October 7, 2013
WASHINGTON—The global financial crisis of 2008 produced pledges by all leading economies not to engage in protectionist trade policies that would aggravate the downturn. Today the Peterson Institute is releasing a new study showing that, despite their pledges, many of these countries did indeed adopt a new form of protectionist policies that went largely unnoticed.
The study, Local Content Requirements: A Global Problem, co-authored by Institute Senior Fellows Gary Clyde Hufbauer and Jeffrey J. Schott, cites more than 100 cases of local content requirement policies (LCRs)—requiring local entities to buy goods and services from home countries—that have been implemented since 2008. While many of the policies may have been driven by a political drive to create jobs, the authors calculate that in the long term, LCRs reduce global trade activities by as much as $93 billion annually.
Although some countries were more active and some industries more targeted, new LCR measures were found in all types of economies as well as in a broad range of industries. Many measures have effects beyond trade flows, directly and indirectly affecting investment, services, and employment. Among these were LCRs accompanying stimulus spending, renewable energy programs, and other industrial policies aimed shortsightedly at protecting industries at home.
The book also examines in detail six case studies focused on Brazil, Canada, China, India, Nigeria, and the United States. These case studies illustrate the use and impact of LCR measures in terms of higher prices and lost trade.
"This study, which documents and evaluates LCRs as a new and pernicious form of trade protectionism, builds on the series of Peterson Institute studies on the cost of protection published over the past two decades," said Adam S. Posen, president of the Peterson Institute. "It demonstrates how protectionism is taking new but still costly forms compared to the tariff barriers of the past, and the scale of this emerging problem, which has been largely overlooked until now."
Local Content Requirements: A Global Problem
Gary Clyde Hufbauer and Jeffrey J. Schott
ISBN paper 978-0-88132-680-2
September 2013 | 212 pp. | $26.95
About the Peterson Institute
The Peterson Institute for International Economics is a private, nonprofit institution for rigorous, open, and intellectually honest study and discussion of international economic policy. Its purpose is to identify and analyze important issues to making globalization beneficial and sustainable for the people of the United States and the world and then to develop and communicate practical new approaches for dealing with them. The Institute is widely recognized as nonpartisan. It receives its funding from a wide range of corporations, foundations, and private individuals from the United States and around the world, as well as from income on its endowment.