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Bank for International Settlements Takes Aim at Protectionism

ZURICH—The Bank for International Settlements warned Sunday that rising protectionist sentiment and a retreat from global cooperation on economic matters would threaten the world economy.

“Rolling back globalization would strike a major blow against the prospects for a sustained and robust expansion,” said the BIS, a consortium of central banks based in Basel, Switzerland, in its annual report.

BIS chief economist Claudio Borio put it bluntly: “Rolling back globalization would be as foolhardy as rolling back technological change.”

The stark warning comes amid signs that the decadeslong trend toward greater trade and global cooperation on economic policy has stalled and reversed in some cases.

The U.S. has in recent months pulled out of a proposed Pacific trade agreement and said it would withdraw from the Paris climate accord, and President Donald Trump wants to renegotiate the North American Free Trade Agreement between the U.S., Canada and Mexico. Last year, the U.K. voted in a referendum to exit from the European Union.

This comes amid concerns that workers in major economies aren’t seeing the benefits of globalization at a time when wages are weak and economic anxiety high.

Rising protectionist sentiments “have been part of a broader social and political backlash against globalization,” the BIS said. “Investment would be the first casualty, given its tight link with trade.”

Since the last BIS report one year ago, some central banks have slowly begun to scale back the massive stimulus they injected into their economies in the aftermath of the global financial crisis. On June 14, the Federal Reserve raised short-term interest rates to a range of 1% to 1.25%, continuing a tightening cycle that started in December 2015.

Earlier this year, the European Central Bank begun scaling back the size of its quantitative-easing program to €60 billion ($67 billion) a month from €80 billion, though it continues to set negative rates on bank deposits stored at the central bank.

The Bank of Japan has maintained its aggressive monetary easing, including negative interest rates and asset purchases, and the Bank of England last summer cut its benchmark interest rate to 0.25% from 0.5%.

These ultraloose monetary policies at are somewhat at odds with a global economy that continues to expand, albeit at a slower pace than in previous recoveries. The threat of deflation has receded, with inflation rates getting closer to the 2% level that many central bankers deem optimal. Unemployment is low in many economies.

The BIS, which has for years warned of the potentially dangerous side effects of keeping interest rates too low for too long, also took aim at the recent euphoria in financial markets. It noted that while measures of market volatility are quite low, political uncertainty is elevated.

It said that a “risky trinity” of high debt, low productivity and limited room for policy makers to act—which the BIS warned about one year ago—remains.

“The hard data have improved, but not as much as sentiment has,” Mr. Borio said. “One may legitimately ask whether sentiment has swung too far.”

Write to Brian Blackstone at

Appeared in the June 26, 2017, print edition as ‘Central Banks Say Free Trade Imperiled.’


Monday July 3rd, 2017

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