On current protectionism and related abuse of tax-payer’s money, economic self-defaitism, and blaming easy targets (hard-working migrants)

February 5, 2009

Late December/early January, when my employers were issuing warnings on the threats of protectionism in the current crisis, I was wondering how much of a threat all this really is, since we hadn’t heard that much protectionist noises, at least not worse ones than in pre-crisis months. But suddenly a loud protectionist cacophonia is indeed starting to be heard.

The kind of protectionism discussed in this post has been looming in the last  years, but the crisis might well accelerate the trend. Five main threats were identified by Razeen Sally and Fredrik Erixon . I’ll go through them, and  check how far things have accelerated on that front:

“built-in protectionist backlash against the historic global integration of China and India”

There you go: Tim Geithner/Presdient Obama accusing China of currency manipulation, as a good way to start a post-Bush new-style, more engaging, multilateralist diplomacy…..

“Investment nationalism, often combined with energy nationalism”

In this article, we are informed, among others, that “the Chinese government recently tightened foreign-investment restrictions through a series of regulations and “guiding opinions.” These are intended to protect national champions in a range of industrial, energy and services sectors.”

The fact the energy market reforms in the EU are hitting against the wall of national champions in France, Germany, Italy, Spain, despite evidence that this goes against EU consumers and worsens the grip of a company like Gazprom, only shows how entrenched this is. However, this is not a crisis-specific issue. But one can interpret the nasty gas row between the monopolists in Russia and Ukraine this January as a desperate attempt not to be hit too much by the fall of energy prices.

“The climate-change agenda, a Trojan horse of “standards protectionism” in the 21st century”

  This is a battle that is only beginning. I must admit I haven’t found much evidence so far of accelerating climate change-excused protectionism, but maybe someone can contribute. EU ideas for “border adjustment measures” (i.e. carbon tariffs)  in its climate change policies could be the spark, since they are directly aimed at countries like China. But they are a bit on the back-burner right now. Yet inferring from the speech I just created a link to by Peter Mandelson, the EU’s trade commissioner until late 2008, it might well be that bilateral free trade agreements and other Association or Partnership agreements  the EU is trying to sign woth emerging markets risk becoming a tool for EU standards “imperialism” backed by effective interest-group lobbying in Brussels. 

The backlash against migrants from poor countries” (and rich countres I would add)

Plenty of evidence that policies against migrants are hardening – with the ever-repentant German in me trembling at the scary concentration-camp undertones. Read the articles on Italy, the USA: it’s all about tents, camps, policing. A Foucaultean world of control and repression. Now the backlash is against foreign qualified workers! That’s new! The strikes calling for “hiring British” in the UK recently point to a real backlash in one of Europe’s most open societies, and this is worrisome. Philippe Legrain commented on the strikes in the Guardian. Two US senators want to restrict hiring of foreign bankers.

“Increasing export restrictions”

This does not seem to be the hottest of all topics right now, contrary to what it was in 2008, when food prices soared. But who knows?

The core argument by Sally and Erixon in their article, however, is that the current protectionism will be based on subsidies and even nationalisations. A 1970s scenario rather than a 1930s one. Let me quote them:

“In the 1970s, oil-price hikes and other shocks triggered inward-looking, mercantilist policies, not least in Europe and the United States. Immediate policy responses were not massively protectionist: there was no equivalent of the Smoot-Hawley tariff. But escalating domestic interventions exacerbated economic stress and prolonged stagnation. Not least, they spawned protectionist pressures. Industry after industry, coddled by government subsidies at home, sought protection from foreign competition. The result was the “new protectionism” of the 1970s and 1980s. Then, as now, manufacturers of gasguzzling cars in America faced bankruptcy. The U.S. Congress bailed out Chrysler in 1979. By then the British government had already bailed out Rolls Royce and British Leyland, and Renault was saved by French taxpayers shortly after President Carter signed the Chrysler bailout. Several other sectors (wood and timber, energy and minerals, railways, airlines, shipbuilding) received government subsidies in the 1970s. Many companies were nationalized.”

Now, THIS really sounds familiar, doesn’t it?

The final cherry on the protectionist cake is the US’  Buy American clause targeting steel in the stimulus package the US is fighting over. Thankfully, the Peterson Institute in Washington came in timely with strong arguments on why  “Buy American” will not really help American workers.

Steel and cars are the biggest demandeurs in the current battle for tax-payers money in the US and the EU. These industries are declining, have been “outcompeted” by more efficient producers in emerging markets. They should restructure and offer better products that appeal to their own consumers, rather than tapping tax-payer’s money. High oil prices in the EU had already triggered a fashion for alternative-fuel cars in California last year, so there is no need to force companies to produce environmentally-friendly cars when the market signals, i.e., high prices, are going in the right direction. A carbon tax could, however,  help increase price-related incentives to change tack more quickly. Furthemore, high-end car producers such as Daimler or Porsche are not begging for bail-outs – they know how to sell good products. Anything in US or European bail-out packages that helps foster productivity and greater efficiency, including energy-efficiency, is welcome to get back onto the path of growth and create new, more sustainable jobs. But subsidising the car industry or forcing governments to buy more expensive US steel is simply waste of public money. Found this poster on Legrain’s blog recently, and it says it all:

car-bailout

 

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