In a recent in-depth study on emerging economies, The Economist criticised state capitalism on the basis that it could lead to “protectionism and even xenophobia”. Although the report was an interesting one, I was shocked – but not surprised – that the writer should put protectionism on the same level as xenophobia or racism. This depiction of protectionism as the ultimate evil is very widespread among neoliberal circles; thus, I was not surprised to read it in The Economist, a well-respected temple of economic liberalism. The magazine’s statement is characteristic of the official discourse on international trade, as conducted by the media, free-market scholars and international institutions such as the WTO and the International Monetary Fund. People must be confused about what protectionism really means – curiously, it is rarely defined and implicitly condemned as a danger for the economy, autarky or even fascism. All these simplifications, however, fail to grasp what protectionism actually is: regulating trade with foreign nations through tariff or non-tariff barriers; no more, no less.
Free trade has always been one of the pillars of neoliberalism. Milton Friedman was a staunch critic of protectionism, arguing it does not protect the workers, raises prices and hampers economic welfare. This view is now widely accepted by most mainstream economists and has been endorsed by international financial institutions. Protectionism was one of the scapegoats at this year’s World Economic Forum in Davos (Switzerland). Lord Mandelson denounced it as a “threat for global growth”; WTO Director General Pascal Lamy argued protectionism “doesn’t work in today’s world, not least because the large part of what you import, you re-export after having processed it”. In 2009, fellow Frenchman and “champagne Socialist” Dominique Strauss-Kahn, then head of IMF, expressed his concern at the “protectionist temptation” in the context of the global economic crisis; he also argued most domestic solutions were “inefficient”.
Nonetheless, in contradiction with the official discourse on protectionism, most Western countries have used tariff barriers to protect their industry in the wake of the recent financial crisis. In fact, as the International Chamber of Commerce observed, “the support for open trade pledged by G20 countries was not matched by their recent performance”. A number of major economic powers, including China, Japan and the United States, rank rather poorly on trade openness. Moreover, protectionism has been consistently supported by many prominent economists. Keynes, at first a staunch defender of free trade as a “principle of international morals”, praised the benefits of trade barriers which he described as “simply enormous” for industry, employment and financial stability during the economic crisis of the 1930s. Maurice Allais, the unorthodox Nobel Laureate of 1988, also criticised unrestricted trade as counterproductive when pursued among countries with different wage levels and standards of living.
The most common argument in favour of protectionism, however, is the protection of infant industries, articulated by Alexander Hamilton, Daniel Raymond and Friedrich List during the 19th century. All insisted that nascent industries cannot have the economies of scale of their foreign competitors and thus must be protected. This idea provided the rationale for extensive protectionist policies in the industrialised world until the mid-20th century. The United States, in particular, adopted very high tariffs to protect its industry. More recently, protectionism was one of the pillars of the so-called Asian miracle in South Korea, Taiwan and elsewhere. Nevertheless, developing countries have been repeatedly discouraged from adopting trade restrictions by the IMF and the WTO. Cambridge economist Ha-Joon Chang – whose book The Bad Samaritans I highly recommend – accused Western economies of “kicking away the ladder from which they had climbed”. Indeed, the current trade regime often hinders economic development in the global South due to unfair terms of trade: in a lose-lose situation, developing countries are deterred from adopting trade barriers but their exports then face Western tariffs. West African cotton farmers, among the poorest in the world, symbolise the system’s iniquity.
So, free trade or protectionism? That is the question. Some studies seek to demonstrate a positive correlation between trade openness and economic growth, others point to a lack of significant empirical evidence. In any case, one-size-fits-all approaches have never worked, and never will. While import-dependent economies such as India are highly protectionist, export-dependent countries like Switzerland are highly supportive of free trade to allow their companies to gain access to foreign markets. Nonetheless, unimpeded trade does more harm than good, especially in the developing world. But my real concern is the lack of honest and serious debate on the issue: protectionism has become a taboo and free trade a quasi-religious dogma. In that context, I am particularly critical of the WTO’s attitude: its aim should be to regulate global trade and ensure fair rules, not to promote free trade at any cost.