Absolutely zero chance of a global trade collapse---the multilateral system’s incredibly resilient
Shiro Armstrong 14, economist and Fellow at the Crawford School of Public Policy, Australian National University, Co-Director, Australia-Japan Research Centre, Editor of the East Asia Forum, Director of the East Asian Bureau of Economic Research and Research Associate at the Center on Japanese Economy and Business at the Columbia Business School, September 2014, “Economic Cooperation in the Asia-Pacific and the Global Trading System,” Asia & the Pacific Policy Studies, Vol. 1, No. 3, p. 513-521
The WTO and the global trading system faced a major test during the GFC[global financial crisis]. Although advanced economies went into recession on a scale that matched the Great Depression in terms of output and financial losses, and trade flows collapsed globally (by 12 per cent in 2009), there was no significant rise in tariffs and other trade barriers. 4
In the wake of the GFC, ‘murky’, non-tariff-based protectionist measures were introduced by some governments. Some estimates of these measures suggest that they accounted for more than half of all protectionist measures in the post-crisis period (Aggarwal & Evernett 2013). Policies like local content provisions and industrial policies that restrict global trade were introduced. But after the GFC, most countries actually continued to liberalise tariffs, and changes in trade policy (via raising tariffs or taking anti-dumping action) contributed only about 2 percent of the observed drop in world trade in 2008---2009 (Kee et al. 2013). That is in major contrast to the effects of the Smoot-Hawley tariff wars during the Great Depression.
Of the 4,144 trade measures recorded by Global Trade Alert from the start of the crisis to early 2014, 22.2 per cent have been coded ‘green’ (that is, they represent, in the opinion of GTA, liberalising policy), with 57.4 per cent coded ‘red’ (policy considered protectionist). 5 One reason why some developing countries in fact dropped tariffs and other trade barriers in the aftermath of the GFC may be the rise in global supply chain trade: when it is necessary to import in order to export, the risks of retaliation are larger and there are domestic producers that demand low import barriers (Gawande et al. 2014). But the role of the WTO in this should not be understated. Indeed, the rise of global supply chains is a consequence of the rules-based trading system that GATT/WTO underwrites.
This was a significant achievement given the acute protectionist pressures. Leadership at the G20 had much to do with the ‘standstill’ on protection, but the shock of the GFC did not weaken the WTO or undermine the confidence that countries placed in it. The slow recovery of the advanced economies meant that protectionist forces put significant pressure on governments to close markets, but the global trading system has proved robust to these pressures.
The robustness of the global trading system throughout the GFC and its aftermath has meant that recession and collapsed trade in some countries have not generated conflict between countries.