India's role in a multi-polar world - Alfred Herrhausen Gesellschaft

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Through a billion voices: India’s role in a multi-polar world
not been the case.
Trade in the eye of the storm
The financial crisis has affected trade through the
trade credit channels. Due to liquidity shortages in
financial markets, credit allocated to trade finance
has been greatly reduced. The crisis has seen
increased uncertainty in business, leading to a rise in
the demand for letters of credit for trade. Banks have
also been increasingly unable to guarantee finances
for trading. Owing to the lack of trade finance,
traders were forced to fund trade with alternative
resources. High exchange rate volatility has also
been a feature of the crisis – again increasing the
level of uncertainty for firms producing for foreign
markets. The effect of asset bubbles has also spilled
over into the manufacturing sector. Prices of oil and
metal have shot up to unsustainable levels. As a
result, prices have risen, but actual trade taking place
in each commodity has fallen greatly. And so, all –
trade finance, exchange rate volatility and commodity
bubbles – have played a destructive role in the trade
sector. These factors should subside once economies
return to their normal state.
However, the financial crisis has resulted in severe
policy distortions within the trade sector. Therefore
it is worth considering whether such distortions can
potentially transform temporary features of the crisis
into permanent features of post-crisis economies.
Since monetary policy was ineffective in dealing with
the crisis, governments resorted to fiscal stimulus in
the hope of boosting economic growth. A number
of countries now believe that the external sector
has been the source of much uncertainty and that
the best way forward is to look inwards, at the
domestic economy. As a result, fiscal packages have
been aimed at boosting the domestic economy and
designed to avoid spillovers into foreign markets.
This has had a huge impact on the differential effects
of the domestic versus the external sector. A number
1 Simon J. Evenett and John Whalley 2009, VoxEU
The perils of protectionism | Karan Singh
of projects now focus primarily on the domestic
economy: take for instance the focus on the green
economy, where a number of countries have set aside
a large proportion of their fiscal stimuli for spending
on green projects - South Korea (81%), the EU (59%),
China (38%), France (21%), Germany (13%), the US
(12%), Australia (9%), Canada (8%), the UK (7%)
and Spain (6%). With regards to their green projects,
these countries also discriminate against foreign
firms. 1 One example, from the recently enacted
A number of countries now believe
that the external sector has been the
source of much uncertainty and that
the best way forward is to look inwards,
at the domestic economy
US stimulus legislation, bans foreign firms from
benefiting from a multi-billion dollar appropriation for
high efficiency batteries.
Other conventional protectionist measures have
also surged during the crisis. For instance, the
number of anti-dumping cases (both investigations
and imposition of duties) surged in 2008 – antidumping
initiations grew by 15 per cent and findings
with imposition of duties grew by 22 per cent.
Developing countries accounted for the majority of
initiations, though developed countries accounted for
the greatest number of duty impositions. However, it
is also true that a number of countries foresaw the
danger of a protectionist backlash in the post-crisis
period. To avoid this, G20 leaders signed a pledge on
15 November 2008. Sadly, since then many countries,
including 17 of the G20 countries, have implemented
47 measures, the effect of which is to restrict trade
at the expense of other countries.
Macro-level conditions have created greater