Shun protectionism

In: Uncategorized

9 Feb 2009

There is probably more cant written and spoken about free trade than most other subjects. Everyone proclaims support for its ideals while curtailing it in practice. Admittedly protectionism does not always, or even generally, take the traditional form of tariffs. There are numerous ways that countries and economic blocs protect their domestic economies against others, including export subsidies, currency manipulation, informal preferences and many others.

Often protectionist sentiment is expressed by supporters of one economic bloc criticising another. So in recent days many European commentators have criticised the “Buy American” provisions in the Obama stimulus package while American commentators have kept relatively quiet.

Meanwhile, Americans point to the European Union using tariffs and export refunds to protect its domestic producers.

Many supposed supporters of free trade will say they are in favour of it in principle but they dislike “dumping” by other countries. But any goods made by relatively cheap producers, such as China, can easily be stigmatised in this way.

Nor is Britain less tarnished in this respect than other large economies. Britain may be less ­preoccu­pied with protecting industry, but this simply reflects the relatively small size of its industrial sector. However, its banking bail-out packages no doubt favour British institutions at the expense of ­foreign rivals.

Such protectionist pressures are likely to increase, with slow global growth and a shrinkage in trade looking likely this year. But it is more accurate to see it as an intensification of economic nationalism rather than its rebirth.

There is no single nation or body that can give a lead in resisting the trend to protectionism. No doubt the world benefits enormously from global trade and investment but the economic downturn is pushing narrow, sectional interests to the fore. As a result, international cooperation could be threatened.

The best that can be hoped for at present is for those who genuinely believe in free trade to resist the descent into protectionism wherever possible. This particularly means opposing measures introduced in everyone’s respective home countries. It is all too easy to complain about protectionism when it is done by others but harder – and therefore more important – for individuals to do it in their home nations.