Work for Others, not Yourself: Globalization, Protectionism and Europe’s Quest for Strategic Autonomy

Protectionism and mercantilism are yet again at the centre of global economic policy. “America First” is the guiding ethos in a good part of US international economic policy. Beijing is taking a larger stake in China’s economy and hand out privileges to domestic firms. Europe is increasingly occupied by achieving “strategic autonomy” and to create European champions at the expense of competition. Old and disreputed economic doctrines are getting a new lease on life. Behind this new orientation in international economic policy stands the old idea that a strong economy is an economy not dependent on others.

Human prosperity – our story of rags to riches – tells a very different story. Prosperity is generated when people collaborate and improve our collective intelligence. Open economies are much better at creating wealth because they operate by the principle that people should work for others, not themselves. They specialize – and in the process, they get far more dependent on others. Dependency is a factor of success; economic sovereignty is a sure way of depriving people of opportunity and prosperity.

Introduction

Ninety years ago – on June 17th, 1930, to be precise – President Herbert Hoover signed a new act with the somewhat unwieldy title “to provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes”. It was controversial and passed the Senate by a small margin – 44 senators voted in favour, 42 against. But even if the debate was adversarial, few realized the far-reaching consequences of this act. There and then, it was assumed by many that the act was necessary to support an economy on the brink to the Great Depression.

The previous autumn, the Wall Street had crashed: in a month, the New York Stock Exchange had fallen by close to 50 percent and the savings of many households had been depleted. Banks started to crumble and some of them would go bankrupt in 1930 and 1931. Unemployment skyrocketed. The US like a good part of Europe was tied to a gold standard that now spurred deflation rather than price stability. Europe imported less from the US; Americans started to stockpile gold. The country, it was argued, needed a new policy that would reduce imports and improve the current account surplus.

The result was the act that president Hoover signed 90 years ago. Today it’s known by a different name: “the Smoot-Hawley tariff act”. It was the boundary between two worlds – or two different eras: the ambition after the First World War to rebuild the liberal economic order and the growing resignation before the Second World War to defend that order. Smoot-Hawley was the start of a wave of economic nationalism that flooded the Western world in the 1930s.

Now there is the suspicion that we are yet again on the threshold widespread of economic nationalism. The Covid-19 pandemic and its responses have had a huge impact on economic activity – leading world economies have been falling faster than during the Great Depression. Just like other periods of economic turmoil, the reaction by many political leaders have been to reduce free trade – in the first place to secure the supply of facemasks, PPE and ventilators. The expectation, however, is that we are only in the beginning of a new wave of protectionism: trade barriers will increase as more governments think they are a good way to protect jobs. Globalization, some say, is about to die.

The apocalyptic sentiment is understandable. “America First” seems to be guiding much of America’s international economic policy. In Europe, Emmanuel Macron, Angela Merkel and European Commissioners talk about creating “strategic autonomy” for the economy and that the region’s digital dependence should be countered by a policy for “technology sovereignty”. Despite attempts to dress this up as something else, its essence is pretty clear: protectionism. Moreover, China has deepened its programme for indigenous innovation – sprinkling resources on Chinese firms at the same time as foreign firms are confronted with increasing market-access restrictions. For all the economic superpowers, the ambition seems to be to reduce the dependency on others.

Protectionism and mercantilism are typical symbols for the idea of the powerful economy – the belief that an economy is resilient and strong when states reduce or at least manage economic interactions with other countries. Many economists and observers have for long had the view that protectionism is something that happens at the border – something that is distant from the central zone of economic policy. Just like in the past, however, protectionism operates in a different way: it grows inside out. Protectionism is the consequence of a policy for markets and regulations at home – by extension the core ideas that define contemporary political thought. And these ideas harbor economic naivety: the belief that a country can grow richer and manage economic modernization if the state regulates the temperature of competition. They also include the opportunistic view that my country can protect itself against foreign competition without others countries retaliating in kind. At the core sits a delusion: I will become stronger if I make myself less dependent on others.

Source : ECIPE