Protectionisms Threat – Pt. 5

At the current time, American and European leaders are considering legislation, loans, and measures that would support and encourage this type of thinking. In France, President Nicolas Sarkozy, has hinted that billions of euros in aid for the French car industry should be made conditional on keeping production in France. George Provopoulos, the governor of Greece's central bank publicly "advised" banks to be "more prudent" about transferring bail-out funds to Balkan subsidiaries. A nasty industrial dispute sparked when Italian and Portuguese workers were posted to an English oil refinery. This led one British minister to urge changes to EU law to stop foreigners from undercutting British. (The Economist, 2009) The American Recovery and Reinvestment Act of 2009, or the "stimulus package", passed in February includes a "Buy American" clause that allows for only the use of U.S. iron, steel and manufactured goods in public works projects funded by the bill.

Subsidies may indeed become the new protectionist battleground. Nicolas Sarkozy said in early February that "We want to stop moving factories abroad, and perhaps we will bring them back. If we are to give financial assistance to the auto industry, we don't want to see another factory being moved to the Czech Republic." Sarkozy has also said "It is justifiable if a Renault factory is built in India so that Renault cars may be sold to the Indians. But it is not justifiable if a factory of a certain producer is built in the Czech Republic and its cars are sold in France." The fundamental problem of massive French subsidies for the automobile sector remains in place. This will adversely affect other European carmakers. By sharply discounting their prices, Renault, Peugeot and Citroën will be able to gain market share -- and not just in France. This comes at the direct expense of other companies. Sarkozy is seeking to keep car manufacturing at home in France and he has said that companies receiving state aid should think about moving their plants back home. What is being undone with these types of measure is the European Single Market system.

Open protectionism quickly leads to escalation and this would not be a favorable development. American Paul Krugman, the freshly minted winner of the Nobel Prize in Economics, announced, to his colleagues' dismay, that protectionism is justified to some extent. His argument is as follows: If stimulus packages are not coordinated, we have a problem, namely that national measures, such as tax cuts, primarily benefit foreign producers. (Münchau, Opinion: Europe and the Protectionist Trap, 2009)

This year's Berlin Film Festival provided a veritable showcase for films that criticize globalization and free market ideology with films such as Michael Winterbottom's "The Shock Doctrine". Many films portrayed big business and the ideology of so-called neo-liberalism as the world's new baddies, suggesting that the free market ideology pushed by Nobel Prize winning economist Milton Friedman and his disciples was based on taking advantage of crises to impose the shock treatment of deregulation and privatization. And according to Michael Winterbottom, "This is how we see the world now. Free markets are good. Governments are bad. It's always more efficient to have private corporations providing services than it is government. And free markets go hand in hand with free societies." The intention his film is to present an alternative history of the past three decades that argues that the opposite is true. (Dowling, 2009)

This year at the World Social Forum the culprit of the current economic crisis was the whole present design of the world economy, promoting competition. Free trade and free movement of capital needed to be re-thought, participants insisted. At the far edge was the idea that money and finance are public goods and should be shared out accordingly, through democracy. (The Economist, 2009)

Data from the Bank of England show that in the fourth quarter of 2008 local banks sharply cut lending to foreign customers. British borrowers are themselves suffering from the withdrawal of Icelandic, Irish and other foreign lenders. Projections from the Institute of International Finance (IIF), an industry group, show that net inflows of private capital will slow to $165 billion this year, down from a peak of $929 billion in 2007. Banks are shrinking their balance sheets everywhere as they concentrate on their home markets. State support is increasingly accompanied by explicit obligations to lend at home.

The Obama administration has signaled that it will require American banks that benefit from its forthcoming rescue package to lend more. This is economic nationalism, but of an insidious type. Western governments are not trying to keep foreign banks out of their markets: indeed, foreign credit would be welcome. Now the purpose is to steer banks towards supporting businesses and jobs at home, not abroad. That has the whiff of protectionism about it. (The Economist, 2009)

Concisely, if a few major nations favor their own industries at the expense of foreigners, invariably so will others, producing rounds of retaliation. That could choke off trade further – the International Monetary Fund already predicts a 2.8% decline in trade in 2009 – and clog a global engine for growth. (Neil King, 2009)