Monetary Policies
is. What may appear to be a defensive policy of retaliation by one country may be seen as a protectionist act by another. Moreover, the tools to implement protectionist policies are very wide- ranging. Tariffs, all kinds of subsidies and preferential tax treatments, government contracts and even exchange rate policy or health and safety requirements can be
part of
protectionist box.
the tool
L i m i t prote ctionism has been quite high on the agenda of policy- makers in the last few decades. To a first order of approximation we could say that “avoiding p r ot e ct io n is t measures” has been the mission statement of the World Trade Organisation (WTO). One of the functions
of the WTO is dispute
settlement with regards to potentially protectionist policies and this provides a very simple quantitative proxy for protectionism: the number of cases brought to the WTO per year.
In a recent paper Goldman Sachs analyzed the situation in detail.
Te total number of dispute cases since the creation of the WTO amounts to 454 between 1995 and 2012, which translates into an average of 25.2 cases
per year. However, this average masks a trend decline. From 1995 to 2003 the number of cases systematically exceeded 20 per year, with a peak at 50 in 1997. Between 2004 and 2011, there were 20 cases per year or fewer. Te lowest number of cases ever recorded was in 2011, when there just 8. It is interesting therefore that the following year, 2012, recorded a
FX
which results in tit-for-tat currency devaluations, along with monetary easing, would probably have been much less damaging than the direct trade and exchange control
retaliations which
actually occurred back then. Tat has been borne out by the pattern since 2008, when countries have engaged in tit-for-tat
currency devaluations – the most recent coming from Japan and Switzerland – while direct trade controls have mercifully been much less pronounced. As Gavyn Davies brilliantly writes on the Financial Times:
“As a result, the decline in world trade fom 2008 onwards was not
notable increase in WTO dispute cases. At 27 the number was above the annual average since the inception of the WTO. Of course, this number of WTO cases is only one indicator and needs to be set alongside the substantial reduction in global tariff levels over the past couple of decades. Besides, many other factors may have played a role in the recent rise in dispute cases, including the subdued growth in global trade volumes in 2012.
It may be a currency war but it does not look like a trade war
much larger than that in industrial production, and trade then rebounded much more quickly than in the 1930s. Tere seems to have been no permanent loss of trade relative to industrial output, though the long term rise in the openness of most economies to foreign trade does seem to have stopped since the crash. Tis is probably because there have been some limited direct trade controls introduced since 2008, including anti- dumping measures, domestic preferences in government procurement, protective regulatory standards and the like.
Even in the 1930s a currency war, Tere are various reasons why countries FX TRADER MAGAZINE April - June 2013 49
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