OTTAWA, June 24 /CNW Telbec/ - The prevalence of global supply chains pulled Canada and the world more deeply into recession than would otherwise have been the case. However, such "integrative trade" may also be blunting the scope of the protectionist response. And the highly integrated nature of global production could help to strengthen the recovery if policy makers - including G20 leaders - do not stand in its way, according to the latest publication in The Conference Board of Canada's series outlining lessons from the recession.
"The use of global supply chains or "integrative trade" pulled us more deeply into recession than would have occurred in a less-intertwined world economy," said Danielle Goldfarb, Associate Director, International Trade and Investment Centre. "Yet the world could have experienced an even more protectionist response. Although protectionism clearly increased in response to the recession, we have not seen a repeat of across the-board, post-1930s-style trade actions.
"The highly integrated nature of global production makes it unattractive for governments to impose new trade barriers that affect not only the flow of final goods, but also has a domino effect on all of the related intermediate inputs and components. In short, tight global linkages may have blunted the protectionist response."
While the growing reliance on global and regional supply chains was a factor in the downturn, it is also likely to drive the trade recovery. Trade in intermediate goods - an indicator of global supply chain activity - tends to rebound strongly after down cycles. A similar trend can be expected this time around - unless businesses fail to take advantage of emerging opportunities, or policy makers get in the way.
During the crisis, global leaders - especially in the G20 - went out of their way to promise that they would not revert to protectionism. When faced with the political realities of the recession, many countries took protectionist actions, such as Buy American policies in the United States. Still, new protectionist measures are likely to affect at most one-half of one per cent of world imports, according to the World Trade Organization. And there is solid evidence that protectionist announcements are slowing down in recent months.
To best position the Canadian and world economies coming out of the global slowdown, Canada's and other G20 leaders need to commit to "integrative trade policies". This requires a change in mindset. It means removing barriers - not just to trade, but to investment; not just for goods, but for services; and not just for exports, but for imported inputs and technologies. A renewed commitment to no new protectionist measures and the pro-active removal of existing trade barriers would be a good start.
The report, Lessons From the Recession and Financial Crisis: Lesson 7 - Integrative Trade Can Pull Us Down and Up, is part of the Conference Board's ongoing series. The Conference Board's Forecasting and Analysis team has examined the developments of the past two years, and has drawn key lessons for the world and for Canada that deserve priority discussion among policy makers and business leaders.
SOURCE Conference Board of Canada
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