Protectionism – The Ex The Financial World Can’t Help But Go Back To
Protectionism, the idea that you trade and manufacture goods and services within your own borders while discouraging international trade, has been gathering pace and heat this week. The most recent voice is France’s Minister for European Affairs, Bruno Le Maire, who has said today that France’s bailout of its car industry is not protectionism, “it’s the defence of our industry and the defence of our jobs”.
Sarkozy announced on Monday plans to give French car manufacturers €6bn in low-interest loans, as well as money for parts manufacturers. He’s hoping the move will keep Renault et al manufacturing in France amid the recession rather than heading somewhere cheaper (Italy looks like it may follow his lead). Now questions are being raised over the legality of this generosity – as an EU member, France shouldn’t be allowed to favour domestic companies financially. Germany’s already unhappy about it, as are the Czech Republic.
The beef happens at a time when protectionism is being championed by indigenous workers and condemned by their politicians. Barack Obama has felt the full force of American industry lobbyists recently on the issue, with the steel industry clobbering the Democrats into putting a “Buy American” clause in Geithner’s new financial rescue plan; they’re still discussing how strong the clause will be, though Obama recognises the weaknesses involved. Canada’s lobbyists have done a copycat version of this clause called, yes, “Buy Canadian”. Meanwhile in the UK, the wildcat strikes over foreign workers prompted Mandy to assertthat UK business was opposed to protectionism, asserting the right for all EU citizens to work across Europe.
Protectionism amid a financial crisis is like going back to your ex at Valentine’s – you know you shouldn’t, and as a long-term plan it probably won’t work out, but right now it feels so good. You suddenly see money that was disappearing overseas suddenly flowing round the country, but as foreign traders start to stay away, dissuaded by your high tariffs, the economy begins to stagnate, ongoing job creation falls, and suddenly you’re watching DVDs from opposite ends of the sofa and not talking in restaurants, to clumsily round off the metaphor.
The World Trade Organisation has warned America against a protectionist plan; poor countries stand to lose the most from protectionism, as multinationals stay away and the exports many are dependent on dry up. And as well as protectionism of commodities and resources, the European Commission is warning against the protection of financial markets – if each European country creates their own bad bank for toxic assets, the likelihood of those being traded across borders is next to nil, and will lead to lower flexibility and willingness to start credit lending. But nevertheless, RBS is already pulling back from overseas, where 41% of its current lending lies.
So it doesn’t look like the strikers and lobbyists are going to get their way, and that anti-protectionism is pretty set in stone across governments and markets. Still, it would be a bold company that steps above the parapet and says that it’s off to Eastern Europe for the cheap labour, sod the lot of you. And with people like Paul Krugman espousing a new model of protectionism as a second-best solution that at least keeps people employed the world over, we can expect more near-protectionist suggestions to emerge as the recession deepens.
Posted by Ben Beaumont-Thomas in Hot Money | February 11, 2009 3:14PM |