Non-tariff barriers must be reduced to tackle unusually weak growth in global trade
2 May 2018
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Growing protectionism via the increase in non-tariff barriers to trade, such as local regulations or subsidies, has led to weaker growth of global trade. In some instances this can cause more harm than tariff trade barriers.
A new report from the Institute of Economic Affairs and EPICENTER charts the growth of technical trade barriers from the beginning of the financial crisis, showing their contribution to unusually weak growth in global trade since 2008. Both initiated and introduced technical trade barriers have since remained at high levels, whilst at the same time the number of international health and safety requirements for food, animal and vegetable products has increased.
International trade has clear economic advantages and reducing non-tariff barriers could contribute to higher GDP growth. An increase in a situation when global GDP growth is already weak can lead to ever weaker global trade and growth. Rather than limiting international trade, governments should focus on creating functioning trading agreements that improve the institutional conditions for a long-term increase in trade.
Key findings:
• The weak global GDP growth since the financial crisis in 2007-2009 has coincided with unusually weak growth in global trade.
• The average global tariff level has decreased somewhat since the mid-2000s, which is in contrast to the strong increase in various non-tariff barriers to trade.
• Non-tariff barriers to trade are laws and rules that require certain products to be produced and distributed in a certain way. In particular, technical trade barriers and other administrative costs that export companies encounter can inhibit trade.
• The number of policy measures that restrict trade has increased significantly faster than the number of policy measures that liberalise trade.
• Protectionist measures affect international trade negatively. There is thus good reason to believe that the sharp increase in non-tariff barriers in recent years is an important contributing factor to the weaker growth in global trade.
• One way of ensuring a trade policy that more lastingly facilitates trade between countries may be to agree special clauses that guarantee that foreign investors and companies have the same terms as domestic investors and companies in trade and investment. Trade and investment agreements that include investment protection clauses and so-called ISDS clauses (investor-state dispute settlement) have a positive effect on international trade.
• By reducing the long-term costs associated with international trade, such agreements and clauses can stimulate more trade, despite the short-term variation in protectionism that can arise from changes of government.
Commenting on the report, Dr Jamie Whyte, Director of Research at the Institute of Economic Affairs, said:
“Growing protectionism in the form of non-tariff barriers has been an important contributing factor in the unusually weak growth in global trade seen since the financial crisis. It’s crucial that politicians across the globe recognise the inherent merits of international trade for economic growth and focus on reducing non-tariff barriers which push up costs for consumers.”
Notes to editors:
For media enquiries please contact Stephanie Lis, Director of Communications: slis@iea.org.uk or 0207 799 8909 or 07766 221 268
To download a copy of ‘Growing Protectionism after the Financial Crisis’, please click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.
EPICENTER, the European Policy Information Center, is an independent initiative of eight leading think tanks from across the European Union. It seeks to inform the EU policy debate and promote the principles of a free society by bringing together the economic expertise of its members.
EPICENTER is formed by the Centre for Political Studies (Denmark), Civil Development Forum (Poland), Civismo (Spain), the Institut Economique Molinari (France), the Institute of Economic Affairs (UK), Instituto Bruno Leoni (Italy), the Lithuanian Free Market Institute and Timbro (Sweden). Like its members, EPICENTER is politically independent and does not accept taxpayer funding.
Further IEA Reading: Globalization and Free Trade
A new report from the Institute of Economic Affairs and EPICENTER charts the growth of technical trade barriers from the beginning of the financial crisis, showing their contribution to unusually weak growth in global trade since 2008. Both initiated and introduced technical trade barriers have since remained at high levels, whilst at the same time the number of international health and safety requirements for food, animal and vegetable products has increased.
International trade has clear economic advantages and reducing non-tariff barriers could contribute to higher GDP growth. An increase in a situation when global GDP growth is already weak can lead to ever weaker global trade and growth. Rather than limiting international trade, governments should focus on creating functioning trading agreements that improve the institutional conditions for a long-term increase in trade.
Key findings:
• The weak global GDP growth since the financial crisis in 2007-2009 has coincided with unusually weak growth in global trade.
• The average global tariff level has decreased somewhat since the mid-2000s, which is in contrast to the strong increase in various non-tariff barriers to trade.
• Non-tariff barriers to trade are laws and rules that require certain products to be produced and distributed in a certain way. In particular, technical trade barriers and other administrative costs that export companies encounter can inhibit trade.
• The number of policy measures that restrict trade has increased significantly faster than the number of policy measures that liberalise trade.
• Protectionist measures affect international trade negatively. There is thus good reason to believe that the sharp increase in non-tariff barriers in recent years is an important contributing factor to the weaker growth in global trade.
• One way of ensuring a trade policy that more lastingly facilitates trade between countries may be to agree special clauses that guarantee that foreign investors and companies have the same terms as domestic investors and companies in trade and investment. Trade and investment agreements that include investment protection clauses and so-called ISDS clauses (investor-state dispute settlement) have a positive effect on international trade.
• By reducing the long-term costs associated with international trade, such agreements and clauses can stimulate more trade, despite the short-term variation in protectionism that can arise from changes of government.
Commenting on the report, Dr Jamie Whyte, Director of Research at the Institute of Economic Affairs, said:
“Growing protectionism in the form of non-tariff barriers has been an important contributing factor in the unusually weak growth in global trade seen since the financial crisis. It’s crucial that politicians across the globe recognise the inherent merits of international trade for economic growth and focus on reducing non-tariff barriers which push up costs for consumers.”
Notes to editors:
For media enquiries please contact Stephanie Lis, Director of Communications: slis@iea.org.uk or 0207 799 8909 or 07766 221 268
To download a copy of ‘Growing Protectionism after the Financial Crisis’, please click here.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.
The IEA is a registered educational charity and independent of all political parties.
EPICENTER, the European Policy Information Center, is an independent initiative of eight leading think tanks from across the European Union. It seeks to inform the EU policy debate and promote the principles of a free society by bringing together the economic expertise of its members.
EPICENTER is formed by the Centre for Political Studies (Denmark), Civil Development Forum (Poland), Civismo (Spain), the Institut Economique Molinari (France), the Institute of Economic Affairs (UK), Instituto Bruno Leoni (Italy), the Lithuanian Free Market Institute and Timbro (Sweden). Like its members, EPICENTER is politically independent and does not accept taxpayer funding.
Further IEA Reading: Globalization and Free Trade
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