Monday, May 29, 2023
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Peru Erroteta

​Protectionism and nationalism, a well-matched marriage


It is not that protectionism and nationalism necessarily end up in the same thing. However, throughout history, protectionism has often gone hand-in-hand with nationalism. Quite particularly, in dictatorships, such as Franco's, particularly fond of autarchy, which is the most extreme form of protectionism.


Protectionism tends to be perceived as a matter for nationalist parties and rather populist movements, of which Donald Trump constitutes a paradigm. A transcript of rivalries between nation-states and fear of the foreign enemy. However, protectionism goes further. It occurs through the "harmonization of regulations", through bilateral agreements; subsidies to agriculture, such as those that favour European producers, environmental or social taxes... Moreover, on a small scale, for the many, many other practices that give advantage to local businesses.

In his book "Myths and paradoxes of economic history", the French historian Paul Bairoch argues that "in history, free trade is the exception and protectionism the rule". Moreover, in all cases, it has been the political authorities that have promoted, induced or regulated protectionism. 

In the USA, which for decades has presented itself as the champion of free trade, it is precisely where modern protectionism was born.

Alexander Hamilton was a pioneer when, being the US finance minister, in his famous "Report on Manufacturing", he presented the theory of tax protectionism, which emphasizes the idea that "industrialization is only possible under the shield of customs protection ".

Six months after the great financial crash of October 1929, the US Congress voted in the Hawley-Smoot Act, which raised customs fees by more than 59% for more than 20,000 products. Europe responded with the same weapon. This commercial war was the trigger of the infernal mechanics that made production fall in all the industrial countries.


In fact, Trump's decision to tax steel and aluminium imports to the US it is nothing more than a prolongation of all kinds of tricks, with or without the "protectionist" label, destined to protect production or trade. 

The same Barack Obama imposed in 2009 a customs tax of 35% on the import of Chinese tires.

The European Union itself, which boasted of its commercial openness, in 2013 imposed additional 47% customs duties on imports of Chinese solar panels, as always, arguing that it was done to protect the industry.

However, the governments of the leading countries seem to have learned the lesson of the 1930s, about how nefarious it is to shut borders. The statistics of the World Trade Organization (WTO) have recorded just one hundred restrictive measures in the last year, practically half as much than the previous one. But, according to Simon Evenett and Johannes Fritz, authors of the last Global Trade Alert report, an observatory of international trade, "the G20 maintains a diplomatic fiction: that of the domestication of protectionism in times of crisis (...) Obsessed with the need to avoid new Hawley-Smoot do not see, or act against, making widespread use of other distortions". "And the new barriers happen mainly for the money or, rather, for its scarcity", adds Ludovic Subran, chief economist of the insurer Euler Hermes.

According to a thorough analysis by Evenett and Fritz, three-quarters of G20 exports are affected in one way or another by the restrictions. Ten times more than the WTO admits.

Three barriers are frequently used to hinder imports. First, the demand for local investment. I will sign a huge contract, so long as you build a factory here. Airbus thus opened its first factory in China ten years ago and Boeing did the same. This condition is frequent in the acquisition of trains. Trump uses this path to demand investments in deep America from European and Chinese companies. The second barrier is the protection of the capital of national companies. Forty years ago, the USA created the CFIUS (Committee for foreign investment in the US), a body to control foreign investment. Trump blocked the purchase of Lattice Semiconductors by a Chinese group. The third barrier is an US specialty, which consists of condemning foreign companies for not respecting national rules, even on the other side of the world. "Extraterritoriality" which is both a bailout imposed on companies that compete with companies in the same country as a form of intimidation, something that makes many companies think twice before, for example, about investing in Iran.

In short, protectionism has got a new face. A masked face, which will undoubtedly be more difficult to erase than simple customs duties. 

Moreover, and in any case, what emerges from this reality is that the long hand of politics continues to play a leading role in the establishment of protectionist barriers, behind which lies nationalism, economic and "the others". Because, in short, we already know that the free market, so praised by liberalism, only goes as far as it is convenient. And globalisation itself only goes as far as to where it begins to collide with private interests.



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