Monday, 6 February 2023

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The west will rue its embrace of protectionism

The west will rue its embrace of protectionism

Germany’s taste for Russian gas over recent decades was a double tragedy. It gave the Kremlin leverage over Europe. But it also gave protectionists throughout the western world a spurious credibility. Look what happens, they say, when strategic industries are open to trade.

The first of these tragedies is fixable: there are substitutes for Russian fossil fuels. The second is here to stay. Within a year of the attack on Ukraine, the US Congress has passed a king’s ransom of domestic industrial aid and a piqued Europe is shaping its own version. The goal has widened: from punishing Russian violence to slowing China’s ascent. So has the key industry: from gas to chips and green tech. Over time, lots of sectors will turn out to be “strategic”. Why not agriculture? Why not the professional services that China will need to master to go from middle to high income?

The west will rue this protectionist turn. Its hard-won cohesion over the past year is already yielding to mistrust, not just between the US and EU, but within the EU, where trading nations with small domestic markets (Sweden) dread the protectionism of big states (France). Perhaps Europe can make America’s Inflation Reduction Act less discriminatory to its own companies. Such is the lobbying power of a 450mn-strong entity. But what of Ireland versus Brussels? What of Australia versus Capitol Hill? Joe Biden “never intended” to beggar “folks who were co-operating with us”. But it is the nature of protectionism that intentions only count at the very start. What takes over is the logic of escalation.

It is said often enough that America is in ideological, not just material, conflict with China. Protectionism is a tacit ideological concession from west to east. What does it concede? That international relations are a zero-sum game. That the state is paramount in the life of a country. That prosperity (which is objectively measurable) is subservient to security (which officials get to define at will). That the institutions formed at Bretton Woods a human lifetime ago are relics, and nations must make their own arrangements.

Biden’s embrace of protectionism is hailed as “muscular”, which is code for “aggressive” when a Democrat is in office. And it has to be, given China’s industrial ruthlessness. If taken too far, though, it is also intellectual self-disarmament. It is possible to win the techno-economic struggle with the autocrats and lose in a larger sense: by…

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