Protectionism: can we avoid trade wars?

Saturday 13 October, 14:0015:30, Frobisher Auditorium 2Battle for the Economy

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On 23 March this year, the US imposed tariffs on imports of aluminium and steel. For many, Donald Trump has started a trade war – mainly directed at China, but also against Europe, Canada and Mexico. For others, Trump’s ‘America first’ line on trade, and his disdain for multilateral trade bodies, are long overdue and only realistic. Indeed, both fearful and relaxed attitudes toward trade wars may be key badges of political identity nowadays.

Trade wars break out when a widening spiral of protectionist measures and counter-measures builds up. But such measures today differ from those that emerged before the Second World War. Then, protectionism largely meant currency devaluations, export subsidies, import quotas and import tariffs; now, it also means regulatory and other non-tariff barriers to trade, and – even more important – the regulation of foreign direct investment, whether in-bound or ‘offshored’.

While protectionist measures have certainly multiplied of late, today’s talk of trade wars may miss how, even during the Cold War and the General Agreement on Tariffs and Trade (GATT), trade frictions between different Western nations – including Japan – never vanished. Indeed, even the clearly aggressive retaliatory tariffs set off by the Depression in the early Thirties petered out around 1935, after which many tariffs actually fell.

But if we’re not in a trade war quite yet, might not Trump’s posture toward trade and investment mark a dangerous departure from precedents set by the Obama administration? Then again, how different is the EU’s line on trade and investment, with a variety of protections in place for European businesses, from America’s?

Returning to free trade might defeat today’s trade wars. But achieving that seems beyond multilateral institutions such as the World Trade Organisation. Worse, it’s the arbitration of trade technocrats that usually decides disputes in such forums, not democratic debate and voting by constituent nation states.

To transcend trade wars, nations may now need a much more open, public, contentious and imaginative debate in the clear service both of national sovereignty and – only apparently paradoxically – of internationalism. Is Trump a ‘loose cannon’ or is he simply making transparent the real tensions over trade and investment – and fulfilling a democratic mandate, too? If we want more openness for trade, which new national sectors of production deserve deeper international collaboration, wider imports of materials, capital goods and IT, and better cross-border transport and IT infrastructure? Which sorts of trade and investment might benefit the most people, at home and overseas?