economic environment

Impacts of Protectionism on Global Trade

Join us for the next Risk Series session on February 21, 2018, as we discuss how demographics drive the economy and the risks and impacts your business faces as a result.

Last week, it was announced that President Trump has placed steep tariffs on solar energy cells and washing machines. These tariffs largely targeted Asian manufacturers such as Samsung and LG and represent the first step towards the sort of economic protectionist policies that were the hallmark of his 2016 campaign.

Protectionist trade policies have been in place for decades, but they’re once again coming to the forefront of political discourse as a result of populist movements at home and abroad.

As part of the Risk Institute’s commitment to leading the conversation on risk and risk management, we hosted our first continuing professional development session of 2018 on the impacts of protectionism on global trade.

Speakers included Sarah Brooks, Professor at Ohio State University; Jose Souto from Cargill; and Prentice Wells from EY.

According to Sarah Brooks, Professor of Political Science at The Ohio State University, since the 2016 election, international political economy has hit home in the US reflected through increased populist sentiment, economic nationalism, and discontent with free trade agreements. Dr. Brooks was quick to point out that the US has long championed free and open trade while actually maintaining a protectionist economy.

Each speaker also touched on the “China Shock,” which took place from 1991-2012 when China’s share of world manufacturing value added grew from 4.1% to 24%. Of the 100 counties hit hardest by the China shock, Trump won 89.

Jose Souto from Cargill explained that protectionism can take many forms: tariffs, quotas, subsidies, exchange rate manipulation and others. Protectionist policies exist in theory to protect infant, recuperating, and declining industries; to protect basic and strategic industries; and to deter unfair trade practices. The efficacy of those policies depends on a myriad of factors, but nearly every nation in the world employees at least some protectionist economic strategies.

Risk Modeling: The Past and the Future

Risk Institute Portraits Fisher Hall - Third Floor Feb-02-2016 Photo by Jay LaPrete ©2016 Jay LaPrete

By  Philip S. Renaud II, MS, CPCU
Executive Director, The Risk Institute
The Ohio State University Fisher College of Business

 

No one can foresee the future, but risk managers are tasked with anticipating and using all resources at their disposal to predict what lies ahead. Risk modeling, based on data analytics, is one of the critical tools any risk practitioner can employ. However, like all things, modeling has undergone a transformation in recent years as more data is available upon which to base the models.

With risk modeling playing an increasingly crucial role in risk management, The Risk Institute at The Ohio State University focused its March Executive Education Session on Risk Modeling: The Past and the Future. Over 70 attendees were at the program from 27 companies and universities that gathered for the presentations and insightful Q&A on the topic.IMG_4839 Crop

The half-day session included a three-person panel of experts moderated by The Risk Institute Academic Director, Dr. Isil Erel. The panel was comprised of:

  • Rongsheng Gong, Vice President, Head of Risk Modeling and Analytics, Huntington National Bank
  • Al Schulman, Vice President (retired), Enterprise Risk and Capital Management, Nationwide

The session focused on the essential nature of risk modeling as a risk management tool and its role for both financial and nonfinancial firms. The speaker presentations centered on how risk models have changed as business, regulatory and economic environments have evolved over time. The impact of the recent financial crises was cited numerous times during the discussion as the speakers highlighted how previous risk models created by industry, banking and government failed to identify the magnitude of the risk impact to multiple business sectors.

The trio of presenters went in-depth for session attendees to understand the evolving, complex and at times volatile economic conditions impacting a firm’s markets and operations.IMG_4971 Crop

According to our speakers, five key lessons on effective risk modeling include:

  1. The financial crisis has led to both an increased knowledge of risk models and a decreased confidence in those same models.
  1. Since the crisis, new model considerations include counterparty risk, funding liquidity, regime-switching and government guarantees.
  1. The current system of banks, insurance companies and nations is highly and dynamically connected.
  1. Managing model risk includes multiple levels of validation for every step of its development.
  1. No matter how sophisticated the risk model, the human element is still the most important.

The session emphasized how financial firms since the recession have adapted their risk models to the changing business, economic and regulatory environments. Additionally the speakers focused on the interconnectedness of institutions (banks, insurers and government) and how that plays a vital role in managing how risk is modeled.

The session proved thought-provoking and demonstrated The Risk Institute’s unique role in uniting industry thought leaders, academics and highly respected practitioners in an ongoing dialog to advance the understanding and evolution of risk management. The Risk Institute’s conversation about risk management is open and collaborative with its relevance across all industries and its potential as a tool for competitiveness and growth.

For more information about upcoming events, our students, partners or research, visit our website: fisher.osu.edu/centers/risk.