Trade wars reloaded: state interventions placing pressure on free trade

The surge in subsidies and state interventions, fueled by global supply chain issues and geopolitical instability, is placing pressure on the principles of free trade.

Over the past decade, these protective measures have increased by 150%, reaching over 50,000 worldwide.

Governments often favor local investments and production to maintain supply chains for strategic goods like automobiles and semiconductors.

The Ukraine crisis is a significant factor in this trend, which has prompted nations to reassess their economic security.

The U.S., for example, has passed several legislative measures to bolster domestic industries, such as the Inflation Reduction Act and the CHIPS and Science Act.

These laws, focusing on energy security, climate measures, and semiconductor production, illustrate a move towards more inward-facing industrial policies.

According to Global Trade Alert, in 2022 alone, more than 50,000 state interventions could potentially hinder free competition, marking an approximate 60% increase in business-supporting subsidies over three years.

Consequently, almost half of all trade is now influenced by subsidies.

In response, the World Trade Organization has established rules regarding government subsidies.

Yet determining a subsidy’s compliance with these rules can be challenging, and the organization’s ability to arbitrate disputes has been compromised due to a lack of appointed judges.

International trade may be threatened if the U.S. and China, the leading subsidy providers, continue to emphasize inward-facing policies.

Despite recent reductions in customs duties worldwide, the rising subsidy trend could negatively impact global trade growth and the overall global economy.

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