Germany’s taste for Russian gas over the last decade is a double tragedy. This gives the Kremlin influence in Europe. But it also gives protectionists across the western world false credibility. Look at what happens, they say, when strategic industries open up for trade.
The first of these tragedies can be remedied: there is a substitute for Russian fossil fuels. The second is here to stay. Within a year of the attack on Ukraine, the US Congress has passed the king’s ransom to help the domestic industry and piqued Europe to form its own version. Their goals have expanded: from punishing Russia’s violence to slowing China’s rise. So are major industries: from gas to chips and green technology. Over time, many sectors will become “strategic”. Why not agriculture? Why should China master professional services to move from middle to high income?
The West will rue this protectionist turn. Its hard-won cohesion over the past year has resulted in mistrust, not only between the US and the EU, but in the EU, where countries trading with small domestic markets (Sweden) fear protectionism from large countries (France). Perhaps Europe could make America’s Inflation Reduction Act less discriminatory against its own companies. That’s the lobbying power of the 450m-strong entity. But what about Ireland versus Brussels? Is Australia versus Capitol Hill? Joe Biden “never wants” to beg “people who work with us”. But the nature of protectionism whose intentions only count in the beginning. What takes over is the logic of escalation.
It is often said that America is ideologically, not only materially, in conflict with China. Protectionism is a tacit ideological concession from west to east. What is admission? That international relations is a zero-sum game. If the country is the most important thing in the life of the country. That prosperity (which can be measured objectively) is subject to security (which can be determined by officials). The institutions formed at Bretton Woods of the past are a relic, and countries must make their own arrangements.
Biden’s embrace of protectionism is called “muscle,” which is code for “aggressive” when Democrats are in office. And of course, because of the cruelty of Chinese industry. If taken away, though, it is also intellectual self-disarmament. You can win the techno-economic struggle with autocrats and lose in a larger sense: by giving your world view, by playing on your turf. The U.S. won the cold war, in part, by building a trading empire that it could join with faltering third countries. In a protectionist world, what is the equivalent of a carrot?
China’s wariness is rational. But it is bound up with something else: the belief that the liberal decade on either side of the millennium is a betrayal of the western poor. This slander, recognized as it is when Donald Trump sells it, must be resisted at every point. It is possible – nay, common – for open trading countries to be egalitarian at home. (Trade is a high share of national output in the social democracies of northern Europe.) While Reagan, Thatcher and their successors loosened world trade, none of them could destroy the welfare state. In 1980, the US government spent on social protection, which includes cash benefits and services, was 13 percent of national output. It was fractionally higher in 1990. It is 19 percent now. There is nothing about liberal external trade that suggests domestic laissez-faire.
The problem with the word “neoliberal”, in addition to the left scholars on this, is that it does not allow for this nuance. To be pro-trade must be anti-labor, if not patriotic. You wouldn’t know it from the rhetoric of the day that the neoliberal age includes New Labor spending rounds and Medicare expansion under George W Bush.
I think the elites (who have strong reflexes of their mistakes) have never recovered psychologically from the breakthrough of populist elections in the last decade. He felt regret about the globalism he had created. They are tired of the old Ricardian verities: that workers are also consumers and taxpayers, that protectionism can hurt people in invisible ways. You hear wise men attribute the 2008 crash to “neoliberalism” but not the long economic expansion that preceded it. No, that just fell from the tree.
This is a profound intellectual conquest by populists. And the saddest result is the turn against trade. A British prime minister was once said to be “in office but not in power”. Take a look. Trump has done the reverse feat.
janan.ganesh@ft.com