Navigating Protectionism: Unpacking the Role of Strategic Sectors and Bilateral Dependencies

• In Event: Responses to Globalization

Abstract

While developing countries are continuing to open their markets to trade, historical
promoters of free trade are now adopting more protectionist than liberalizing policies.
This study analyzes the sectors impacted by these recent trade policy measures and
explores the role of trade dependencies in recent trade policy changes. When are
governments using protectionist policies? First I argue that sectors with higher levels
of bilateral trade with foreign countries are more likely to receive protectionist support
in order to stimulate domestic production and reduce interdependence. Second, I claim
that sectors considered strategic or critical by the government are more prone to being
targeted by protectionist policies. Empirical evidence indicates that China, the US, and
India, followed by European countries, Russia, and Brazil, have been the most active
users of protectionist trade interventions between 2008 and 2021. Regression results
reveal a significant departure from free trade in large economies as governments are
found to adopt protectionist measures to support their strategic sectors. Furthermore,
the share of bilateral trade, measured at the sectoral level, is a significant predictor of
protectionism for the US, the EU, and China, but not for India. These findings pose
a challenge to the prevailing understanding and advocacy of free trade as a means of
promoting economic growth and interdependence, especially as smaller economies are
less active.

Author

• Alessia Invernizzi, University Konstanz