Friday, 30 January 2009

The drift into protectionism

Every economist, every banker and every politician gifted with a couple of brain cells agrees; the worst, the very worst, thing that nations can do during recession is to implement protectionist policies. It's counter-intuitive, but our best interests are served by keeping production workers in Shanghai in work by buying their goods. The Shanghai middle class will flourish, and buy Scotch whisky and Burberry scarves.

Globalisation, and the dismantling of tariffs and trade barriers, has done more to alleviate global poverty than decades of hand-wringing and benefit gigs. The number of people living on less than $1,000 a year has dropped from 50% of the world's population in the 1970s to 17% today. Those living on the World Bank's danger line of $1 a day has dropped to less than 5% of the world's population.

But politicians have always been dangerous fools.

Brown's call for 'British jobs for British workers' was intended to appeal to a white working class vote deserting Labour for the BNP, but appears on the placards of unemployed welders lobbying for refinery building jobs in Lincolnshire. Hilary Benn is urging us to buy British food, and is planning a crackdown to expose wicked foreign food not clearly labelled as such.

More seriously, Obama's $820bn stimulus package includes a ban on imports of steel for US construction projects. Other tariffs on imported goods may follow in the wake of his call to 'buy American'.

Politicians will erect tariffs and trade barriers for the benefit of their poll ratings, not for the good of their economies. And this will backfire as their trading partners retaliate by imposing their own tariffs; if Brown imposes a 50% import tax on goods from Shanghai, they will impose a 50% import tax on Scotch whisky. We all lose.

Politicians are not only short-termist but vain and hubristic, and it is these dangerous qualities that will encourage the drift into protectionism. Not one, not even the sainted Obama, has shown the quality of leadership needed to reject protectionism. And Brown, the weakest, most pusillanimous and vacillating tumbleweed of them all, will scrabble and grasp for every straw in this, the final phase of his disastrous political career.


Sue said...

That's of course assuming that we have anything to trade that people want to buy :)

Blue Eyes said...

I could barely contain my anger when I heard that those oil workers were brandishing placards with Brown's soundbite on them.

If their employer didn't put in a competitive quote and the Italian firm did, then that's life I'm afraid. The dumped British firm and its employees will have to chase other contracts.

Luckily, the EU is such a slow-moving beast that it won't manage to put up trade barriers quickly.

It Will Come to Me said...

One way of implementing protectionism is to control exchange rates. For instance China keeps the Yuan exchange rate artificially low which has the effect of making our exports to China expensive to the Chinese. In effect an import tariff.

So the Chinese have been operating a form of import tariff for ages. Some would say this is the true root of the credit crunch. It was the surplus dollars in Chinese hands that were lent back to the US that allowed the Americans to go on a credit spree - sub prime mortgages, cheap credit etc.

Had the Chinese being playing the free trade game and the market had been truly open then there wouldn't have been the cheap money available to the West that lead to the credit crunch. In addition the West would not have exported jobs to Chine in the quantity that it did.

By nature I'm a bit of a conspiracy theorist and sometimes wonder if the Chinese aren't playing a long, long game.

Anonymous said...

Labour have spent most of the last decade raping the white working class to please politically useful Asians (by which one means Pakistanis) in parts of Scotland (esp. Glasgow) and the North of England.

Now that the political winds have turned, Labour are wrapping themselves in the colours of the BNP and whipping up as much darkie-hating xenophobia as possible.

Does the Labour Party actually have any principles any more? Do they have anything that they actually believe in? Do they possess a single political belief that they won't sell for short-term electoral gain?