Multinational Firms and New Protectionisms

Recent initiatives to hold back cross-border mergers and acquisitions for ‘strategic’ reasons have made headline news. We discuss whether the initiatives may mark the start of a new protectionist era. We argue that standard globalization indicators show no such signs. However, an increasing divergence of incomes and increased insecurity might raise resistance against the globalization process. We discuss the benefits of globalization benefits in terms of lower prices for consumers, a greater variety of available products, lower risks, and higher economic growth. But we also outline the risks in terms of greater inequalities and greater need for flexibility. Protectionism is a double-edged sword. Many historic episodes show that the return to protectionism did significantly more harm in terms of reduced growth than generating benefits in terms of greater stability and smaller income differentials. 1 This report has been commissioned by the German Federal Ministry of Economics (Bundesministerium für Wirtschaft und Technologie). The authors would like to thank the Ministry for its support and for most helpful discussions. This paper represents the authors’ personal opinions. All errors and inaccuracies are solely in the responsibility of the authors.