Various international organizations, including the World Trade Organization (WTO), United Nations and the Organization for Co-operation and Development (OECD) are sounding the alarm over what appears to be a sharp increase in protectionism around the world. These rising barriers to trade result, in part, in less global business, slower economic growth, and poor job gains. They also weaken the global economic recovery. What is the impact on your business?

Barriers to trade are not new. In fact, they have been rising for some time. Global Trade Alert, an organization managed by the Centre for Economic Policy Research, an independent academic and policy research think-tank based in London, UK, indicates that in the three years leading up to November 2011, countries have implemented 1,593 protectionist actions. And India leads the pact of countries implementing the most protective measures targeted against the least developed countries.

Over the past several decades, global tariff levels across the world have decreased. But as this has occurred, and even though many countries are members of regional trade agreements, their governments have resorted to other forms of creative protectionism. Known as non-tariff barriers to trade, these can include unfair standards and regulations, unreasonable limitations on import quantities, burdensome import documentation, licensing requirements and administrative entry procedures, special supplementary duties and border taxes, onerous new tariff classifications, and administrative fees all designed to unfairly reduce U.S. competition.

Regardless of the type of trade barriers erected, one thing is certain: they create winners and losers on a global scale.

Also included are agricultural, land, and corporate subsidies that unfairly reduce costs. In addition, creative anti-dumping policies, which protect domestic markets by raising prices on imports priced below-cost, have been especially notorious in recent years. In fact, legitimate instances of dumping are rare. Instead, dumping often is used as an excuse to limit international competition and bolster domestic industries.

But protectionism can have significant negative implications for domestic producers as well as foreign industries. By effectively preventing foreign competitors access to a domestic market, sheltered domestic producers tend to become complacent, producing costly, poor quality products inefficiently. This principle was exemplified by the industries of Eastern European nations during the reign of Communism.

Long ago, the United States learned harsh lessons resulting from barriers to trade. American protectionism, which widely implemented during the Great Depression, achieved disastrous results.

In the 1930s U.S. industrial production began to fall and U.S. farmers felt the effects of foreign agricultural competition. European agricultural recovery after World War I resulted in overproduction. As a result, international agricultural prices fell. The solution: on June 17, 1930, President Hoover signed the Smoot-Hawley Act that raised tariffs nearly 60 percent over their existing high rate of 44 percent. Although the act seemed like a good idea at the time, it effectively killed international trade. Within two years following the act’s implementation, U.S. exports decreased by nearly two-thirds.

In The Spotlight

In anticipation of Smoot-Hawley’s passage, France, Italy, India and Australia passed their own protectionist legislation. Others, such as Spain, Switzerland and Canada, followed suit. The result: export markets dried up and domestic industries slowed down. For the next eight years international trade declined. The unemployment rate in the United States rose to 25 percent in 1933. What began as a sincere attempt to aid U.S. industry made an international crisis of the highest order more severe.

Regardless of the type of trade barriers erected, one thing is certain: they create winners and losers on a global scale. Large companies often have the resources to hire consultants or utilize existing in-house expertise to work through these sometimes hidden barriers. Small companies typically don’t. By eliminating confusing red tape through trade agreements, small companies are put on a more level playing field and are better positioned to grow internationally.

On the other hand, smaller companies often are able to respond faster to market changes than large firms. This can give smaller firms an edge as the pace of global change quickens. And importantly, as more niche market opportunities present themselves, which may be considered insignificant for large multinationals, small firms often find many of them profitable and well worth the pursuit.

Country barriers to trade often change and evolve over time. In turn, the impact on your exports and level of competitiveness also will change. As a result, in-depth research can mean the difference between international success or failure.

This article appeared in International Insights, a Fifth Third Bank publication.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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