f e a t u r e ART I C LE 325

Understanding the Rise

of Global Protectionism
By
Peter Enderwick

The past three decades are generally regarded as a period of widespread liberalization and high
growth within the world economy. On a wide range of measures, this era has seen the rapid global-
ization of business and the lifting from poverty of a large number of the world’s poorest, particularly
within large emerging markets such as China and India. While the undoubted benefits of globaliza-
tion are widely recognized for raising economic growth rates and engaging a much larger number of
nations in international business activity, globalization has always had its critics. The purpose of this
article is to explore the recent rise in protectionism—what has been termed “global protectionism”—
to examine how it differs from traditional forms of trade protectionism, and to offer some tentative
assessment of its determinants. © 2011 Wiley Periodicals, Inc.

Int r o d u c t i o n While the global era continues to deliver high rates

of economic growth, particularly within emerging econo-

T
he past three decades are generally regarded as a mies, we can discern a new and emerging set of concerns
period of widespread liberalization and high growth with globalization, articulated not just by opposing groups,
within the world economy. On a wide range of mea- but increasingly by national political and economic lead-
sures, this era has seen the rapid globalization of business ers. A number of well-known cases—the Dubai Ports
(Legrain, 2002; Wolf, 2004) and the lifting from poverty of World case and opposition to the China National Offshore
a large number of the world’s poorest, particularly within Oil Corporation’s (CNOOC’s) attempted takeover of
large emerging markets such as China and India. While the Unocal in the United States, the creation and protection
undoubted benefits of globalization are widely recognized of “national champions” in France, oil nationalization in
for raising economic growth rates and engaging a much Venezuela, and Russia’s restrictions on foreign investment
larger number of nations in international business activity, in the energy sector—illustrate a new and more selective
globalization has always had its critics. In the past, this oppo- attitude toward international business activity. At the same
sition was limited both in its breadth and effectiveness. Small time, a number of countries struggle to contain and adjust
but vocal groups of opponents regularly targeted major to unprecedented levels of global migration (Hatton &
trade and economic summits expressing concerns over the Williamson, 2006), as well as the fear of jobs being shifted
distributional and environmental impacts of globalization overseas (Drezner, 2004). While still at an early stage, this
as well as a more general rejection of capitalism (Doh & apparent rise in protectionism does have some empirical
Teegen, 2003; Graham, 2000). foundation. For example, Kalotay (2007) reports a rise

Correspondence to: Peter Enderwick, Auckland University of Technology, Private Bag 92006, Auckland, New Zealand, +64 9 917 9999 ext 5748 (phone), +64
9917 9999 9876 (fax), [email protected].

Published online in Wiley Online Library (wileyonlinelibrary.com)

© 2011 Wiley Periodicals, Inc. • DOI: 10.1002/tie.20410
326   f e a t u re a r t i c le

since 2004 in the number of regulatory changes less favor- These discussions also make it clear that economic
able to foreign direct investment. nationalism does not preclude trade or international
The purpose of this article is to explore the recent business activities more generally. Economic national-
rise in protectionism—what has been termed “global ism should not be equated with autarky (Gilpin, 1987;
protectionism” (Meunier, 1999)—to examine how it dif- Mayall, 1990). Indeed, the experience of the past decade
fers from traditional forms of trade protectionism, and to or so has been that international economic engagement
offer some tentative assessment of its determinants. The can bring huge benefits to a nation. The emphasis on
discussion is organized into five primary sections. Follow- national unity and power suggests that economic nation-
ing this introduction, the second section discusses the alists will embrace global exchange when this contributes
idea of economic nationalism, which underpins recent to the economic success of the individual nation-state
protectionist sentiment. The third section contrasts the (Nakano, 2004). The work of Evans (1997), who finds a
old and new forms of protectionism and highlights the greater role for government in small open economies,
defining features of the new or global protectionism. A and Katzenstein’s (1985) cases of small European nations
tentative discussion of the likely determinants of global both highlight the ways in which government policies
protection is offered in the fourth section. The last sec- can be used to provide the necessary social protection for
tion contains concluding comments. national unity in a competitive world economy. The more
recent experience of the Republic of Ireland, with its
Eco n o m i c N a t i o n a l i s m a n d tripartite corporatist bargaining approach to managing
Pro t e c t i o n i s m economic growth, is a further example.
In the global era, we can see economic nationalism as a
We can define economic nationalism as a set of policies reaction to a number of economic conditions. On the one
emphasizing domestic economic activities and unified hand, the expansive processes of globalization can threaten
national interests. It is difficult to argue that there ex- national identity and encourage a protective response. The
ists a coherent theory of economic nationalism; rather, French view of the demeaning global impact of American
the concept has been associated with a particular set of culture is a prime example. At the same time, policymakers
attitudes (Gilpin, 1987). Moreover, the form of such at- may foresee an opportunity to consolidate their economic
titudes and associated policies has evolved over time. As position by pandering to such sentiment. The creation of
Helleiner (2002) recognizes, the absence of a coherent national champions and the enhancement of economic
policy program underpinning economic nationalism status is one manifestation of this type of response. A second
means that its appeal is likely to persist, even in an era set of conditions may be found in resource-rich export na-
of market liberalization and global economic activity. tions who use current strong demand conditions to consoli-
Economic nationalism is quite distinct from ideologies of date their hold over critical resources or their share of value
Marxism or liberalism, which view the economy in class from resource industries. The recent policy proclamations
terms—the former seemingly advantageous to labor, the of Venezuela and Russia may be interpreted in this light.
latter to capital. The concept of economic nationalism Third, the post-9/11 emphasis on national security offers a
builds on the broader concept of nationalism, the impor- rationale for economic protectionism in what may be seen
tance of national identity. Economic nationalism, with as critical sectors or against investment from questionable
its emphasis on economic security, focuses on the use of sources. The recent incidents with Dubai Ports World in
economic policy instruments to increase national power the United States and Dubai Aerospace Enterprises in New
and unity. Zealand illustrate this type of thinking. A fourth justification
Recent discussions anticipate a decline in the signifi- may be found in the reaction to new global processes of ex-
cance of economic nationalism as global economic activ- pansion, including offshore sourcing. In a number of cases,
ity and the increasing role of international agencies and the initial reaction was a desire to preclude such activities, at
MNEs erode the economic power of individual nations least within the public sector (National Association of State
(Gellner, 1983; Hobsbawn, 1992). However, Greenfield Procurement Officials [NASPO], 2005).
(2003) highlights the centrality of nationalism in promot-
ing forms of social structure conducive to an effective From Trade Protectionism to Global
modern economy. This suggests the likelihood of rising Protectionism
nationalism within emerging markets such as China,
India, and Russia as they move to industrialize or rebuild Protectionism is far from new and has a long and
their economic systems. controversial history, particularly trade protectionism

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 Understanding the Rise of Global Protectionism 327

(Corden, 1971). While the benefits of international costs resulting from the tariff. Of course, such a strategy
trade—increased specialization, exploitation of com- assumes that the manufacturer does not simply shift
parative advantage, and attainment of economies of sales to an alternative market.
scale—are well understood, there is less agreement on Perhaps the most substantial justification of trade
the appropriateness of trade restrictions. A number of protectionism is the infant industry one. The thinking
arguments in support of trade protectionism have been underpinning this argument is that for a country, particu-
made. One argument is that of sovereignty and the idea larly a developing country, to establish a new industry, it
that trade increases dependency on other nations. This may be necessary to shelter the emerging industry from
may trigger restrictions, particularly in what are consid- overseas competition in its fledgling years until it is strong
ered strategically important industries such as defense enough to survive on its own. Historically, this argument
or airlines, or where cultural integrity is threatened. was used by the United States as it sought to industrialize
For example, a number of countries place restrictions in the face of British dominance of world trade and, more
on foreign ownership of their airlines or within various recently, by both Japan and South Korea as they sought
media industries. A second antitrade argument focuses to become global competitors. A variant of this case is the
on the fear that trade will drive standards to the lowest “import surge” argument whereby an industry is provided
level—the so-called “race to the bottom” argument. The temporary relief to restructure and adjust to new com-
process at work here is the idea that production will be petition. The US car industry in the late 1970s and early
attracted to the least-regulated and, hence, least-cost 1980s struggling to adjust to the rise of Japanese produc-
locations. However, the fact that the full costs of produc- ers is perhaps the best-known recent example.
tion (environmental degradation, labor exploitation) The focus of these arguments for protectionism is pri-
will be borne by the global community means that trade marily trade-based. However, as suggested, as the nature
restrictions may be called for. A third argument, and of the world economy has changed with the growth in
one that highlights one particular form of trade restric- importance of foreign direct investment and the recent
tion, the tariff, is the concept of optimal tariff theory. rise in offshore sourcing, a broader set of arguments for
This concept assumes that a government, by imposing a protection has emerged.
tariff (a tax on imports), is able to capture some of the A useful way to understand the differences between
manufacturer’s value share. In other words, overseas traditional and global protectionism is to contrast them,
manufacturers are assumed to (fully) absorb the higher as provided in Table 1.

table 1 A Comparison of Traditional and Global Protectionism

Characteristic Traditional Protectionism Global Protectionism

Scope of protection Trade. Restrictions on the free movement of Trade, FDI, migration, and offshore sourcing. Restric-
goods and services. tions on the free movement of capital.
Forms of protection Tariffs, quotas, nontariff barriers. Subsidies, health and safety concerns. Barriers to inter-
national capital mobility. Interventionist industrial policy.
Creation of national champions.
Source of protectionist senti- Indicative of economic weakness (e.g., firms Indicative of both economic strength (e.g., commodity
ment fear international competition). exporters such as Russia and Venezuela) and weak-
nesses (e.g., France) where governments fear loss of
national prestige and employment.
Basis for protectionism Competitive impacts. Economic patriotism.
National defense. National security.
Locus of protectionism Pressure from local producers. Pressure from national leaders, industry bodies, em-
ployees, consumers.
Coverage of protectionism Comprehensive—sees trade as a zero-sum Selective—seeks the benefits of globalization but avoid-
game. ance of the costs.
Geographical focus Primarily developed countries. All countries.
Rationale for protectionism Infant industries. Strategic resources.
National champions.

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328   f e a t u re a r t i c le

Scope of Protection courier subsidiary EMS faces through its determination

of the range of weights and administrative qualification
The first contrast is in terms of the scope of protection. standards that the four international competitors—
As indicated, the focus of traditional protectionism has DHL, TNT, UPS, and FedEx—face (Knowledge@Whar-
been on trade. Global protectionism, however, recog- ton, 2007).
nizes the broadening of international economic activity A key feature of global protectionism is the impor-
that has been characteristic of globalization and shifts tance of financial protectionism and hostility toward ac-
beyond trade to also encompass foreign direct invest- quisitions by foreign companies of businesses considered
ment, offshore sourcing, and even migration. Indeed, to be of strategic value. In part, such opposition might be
the perceived increase in protectionism in recent years attributed to the changing geography and forms of inter-
is strongly associated with nontrade interventions. Since national capital. Financial power, traditionally the prov-
mid-2005, a number of EU member nations have moved ince of developed countries, is increasingly dispersed.
to prevent cross-border mergers and acquisitions, de- Oil-exporting nations and Asian economies with strong
spite their commitment to a deepening of the single trade surpluses are now major sources of global capital.
market (Ahearn, 2006). French concern of a possible Furthermore, these investors reflect a growing diversity,
takeover of Danone by Pepsi and of Arcelor by India’s as sovereign wealth funds, government-investment com-
Mittal group triggered an initiative requiring the Caisse panies, state-owned enterprises, and wealthy individuals
des Depots et Consignations, a state-owned bank, to have become more prominent (Farrell & Lund, 2007).
increase its investment in French equities. At the same These newer sources of capital have raised security con-
time, there were proposals for incentives for companies cerns, as was apparent in the DP World and Lenovo cases
to boost employee shareholdings. The French Parlia- in the United States.
ment approved an amendment to the EU takeover direc-
tive so as to introduce “poison pill” defenses, a device Forms of Protection
that allows shareholders in firms threatened by a hostile The second contrast is in the form of protectionist in-
bid to buy new shares in their company at a big discount, struments. While trade protectionism identifies with
raising the costs of an acquisition (von Bredow, 2006). the use of tariffs, quotas, and nontariff barriers, global
Similar attempts to prevent cross-border takeovers oc- protectionism is associated with a much wider range of
curred in Italy, Spain, and Poland. Even in Germany, the measures, including subsidies, sanitary and phytosanitary
government has faced opposition from the European provisions, capital restrictions, state ownership, and even
Commission over the “Volkswagen Law,” which protects industrial policy.
Volkswagen from hostile bids (Ahearn, 2006). It is inter- These measures impose a huge economic cost, not
esting to note that the likely acquirer of Volkswagen will just on consumers, but also on producers in developing
be Porsche, a domestic company that would undoubt- countries. Research by the International Food Policy
edly benefit from increased scale. Research Institute suggests that protectionism and sub-
The rise of protectionism is not confined to the sidies by industrialized nations cost developing countries
European Union. New draft legislation in Russia has about US $24 billion annually in lost agriculture and
restricted foreign companies’ access to Russia’s natural agricultural income, while trade-distorting measures also
resource wealth, particularly oil and gas, and has seen displace more than US $40 billion of net agricultural
foreign investors squeezed out of existing operations in exports per year from developing countries. Subsidies
some cases. A more comprehensive strategy of national- in particular industries are enormous. The US Farm Bill
ization has been initiated in the Venezuelan oil industry. passed in 2002 provided for $190 billion in assistance to
In the United States, a series of protectionist moves have the US agricultural sector over the next decade. The vast
caused concern worldwide. These include the 2001 steel majority of this funding was allocated for subsidies to just
tariff that contravened WTO obligations, opposition eight crops. Cotton farmers in the United States received
to the attempted acquisition of Unocal by China-based $3 billion in 2002, over $200 an acre. Europe gives nearly
CNOOC and its subsequent takeover by Chevron, and $1 billion in subsidies to cotton farmers, mostly in Greece
the considerable political opposition to DP World’s at- and Spain. The World Trade Organization (WTO) has
tempt to buy into port management businesses in six ruled that US government subsidies to cotton farmers
major US seaports in 2006. Even China is not immune undermine free trade. The costs of this distortion are
to selective protectionism. A good example is the way in considerable. An estimated 20 million people in West
which China Post is able to control the competition its and Central Africa depend on cotton for their livelihood.

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 Understanding the Rise of Global Protectionism 329

Oxfam estimates abolishing US subsidies to the cotton

industry would lead to a 6 to 14% increase in the price
of cotton, with households in Africa’s cotton-producing
countries benefiting by 2.3 to 5.7% (Overseas Develop- China is under consider-
ment Institute [ODI], 2004).
A preference for state ownership is evident in the oil able pressure to balance its
industry, where 80% of the world’s oil reserves are already
controlled by state-owned firms. In Russia and Venezuela external account, and this
there have been recent attempts to confiscate resources
from foreign investors. In the case of Venezuela, where necessitates a shift from the
the domestic oil industry is not technologically strong, it
appears that the political preference is for control over export of goods to the export
revenue maximization.
Interventions to restrict foreign takeovers have oc- of capital.
curred in a number of countries. As mentioned earlier,
examples from France, Spain, Italy, and Poland have
been well documented. Lesser-known cases have also oc-
curred in Australia. In 2001, Australian Treasurer Peter
Costello rejected Royal Dutch Shell’s $10 billion takeover
bid for Woodside Petroleum, arguing that the takeover
was contrary to the national interest. More recently, an
international consortium bid for Qantas failed because
Australian law prevents foreign interests from owning those surveyed approved of the government’s interven-
more than 49% of the airline, and no single shareholder tion against hostile bids by foreigners.
can own more than 25% of it. A major failing with such A defining feature of this form of industrial policy is
a selective approach to capital restrictions is that it in- not simply its protection of the domestic market but the
creases uncertainty and discourages inward investment. belief that the state has both the right and the ability to
Furthermore, when governments attempt to support influence corporate strategy through the promotion of
individual companies or industries, they must make these national champions. Economies that are not internation-
strategic choices under uncertainty. In general, govern- ally competitive fear the rapid growth of cross-border ac-
ments act on the basis of less information than is available quisitions while regional economic groupings such as the
through market processes. It is likely that government European Union encourage the development of regional
interventions will be inferior to market outcomes in the strategies and structures. This trend is particularly evident
majority of cases. It is only under conditions of market in three relatively unconsolidated sectors: telecoms, bank-
failure that an economic rationale for such intervention ing, and energy (von Bredow, 2006).
appears robust (Wruuck, 2006a). Similar signs are also apparent in China, where
Protectionism in the form of industry policy is most restrictive new international takeover regulations have
evident in France. On August 31, 2005, France an- made foreign investment much more difficult in a num-
nounced that it would protect 11 domestic industries ber of sectors. At the same time, the authorities continue
defined as strategic from buyouts by foreign companies. to promote domestic consolidation and the internation-
The protected industries include defense, biotechnol- alization of leading enterprises (Boston Consulting
ogy, telecommunications, casinos, encryption, IT secu- Group [BCG], 2007; Lynton, 2007). Indeed, China is
rity, and antidote production. This was done primarily under considerable pressure to balance its external ac-
to frustrate Italian energy group Enel’s bid for Suez, a count, and this necessitates a shift from the export of
French concern. The French prime minister described goods to the export of capital. The establishment of
the measure as an example of economic patriotism. the China Investment Corporation (CIC) with a capital
Paris argued that its actions would comply with EU base of US $200 billion is one manifestation of this (De-
economic laws, which allow each country to define Woskin, 2007). However, as suggested, such investment
“strategic” sectors in accordance with national interests. bodies, which are foreign-owned, government-managed,
Such moves appear popular with voters. According to and essentially secretive, are viewed with suspicion in
a recent survey by TNS Sofres, more than two-thirds of many parts of the world.

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330   f e a t u re a r t i c le

There are a number of well-documented dangers the key concerns are economic patriotism and national
with industrial policy–type interventions. One obvious security. While the processes of globalization and eco-
one is the likelihood that other countries will retaliate nomic protectionism appear incompatible, there are
with matching subsidies or reciprocal barriers. Fur- clear links between them. Globalization brings increased
thermore, the selection of favored industries may be specialization and the need for continuous adjustment
subject to the influence of vested interest. There is also and adaptation. Such adjustment can be difficult, and
the danger that governments will select highly visible governments may be tempted to intervene to protect
but competitively inappropriate projects. The Chinese industries, firms, and employees. Where governments
experience certainly suggests that government-spon- experience poor economic performance or a percep-
sored champions face considerable challenges (Nolan tion that conventional economic policy instruments are
& Zhang, 2002; Zhang, 2004). of declining effectiveness in a global economy, they may
be tempted to resort to more extreme protectionist mea-
Source and Basis for Protectionism sures (Wruuck, 2006a). At the same time, in an era when
Traditionally, protectionist measures have been associ- many domestic economic goals—employment, interest,
ated with economic or competitive weakness. Typically, and exchange rates, for example—are increasingly de-
this has provided the rationale for subsidies, tariffs, and termined in world markets, the pursuit of national eco-
quotas. In a more dynamic context, the fostering of an nomic prestige may become a priority. One of the striking
infant industry, assumed initially to be incapable of com- features of global protectionism is the way that a number
peting unassisted, reflects underlying weakness. The con- of national governments portray it in a positive light.
ventional arguments in support of trade protectionism In an era where national security has replaced na-
were based on adverse competitive effects, where it was tional defense as the key strategic concern of govern-
believed that overseas competitors enjoyed some form of ments, the appeal of economic protectionism is all too
unfair competitive advantage or where trade represented apparent. There is increasing suspicion of new, emerging
a threat to a nation’s defense capability. This has long sources of international investment, particularly where
provided a justification for trade and investment restric- this departs from traditional sources of national com-
tions in strategic industries such as armaments, airlines, petition or where the investment vehicles do not reflect
and the media. conventional forms. The well-publicized recent cases of
With global protectionism, the source and basis for opposition to attempted or perceived takeovers involving
protectionism has become much broader in scope. Here, Danone, Unocal, Lenovo, and DP World all made refer-
ence to national security concerns.
A distinguishing feature of global protectionism is
that it appears equally attractive to economies that are
both weak and strong performers. The increased na-
tionalization of resource-based industries such as oil in
countries such as Russia and Venezuela comes at a time
of record oil prices. Here the motive appears to be to cap-

In an era where national se- ture a greater share of value (Venezuela) or to use energy
revenues to rebuild the broader economy (Russia).

curity has replaced national Locus and Coverage of Protectionism

defense as the key strategic Traditionally, pressure for trade protection came from
adversely affected industries or firms. In a small number

concern of governments, the of cases, particularly for professional workers, restrictions

on migration and occupational licensing have been used

appeal of economic protec- to maintain income levels. In contrast, under global pro-
tectionism, pressure for protection arises from a wide va-

tionism is all too apparent. riety of sources, including national leaders, industry bod-
ies, employees, and consumers. The opposition to foreign
investment by political leaders is well documented in
a number of countries, including France, Spain, the
United States, Russia, and a number of Latin American

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 Understanding the Rise of Global Protectionism 331

countries. Within the European Union there has been a The social crisis of regular riots and industrial conflict are
marked shift in opposition to the single market, which in manifestations of this underlying contradiction.
the 1980s came from firms unlikely to survive open com- Thirlwell (2007) argues that a more critical attitude
petition, while today the main opposition comes from toward globalization is now apparent in a number of
national governments and politicians concerned with countries, including the United States and much of West-
maintaining national prestige and jobs as a result of cross- ern Europe, and manifests itself as widespread disquiet
border mergers. Industry bodies and adversely affected over offshore outsourcing, foreign investment in sensitive
employees were vocal in organizing protests against industries, migration, and trade deficits. In part, much of
Walmart’s joint venture partnership with Bharti Retail this opposition is the result of poor levels of understand-
in India, which many see as a back-door way into India’s ing and debate over globalization. The benefits of global-
highly fragmented retail sector and which has stirred up ization are shared unevenly, and few governments have
strong protectionist sentiment against large-scale retail- managed the process effectively, leading Stiglitz (2006)
ing (Guruswamy, Sharma, Mohanty, & Korah, 2006). to argue the need for strong redistributive policies to
Consumer concern lies behind the calls for restrictions increase globalization’s acceptance.
on Chinese imports of toys, foodstuffs, and medicines in
light of recent quality failures (Lipton & Story, 2007). Geography and Rationale for Protectionism
However, the coverage of protectionist policy ap- Table 1 suggests that the geographical scope has broad-
pears less comprehensive under global protectionism. ened under global protectionism. While much of the
As indicated earlier, in many cases the focus is single trade protectionism was directed at other advanced
firms or deals, and it is only after this that broader regu- economies, or a select number of developing countries,
lations defining strategic assets or industries are devel- the focus is now global. As emerging economies such
oped. Indeed, a key feature of global protectionism is as China, India, Mexico, and Brazil have spawned new
a selective approach to globalization and a tendency to potential industry leaders—many of which are seeking to
accept its best features while avoiding the worst (Issac, globalize through acquisitions—they have raised concern
2007). Its selectivity also creates an incoherent approach among the most developed economies.
with no clear underlying rationale for intervention. There is considerable irony in the fact that the very
Rather, individual deals become the target for opposi- nations that have been most enthusiastic in driving
tion. Obviously, this brings benefits to a select few, but globalization—and who have benefited most from its
uncertainty for a majority. processes—are now at the forefront of embracing protec-
France represents perhaps the clearest example of tionism. Recent US trade deals, and with relatively minor
this duplicity with regard to globalization. French firms trading partners such as Peru and Panama, have included
such as Renault, Danone, Axa, Carrefour, Total, and a labor standards enforceable by trade measures. Such
number of luxury goods producers continue to build measures were long ago dismissed by the WTO. The con-
their success in world markets. At the same time, there tinuing resistance of developed countries to the reform
is considerable opposition to inward investment, particu- of agricultural protectionism is a key factor frustrating
larly acquisitions (Fenby, 2007). This duality is also appar- progress in the Doha round of multilateral trade talks. At
ent from the proposed reforms of Prime Minister Sarkozy, the same time, there is some disquiet, particularly within
who is intent on eliminating domestic structural barriers the United States, at the growing influence of developing
to growth and improving France’s economic standing but countries within the politics of WTO trade negotiations
would qualify as a fervent nationalist. France’s distrust of (Jacques, 2006).
globalization has become apparent from the continuing The rationales for protectionism have also expanded
strength of the far right, the rejection of the European beyond infant industry arguments. In an increasingly
Union Constitution in the 2005 referendum, and the security-conscious world, a wide range of sectors has now
focus on cultivating “national champions.” This highly se- been defined as strategic (including, in France, casinos).
lective protectionist focus suggests the predominance of The criticality of energy, transport, and communication
pragmatism over ideology. It is unusual for an economy infrastructure has seen new ownership restrictions im-
to pursue modernization without extensive engagement posed on these sectors. At the same time, the primacy
with the world economy. According to Sabatier (2006), of economic success in the global era has encouraged
this policy ambiguity has planted the seeds of social dis- governments to commit resources to the creation of
content in France with a marked division between those national (and international) champions. In many cases,
who benefit from globalization and those who do not. it is argued that this cannot be achieved in the absence

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332   f e a t u re a r t i c le

of protectionism. Such thinking transcends the simple and by incorporating a number of trade-related issues
infant industry arguments, as it encompasses domestic into negotiations. Trade in services, and the opportu-
consolidation, research and development (R&D) sup- nities for offshore sourcing of tasks, has significantly
port, and facilitation of entry into world markets. increased the number of workers exposed to interna-
tional competition. These workers, many of them po-
The D e t e r m i n a n t s o f G l o b a l litically articulate, are increasingly ambivalent toward
Pro t e c t i o n i s m open markets and unfettered trade. In addition, trade
negotiations now encompass a range of regulatory is-
For many reasons, it would be extremely useful to under- sues, including intellectual property, investment regu-
stand the determinants of global protectionism. Such un- lations, and environmental and labor provisions. The
derstanding would obviously be useful for policy purposes net result is to complicate the negotiation of trade and
and for risk assessment within international business investment agreements and to increase the incentives
strategies. Unfortunately, while there have been attempts to opt out.
to model the drivers of trade protection (Metcalfe & While these international factors would seem to be
Goodwin, 1999; O’Rourke & Sinnott, 2001), developing pervasive influences on global protectionism, they affect
a similar level of understanding of global protectionism different countries to differing degrees, and since the do-
seems much more difficult. main for protectionism is still the nation-state, predicting
The difficulty is primarily the result of two consider- the impacts for specific countries is unclear. For example,
ations: (1) ambiguity surrounding relationships with the the United States is particularly concerned about national
key determinants and (2) interpretive issues of aggrega- security considerations, has the largest trade deficit with
tion and causation. China, and has a sufficiently high cost level to fear wide-
spread job loss through offshore sourcing. Yet, at the
Ambiguity Issues same time, the United States is one of the most powerful
We can consider the factors likely to encourage global and internationally competitive economies in the world
protectionism at three levels: the international econ- and displays considerable adaptability in responding to
omy, the national economy, and unique or historical changes in the global economy. The net effect of such
considerations. factors on the propensity to adopt a global protectionist
At the international level, there have been a num- stance is not clear.
ber of developments in the world economy, which have At the national level, we can identify three main
nurtured global protectionism. The first would be the factors likely to influence the extent of protectionism.
rise of new competitors in world markets. The rapid The first would be the level of competitive strength (or
growth and trade success of emerging economies such weakness) of an economy. We might expect competi-
as China and India has created a fundamental change tive strength to be negatively related to the propensity
in the structure of the world economy, with emerging to adopt protectionist measures. The problem with such
markets now accounting for half of world gross domes- a hypothesis is that global protectionism is highly selec-
tic product (GDP) (at purchasing power parity rates) tive; it does not apply to the entire economy. Again, we
and over 40% of world exports. This success now un- can consider the case of the United States, which has ac-
derpins outward investment and cross-border acquisi- tively intervened in areas of comparative weakness (steel,
tions. The resultant pressures on balance of payments, paper) or political sensitivity (agriculture, infrastructure,
resource costs, and industry adjustment highlight the public-sector services) and yet which, in aggregate terms,
apparent attractions of protectionist sentiment. A sec- would be considered a robust economy. On the other
ond key change has been in international relations, hand, the competitive weaknesses of the French economy
particularly since September 11, 2001. Heightened might provide a clearer explanation.
concern with national security has led to much closer A second factor at the national level is the prevail-
scrutiny of inward investment and a desire to safeguard ing cost structure. All other things equal, a high-cost
what are now seen as sensitive or critical industries and economy, particularly where costs do not reflect produc-
resources (Marchick, 2007). The third global factor is tivity, may be more vulnerable to overseas competition,
technology, and in particular advances in communica- disinvestment, and offshore sourcing and, hence, more
tions technologies. One significant impact has been to likely to adopt protectionist measures. Again, perhaps
alter the nature of trade by both increasing the range the clearest example is France, which is struggling to
of goods and services that can be effectively traded reform its high-cost economy while simultaneously re-

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 Understanding the Rise of Global Protectionism 333

sisting foreign acquisitions, in part because of a fear that

jobs could be lost as work is shifted to lower-cost loca-
tions in Asia or Eastern Europe. However, a more im-
portant consideration here may not be simply the level It is likely that past
of costs, but the ability to upgrade economic activity to
stay ahead of competitors. French and Italian clothing historical experiences or
manufacturers that have focused on quality and sophis-
ticated design have prospered, despite the rise of China distinct social and cultural
to become the world’s leading supplier of clothing and
textile products. traits could affect the pro-
A third country-level factor is the degree of for-
eign economic involvement in an economy. We might pensity to adopt protection-
hypothesize that the higher the level of such involve-
ment, the greater the level of resentment and, hence, ist measures.
desire for protectionist measures. This might be a
factor in explaining the French attitude. The stock
of inward investment is France was 44% of GDP in
2004 compared with 36% in Britain and just 22% in
Germany. One in seven French employees works for a
foreign-owned firm compared with one in ten in Brit-
ain (von Bredow, 2006). However, there are also cases
that do not seem to follow such thinking. Luxembourg
and the Republic of Ireland may be cases in point. Green Party. In the United States, the Democratic Party,
Both have foreign investment levels as a percentage which has grown increasingly critical of trade, now con-
of GDP twice that of France and yet do not seek to trols the legislature.
limit such transactions. It might be argued that this The third set of factors at the country level is the
is an inevitable outcome of small size, but such coun- result of unique cultural and historical factors. It is
terexamples still cast doubt on some of the expected likely that past historical experiences or distinct social
relationships. It might be more relevant to consider and cultural traits could affect the propensity to adopt
the balance of inward and outward transactions. In protectionist measures. Russia represents one of the
such a case, we might expect an imbalance, and par- most extreme cases. The massive upheaval following the
ticularly a higher level of imports, inward investment, collapse of the Soviet Union, the piratization of Russian
or inward migration, to be more closely related to the natural resources, falling living standards, questionable
desire for protectionism. Similarly, the type of foreign economic advice from the West, and an embarrassing
investment may be relevant. In many nations, there is loss of international influence undoubtedly contributed
greater resentment toward acquisitive FDI or toward to Russia’s decision in the late 1990s to move away from
investment from particular locations. Both Australia closer integration with the West. Putin has capitalized on
and New Zealand, for example, have always expressed the rising nationalist response by reasserting the central-
greater resentment toward Asian than American in- ity of state ownership and national control of strategic
vestment, even though the latter has always been much energy resources (Szakonyi, 2007).
higher (Enderwick, 1998). In a similar vein, Meunier (1999) highlights the
A final factor at the national level is the political unique social and political characteristics that make
structure of a country. More specifically, we might ex- France the world leader in supporting nationalism and
pect coalition governments to be more willing to adopt economic protectionism. These include France’s view
protectionist policies in response to the demands of of itself as a world power, its latent anti-Americanism,
some of their more extreme partners. This certainly the centrality of the concept of sovereignty in French
appears to be the case in India, where further liberaliza- political thinking, the importance of the state in eco-
tion is proving very difficult to achieve. Similarly, the nomic affairs, and a strong desire to preserve French
recent Labor government in New Zealand agreed to culture and language. In combination, these factors
fund an expensive Buy New Zealand Made campaign to have made France a staunch critic of globalization and
ensure the continuing support of the country’s minority of open markets.

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334   f e a t u re a r t i c le

This discussion identifies a number of factors that number of cases emphasizing individual firms and deals.
might be valuable in explaining the adoption of global We have also touched on the difficulties of hypothesiz-
protectionist policies. However, it does highlight the ing the determinants of global protectionism. There
considerable ambiguity associated with the most plausible appears to be considerable ambiguity surrounding the
explanatory factors. Furthermore, this problem is com- likely determinants, as well as problems in interpreting
pounded by interpretive problems. relationships. Further work will be required to clarify
these processes.
Interpretive Issues Our discussion does suggest a number of conclu-
In understanding the determinants of global protec- sions. The first is that the growth of global protectionism
tionism, we also need to address problems of aggre- appears as a gradual process; it is not possible to identify
gation and reaction. While we have considered the a single causal factor or event (Ikenson, 2007). The di-
adoption of protectionist measures in isolation, this versity of motives for and forms of protectionism suggests
is unlikely to be the reality. Global protectionism, that we are observing a complex process.
particularly a desire to protect the domestic market Second, global protectionism displays a number of
but retain open access to foreign markets, is unlikely novel features. One is the fact that it is driven largely by
to be accepted by others and could be expected to the successes of globalization, and particularly the rise of
trigger retaliation. At the same time, it is important new competitors, as opposed to failures. The subsequent
to note that protectionist pressures do not arise in all adjustments in the world economy can only be postponed
industries, just those most affected. As Roberts (2007) by protectionist measures. A second feature is the pri-
suggests, globalization does not destroy jobs, although macy of concern within developed countries. While tradi-
it may destroy jobs in certain industries. The overall tionally criticisms of the operation of the global economic
gains from globalization are likely to far exceed the system have come from developing countries, the center
costs. Furthermore, trade is only one factor affecting of global protectionism is the advanced industrialized
the labor market; the impact of technological change economies of North America and Western Europe, the
or a shift in tastes could be more significant. very architects of globalization.
A further complication arises when we recognize Third, it is difficult to find any theoretical support
the likelihood of reverse causation. One of the impacts for global protectionism, and there are sound arguments
of globalization is its ability to reshape domestic politics. for resisting it (Issac, 2007). As we suggest, the roots of
The global protectionist debate has shifted beyond the modern global protectionism are found in economic na-
simple question of open versus closed markets to empha- tionalism, a set of attitudes that appear to predominantly
size the threat of globalization to national economic and reflect anxiety. Indeed, a recent study finds no evidence
cultural identity. This has had the effect of transcending in support of economic patriotism (Wruuck, 2006b).
traditional political divides and of unifying national as Fourth, considerably more work is required to help
opposed to sectional interests (Meunier, 1999). Further- us understand the subtleties of global protectionism. The
more, the level of global protectionism is not indepen- work of Issac (2007) contrasting the British experience
dent of the international business environment. Many with Continental Europe offers some useful insights.
commentators believe that levels of protectionism would Finally, we might ask the question of whether the
be much higher if the world economy had not been as continuation of globalization is under threat from global
strong as it was until 2008. protectionism. We would suggest that the answer is in
the negative. The benefits of globalization are increas-
Conclusions ingly understood and are enjoyed by a growing number
of economies and proportion of the world’s population.
This article has examined the concept of global protec- Global protectionism fails to offer an effective critique
tionism, a growing phenomenon in the global economy. of processes that have brought some of the highest sus-
We have suggested that global protectionism has its tained economic growth rates the world has ever seen.
roots in the concept of economic nationalism and dif- This is not to deny that governments could do better in
fers from traditional (trade) protectionism in a number highlighting the advantages of globalization and in ensur-
of ways. Compared with trade protectionism, global ing a more equitable distribution of such benefits. How-
protectionism has a broader scope in terms of geogra- ever, global protectionism does seem to be sufficiently
phy, application, concerns, and measures applied. At well entrenched to justify our efforts to gain a better
the same time, it has a much more selective focus, in a understanding of this important phenomenon.

Thunderbird International Business Review   Vol. 53, No. 3   May/June 2011 DOI: 10.1002/tie
 Understanding the Rise of Global Protectionism 335

Peter Enderwick is a professor of international business at the Auckland University of Technology. Between
1988 and 2004 he was a professor of international management at the University of Waikato in Hamilton. Cur-
rently he is a visiting professor at the Centre for International Business at the University of Leeds in the United
Kingdom. His research interests are in globalization and labor, service-sector multinationals, large emerging
markets (particularly China and India), and the competitiveness of small, open economies. He is a member of
the Academy of International Business and a founding member of the Australia and New Zealand International
Business Academy.

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