Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Barely any international summit on economics or trade can go by these days without warnings about the dangers of protectionism and the post-cold war globalisation era coming to an end.
Policymakers and officials at the recent spring meetings of the IMF duly expressed concern over the distortive potential of the newfound enthusiasm for industrial policy — governments intervening to target specific companies or sectors. The amounts of public money that Joe Biden’s administration has shovelled into the green economy through the Inflation Reduction Act have aroused envy in many governments around the world. But the trade and technology restrictions the US has imposed have caused concern.
Some of the alarm is overdone. For one thing, industrial policy is not necessarily inefficient or distortive. The US turn away from globalisation is atypical, certainly among advanced economies. And cross-border movements of goods, services, investment, people and data have survived multiple shocks over the past 30 years.
Intervention is certainly rising. Studies by the IMF and the Global Trade Alert research service show more than 2,500 industrial policy interventions last year, more than two-thirds of them trade-distorting. But their overall impact is unclear. Hundreds of modest spending or regulatory moves won’t have much effect. GTA reports also showed distortive interventions rising rapidly after the global financial crisis in 2008, yet global trade recovered.
It is not surprising or necessarily destructive for governments to intervene in fast-evolving sectors like electric vehicles, both to gain first-mover competitive advantage and to reduce carbon emissions. The IRA spending is not perfect, but America is at least making an overdue contribution to combating climate change.
Attempts in other countries to match the US approach are relatively modest. France’s suggestion of a large new pan-EU green sovereignty fund foundered on German scepticism. Japan went on a spending spree to rebuild its semiconductor industry, but high debt loads across the world mean the capacity for new fiscal outlays is limited.
Meanwhile, America’s out-and-out trade protectionism also has relatively weak echoes elsewhere. True, the EU has tooled up with an array of weaponry to go after what it perceives as unfair competition. Using its latest instrument, the foreign subsidies regulation, Brussels conducted a raid on a Chinese company in Europe this week.
But if applied fairly, such levelling of the playing field does not constitute protectionism. The EU’s actual use of trade instruments so far has been restrained. Brussels is considering anti-subsidy duties on EV imports from China, but such tariffs are likely to be modest, intended only to give EU automakers breathing space to catch up.
Nor is the neurotic US aversion to signing new trade deals shared elsewhere. Governments in the Asia-Pacific are lining up to join the CPTPP that the US abandoned. China’s apparent return to export-led growth raises concerns about distortive interventions and trade imbalances but it could hardly be called protectionist.
As ever, the best defence for world trade would be binding global rules, but, as ever, the World Trade Organization falls well short of providing them. Its rule book is inadequate to constrain China’s state capitalist model, and the US is keener on subverting the institution by crippling its dispute settlement system than on truly reforming it.
Without that strong legal framework, conditions for a surge of government interventionism with protectionist elements remain in place. But there have been so many false alarms over the decades that the onus is on the worriers to show that this time is different and that globalisation is in serious trouble. So far, there does not seem to be truly compelling evidence that it is.
Source: Economy - ft.com
