[Editorial] Bracing for Global Protectionism

Fears of the global economic crisis triggering protectionism worldwide are materializing. The number of trade regulations either implemented or under consideration against Korea over the past two months has risen to 42 in 13 countries, almost double the figure a year ago when the monthly average was 10 or under. This statistic is in stark contrast to the agreement reached by G20 leaders not to build protectionist barriers in November last year.

If a country increases trade barriers, its counterpart will counter with the same measure soon after. The U.S. Congress approved a “Buy America” clause in its economic stimulus bill requiring the U.S. public sector to use American-made iron and steel. In response, China criticized the measure and said it will not implement a similar stimulus package bill. The Chinese shipbuilding and light industries are moving toward protectionism, however. Japan is also strengthening tariff and non-tariff barriers.

Experts warn that the spread of protectionism will hamper global economic recovery. Protectionism will lead to a vicious cycle of retaliation and eventually undermine the concerted global effort to overcome the financial crisis. As a result, Korea will suffer the most given the heavy dependence of its economy on exports. Exporters should refrain from committing price collusion to prevent trading partner countries from resorting to protectionist measures. The government and business also need to closely cooperate and share information on the ever-changing policies of foreign countries.

Protectionism is also raising its ugly head even in the financial sector. More financial institutions are favoring transactions involving domestic banks and are retrieving investment funds from abroad to secure equity capital. Others are taking stiffer measures on foreign capital to protect their domestic financial industry. Again, emerging economies including Korea will likely suffer more from these measures than developed ones will. This is why emerging economies want a framework to regulate global financial markets at the next G20 meeting slated for April in London.

Advanced economies are reluctant to take drastic measures to eliminate protectionism for fear that their massive financial bailouts will feed insolvent foreign companies. The Korean government should take advantage of its co-chairing of the G20 meeting this year and do everything it can to initiate to set agenda and create a constructive atmosphere to remove protectionist trade barriers.