Navigating Protectionism: Strategic Sectors and Bilateral Dependencies

• In Event: Protectionism in the 21st Century

Abstract

In a striking reversal of historical trends, the global landscape of trade policies is shifting from liberalization to protectionism, with profound implications for international trade dynamics. This study delves into the sectors most impacted by recent trade policy shifts and examines the role of trade dependencies in these changes. It posits two main arguments: First, sectors engaged in higher levels of bilateral trade are increasingly receiving protectionist support to stimulate domestic production and reduce interdependence. Second, sectors deemed strategic or critical by governments are more frequently targeted by protectionist policies. The comprehensive analysis based on Global Trade Alert data between 2009 and 2021 uncovers a significant shift away from free trade in major economies, with the United States, China, and the European Union leading this trend, followed by India, Russia, and Brazil. Regression results reveal a notable trend: these large economies are more likely to adopt protectionist measures to bolster their strategic sectors. Furthermore, the proportion of bilateral trade dependence at the sectoral level emerges as a crucial predictor of protectionism in the US, EU, and China, but not in India. This trend challenges the prevailing advocacy of free trade as a vehicle for economic growth and interdependence, highlighting that smaller economies are less active in this shift. The study's findings not only reshape our understanding of contemporary trade policies but also call for a reevaluation of the role of free trade in an era marked by rising use of protectionist trade policies and the desire for strategic autonomy.

Author

• Alessia Invernizzi, University Konstanz