to strengthen national economic flow. Similarly the costs to international investors in exported goods, services, or technologies are driven up in the wake of trade barriers. For growing businesses and upcoming market entrants, protectionism may also stimulate domestic growth in industries dominated by international powerhouses.

Equally, protectionism may actively weaken national economies though highly restrictive measures. For businesses, such restrictions could be catastrophic in the limitations imposed outside a free market, and in stifling innovation. The consequence of such measures may actively drive less competitive marketplaces, particularly for businesses seeking to access markets where domestic protectionist policies are limiting and competitors are offered advantages through imbalanced restrictions. This may lead to economic isolation for businesses and markets in the longer term.

Protectionism in 2020 and beyond

So, what does the international business and trade landscape look like in 2020 in the wake of global protectionist measures? How can businesses minimise the potential threat of global protectionism in 2021?

Access the full data in our latest findings, 'Protectionism: a new era' - launching at a defining moment in time for businesses as protectionist sentiment forges deeper into global policy, and at a time of widespread economic fragility as the world navigates COVID-19 uncertainty.

The white paper, explores in detail the new frontiers for business, facing the need to navigate increasing populism, the growth in importance of regionalisation, the limited access to capital and the disruptive impact of technology.

Where it all started

In 2018, Gowling WLG began researching and analysis protectionism - an issue which goes beyond the current headlines of UK political turbulence, Trump and Brexit to examine what these recent seismic changes mean for UK businesses trading internationally.

Our inaugural report, 'Protectionism: are you leaving yourself open?' includes exclusive research with 500 of the UK's top C-Suite and GCs, insight from our research into trade policies, as well insight from leading thinkers across a diverse range of sectors.

By studying trade policies implemented by more than 60 countries* since 2009 we built an international protectionism heatmap. In order to understand how protectionism affects various countries, we looked at several key indicators, including their reliance on imports, the number of liberalising vs restrictive policies and finally the impact of their protectionist policies.