126.96.36.199 The Impact of Economic Protectionism
The impact of economic protectionism is to reduce prosperity everywhere, but that doesn’t stop politicians from advocating it
Populist politicians (188.8.131.52) tend to play to people’s misinformed perceptions of free trade rather than to explain its benefits. For example, on 17 September 2012 the BBC published a report, Protectionism: Is it on the way back?, which drew attention to France:
“The recent French presidential election saw both the successful challenger, Francois Hollande, and the defeated incumbent, Nicolas Sarkozy, stepping up their protectionist rhetoric in an effort to woo the 80% of voters who are anti-globalisation.”
American politicians also succumb to populism, particularly in election years, despite the long-term damage that this inflicts on their own country and on the whole world. An Economist article In February 2014, American trade policy: How to make the world $600 billion poorer, criticised politicians for opposing free trade. It included this assessment:
“Reasonable estimates say that the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) could boost the world’s annual output by $600 billion—equivalent to adding another Saudi Arabia. Some $200 billion of that would accrue to America.”
Protectionism is a Political tactic with Economic consequences.
As described earlier (184.108.40.206), politicians are often tempted to apply tariffs to imports, or grant subsidies, to give a competitive advantage to a favoured domestic industry. This is politically popular, but it should not be forgotten that protecting one group of workers results in increased costs for everyone else in the country that applies the tariffs.
That country’s economy is further damaged when its exporters are hit with retaliatory tariffs imposed by other countries. All participating countries are harmed by a trade war – and they are sacrificing the benefits of free trade that were described in the previous sub-section (220.127.116.11).
The EU’s ‘single market’ is a negotiated free-trade area which has enabled its companies to operate on a larger scale, so that their prices are lower and they can compete with American companies. Despite having made an early start, though, there are many practical barriers to trade within the EU; on 12 October 2012, The Economist published an article entitled Coming off the rails, which listed several impediments to cross-border trade in the EU – including different railway gauges.
The EU subsidises agriculture with what it describes as a “partnership between Europe and Farmers” on a webpage: The common agricultural policy at a glance. Its aims include a desire to be self-sufficient in food (having experienced shortages during the world wars) and a desire to protect the countryside and its way of life from change. This policy, though, results in the inevitable impact of economic protectionism: Europeans pay more than necessary for their food. The policy is politically contentious, especially in countries with fewer farmers. A BBC article, Q&A: Reform of EU farm policy, reported some of the criticisms made of it and some suggested reforms.
A different type of argument against free trade comes from those who advocate trying to protect new industries in developing countries until they are strong enough to compete without assistance, as described later (18.104.22.168) – but John Elliott’s article in Fortune magazine in 2007, Manufacturing Takes Off, pointed out that this strategy didn’t work for India:
“What they [Nehru and Indira Gandhi] unwittingly created was an inward-looking, highly protected, and inefficient economy that did little for the poor, negated private-sector entrepreneurship, allowed public-sector inefficiency, and guaranteed infrastructure decay.”
The article focused on India’s rapid economic progress since Manmohan Singh liberalised its economy in the mid-1990s.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3542.htm