Which created more problems for the development of the global economy from 1970 to 2000: protectionism or the debt

crisis of the developing world?

Miao14A01C

Protectionism

• Details – Done to protect local industries against competitors– Increase in tariff barriers

• Nixon imposed a 10% tariff barrier on all imports in 1971 (but was soon revoked)

– More importantly, creeping protectionism in the form of non-tariff barriers• Health standards: prevented US beef from entering

Japanese markets• Voluntary Export Restrictions (VERs): US limited

Japanese car imports to 1.68m

Protectionism

• Problems created– Reduced global trade• Real world trade halved to 3.2% per annum

– Delayed global recovery • Uncompetitive domestic industries with spare

capacities• Increase in trade tensions

Protectionism

• However– Can bring about benefits• Prevents dumping (Japanese steel in the 70s)• Protects local industries from shocks

– Limited impact• East Asian Tigers, China, Japan continued to grow

despite being export-oriented

– Faded by 1990s• 1988 Omnibus Trade and Competitiveness Act• 1994 NAFTA aimed to eliminate all trade barriers

Third World debt crisis

• Details– Due to slowdown of Crisis Decades, many borrowed heavily

• From global financial institutions, which were awash with petrodollars

– Loans were spent unwisely– By 1990, 24 countries owed more than their GNP, including

the entire region of sub-Saharan Africa– Often worsened by IMF intervention

• Structural Adjustment Policies (SAPs) imposed austerity measures that were harmful

– Protectionism worsened this• Prevented debtor countries from selling exports and earning

foreign currency to pay off the debts

Third World debt crisis

• Problems created for the developing world– Hindered potential for growth• Decline in average growth from 6.3% to 1.7%• Debt repayment was at an average 3% of GNP • Reduced ability to fund development programmes

– Most economies never recovered• Out of 39 Heavily Indebted Poor Countries (HIPCs),

33 are from sub-Saharan Africa

Third World debt crisis

• Problems created for the developed world– Reduced exports

• Import growth for HIPCs was at -6% in the 1980s• US was the most affected, exports decreased by $10bn• Debtor countries needed to strengthen local currencies

– Prevented job creation• Nearly 1.6m jobs have been lost due to debt crisis

– US banks were overexposed to debts• By 1982, 9 major US banks had loaned out 287% of their

capital to developing nations• Fear of loan defaults and banking sector collapse• 1989 Brady Plan reduced bank losses by repackaging loans

into new bonds

Concluding slide

• Third World debt crisis created more problems– Greater extent• Protectionism was easily reduced in 90s but debts

could and were not

– Greater impact• Longer lasting debt crisis had greater impact• Debt crisis affected more sectors and potential

growth, while protectionism could have benefits

Essay plan

• Intensity of problems– Protectionism reduced global trade and delayed

recovery– Debt crisis did that and more – affected potential

growth, put US banks at risk

• Duration of problems– Protectionism faded by 1990s– Debt crisis still plagues Third World

• Besides, protectionism could bring about benefits