Protectionism After the Crisis: The Case of Latin America

It is accepted wisdom that protectionism is a first gut reaction in times of crisis, but there are few studies on how different countries react to get themselves over the hump. What did we see this time when the global financial crisis hit in late 2008? After six years of expanding on an annual average rate of 16.3%, world exports plunged 22.6% in 2009. Trade restrictions increased but, in contrast to previous crises, the protectionist threat has not been as bad as expected, mainly because the recession in major economies was partially offset by the dynamism of emerging countries.

Latin America (LA) is a case in point. Although output in LA decreased 8% in 2009, most countries in the region showed a better performance than in previous crises as a result of stronger fundamentals. Mexico, which was amongst the hardest hit countries, has been able to remain afloat.

A study by the Latin American Trade Network (LATN) shows that the region’s exports, which had grown 16.8% from 2003 to 2008, decreased 22.5% in 2009. Imports contracted 24.7% after increasing at an annual rate of 17.4% during the preceding six years.

In this context, from mid-2008 all Latin American countries faced restrictions on their exports from importing countries. The most affected countries were Brazil, Mexico, Argentina, Chile, Uruguay, Colombia and Peru. There is a positive correlation between the country’s share in world exports and the protectionist measures it confronts. As expected, larger exporters with a more diversified production structure usually face more restrictions. However, some small economies (Paraguay, Uruguay and Bolivia) and Peru also faced high restrictions on sensitive products.

The most frequently targeted export sectors are related to agriculture, where the region is highly competitive, such as grain mill products, starches and starch products and other food products; live animals and animal products; dairy products; products of agriculture, horticulture and market gardening; and meat, fish, fruit, vegetables, oils and fats.

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What happens when we turn the page to see what Latin America has done? Most barriers enacted by LA countries involve restrictions on manufactures, such as machinery, metal products, furniture, textile and apparel, chemicals, basic metals and transport equipment. Instead of the massive bail outs and state aid measures prevailing in the US and the EU, in LA protection takes the form of trade defense measures (anti-dumping, countervailing duties and safeguards), the same as other large emerging economies such as China, India and South Africa. Following the global trend, restrictions on Chinese manufactures are frequent in Argentina, Bolivia, Brazil, Mexico and Paraguay.

But LA does not offer better treatment to regional partners, often the main source of imports. All countries with the exception of Colombia have imposed barriers on partners. In other words, regional trade agreements are no safe haven. For example, measures enacted by Costa Rica harmed other members of the Central American Common Market (CACM) and Panama. MERCOSUR members have hit each other more intensely than they have outsiders. One of the most thorny issues related to intra-zone trade in the Andean Community (AC) was the safeguard imposed in 2009 by Ecuador on imports of 1,346 products from Colombia, with the aim of counteracting the effect of the depreciation of the Colombian peso. Products subject to safeguards represented more than one-third of Ecuadorian imports from Colombia in 2008.

When all is said and done, is LA more protectionist than the rest of the world? Given the relatively strong fundamentals, the region has been well-behaved; it has imposed fewer protectionist measures than the world average. And given the commodity composition of its exports, it has also faced fewer restrictive measures than other regions.

What does this bode? If the global recovery picks up, some of the measures will be easier to lift than others. For example border measures, import licenses, anti-dumping duties and safeguards have already begun to be lifted in the region. As fear subsided and growth began to recover swiftly in the region, bottlenecks also emerged swiftly. However, many of the measures enacted during the crisis, specifically bail out/state aids and other instruments used mainly by developed countries, would be difficult to eliminate at the same speed. As the nursery rhyme says, one little pig had roast beef, another little piggy had none.

Read the full studies referenced in this post and more trade in post-crisis Latin America from LATN:

The global crisis in a dollarized economy: the case of Ecuador

Peru and Colombia: Similar Strategies, Contrasting reactions

Brazilian Trade Policy: New Motivations and Trends

Learning from Past Battles in Argentina? The Role of REPRO in the Prevention of Crisis- Induced Layoffs (co-authored by Diana Tussie)

Global Crisis and Trade Barriers in Latin America

Argentina´s border emergency-kit in times of global crisis: In case of fire, break the glass