What this lesson teaches
I can judge how oil crises, protectionism and debt crises hurt the global economy from the 1970s.
Syllabus 9174, Paper 1, Theme II, Learning Outcomes. evaluate the challenges that affected the global economy over time
Make a guess
After 1973, slow growth raised pressure to protect jobs, but GATT limited tariffs. What do you think governments did?
- Raised tariffs sharply, as in the 1930s.
- Left GATT and closed their markets.
- Used quotas, subsidies and voluntary export limits instead.
Show the answer
Used quotas, subsidies and voluntary export limits instead.
This new protectionism got around GATT's tariff rules, yet the open trading system bent rather than broke.
Slow growth after 1973 brought a "new protectionism" of quotas and export limits, but the open trading system bent rather than broke.
Post-war leaders remembered the 1930s, when tariff wars deepened the Depression. GATT was designed to stop that from happening again.
After 1973, slow growth and rising unemployment increased pressure to protect jobs. GATT limited tariffs, so governments used other barriers. These included quotas, subsidies, anti-dumping duties and "voluntary" export restraints.
Examples were widespread. The Multi-Fibre Arrangement of 1974 set quotas on textile exports from developing countries. In 1981 Japan agreed to limit car exports to the USA to 1.68 million a year. The EEC's Common Agricultural Policy subsidised European farmers and dumped surpluses on world markets.
Protectionism raised prices for consumers. It hurt developing countries that relied on exports of textiles and farm goods. It also caused friction, especially between the USA and Japan in the 1980s.
Yet world trade kept growing. The Tokyo Round (1973-1979) set rules for some non-tariff barriers. The Uruguay Round (1986-1994) agreed to phase out textile quotas and export restraints, and it brought farm trade under rules.
- Multi-Fibre Arrangement
- 1974: textile quotas.
- Japan's car restraint
- 1981: 1.68 million cars a year to the USA.
- Uruguay Round
- 1986-1994: barriers to be phased out.
Real examples to use
US-Japan semiconductor agreement, 1986
Japan agreed to limit chip prices and open its market, an example of 'managed trade' outside GATT's tariff rules.
End of the MFA
The Uruguay Round agreed to phase out textile quotas by 2005, showing the system could roll back the new barriers.
Worked example: Judging protectionism
How serious a challenge was protectionism?
- Scale: barriers covered key sectors such as textiles, cars, steel and farming.
- Victims: developing exporters and consumers.
- Limit: no return to 1930s-style tariff wars.
- Response: GATT rounds gradually rolled the barriers back.
Watch out for this
Protectionism after 1973 meant higher tariffs.
Most new barriers were non-tariff measures, such as quotas and "voluntary" export restraints, because GATT limited tariffs.
Check your understanding
Which was an example of the new protectionism?
- Japan's 1981 limit on car exports to the USA
- The Marshall Plan's aid to rebuild Western Europe
- The creation of the World Trade Organization
Show the answer
Japan's 1981 limit on car exports to the USA
Right. It was a "voluntary" export restraint.