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Does protectionism contradict economic science?

2020-06-03T22:56:27.262Z


FIGAROVOX / TRIBUNE - If neoclassical economists deem protectionism ineffective, it is because they neglect part of the cost of free trade, analyzes economics professor Yves Perez.


Yves Perez is professor emeritus and former dean of the law faculty of the Catholic University of the West in Angers, author of the Virtues of protectionism (L'Artilleur, January 2020).

For neo-liberal economists, protectionism is not only a bad policy for our country, but it also contradicts the lessons of economics. Two good reasons to oppose it for any well-born economist.

What the neo-liberal theory of international trade teaches

According to this theory, the introduction of a customs duty on trade flows of goods and services represents a cost for the consumer. This amounts to taxing him and making him pay more for a foreign product, which he could have acquired at a better price. Its purchasing power will be reduced accordingly. Protectionism therefore consists in passing on to the consumer the cost of safeguarding certain unprofitable activities.

Neo-liberal economists only talk about the gains from free trade by failing to mention its costs.

Protectionism would cause loss not only for the individual consumer, but for the national community as a whole. It is therefore logical to oppose a policy which contradicts both the interests of the consumer and the lessons of economics.

But neo-liberal economists only tell us about the gains from free trade by failing to mention its costs.

Here is free trade adorned with all the virtues of economics. Since it generates gains for the consumer, why oppose it, except to demonstrate a narrow and limited nationalism?

By reasoning in this way, our economists omit that free trade also generates costs that must be taken into account. When, due to foreign competition, a company closes its doors or relocates its productions to another country by laying off part of its staff, it generates costs: costs of unemployment insurance paid to dismissed employees, loss of skills.

Having reached this point in their reasoning, our economists make another mistake: they cheerfully confuse two forms of protectionism. All their reasoning is based on the idea that protectionism is only decided for defensive purposes and that it only aims to safeguard unprofitable activities. This is not true. Protectionism can also be used to promote import substitution or the creation of new activities. In this scenario, protectionism can be an adjunct to economic growth. It can even create more wealth than destroys the introduction of customs duties. This is what happened at the end of the 19th century and the beginning of the 20th century. The industrial power of countries like Germany after 1870, the United States and Japan were built under protectionist barriers, which were higher than those erected by France in 1892. These powers overturned the hegemony of British industry on the eve of the First World War.

Europe adopts the behavior of the vegetarian in a world of carnivores.

The same phenomenon is happening before our eyes today. China and emerging countries compete with Western economies and undermine the global hegemony of the United States by relying on protectionist policies. Feeling threatened, the United States reacts by brandishing the weapon of protectionism in an attempt to safeguard its economic and commercial positions. Meanwhile, the European Union is backing off, pretending to believe that it is only a bad time to pass and that sunny days will soon return. It is true that Germany does not want to choose between Beijing and Washington and that it wishes to continue selling its cars at any cost to these two countries. Germany is therefore opposed to Europe giving itself tools to protect its internal market so coveted by the great world powers. Europe adopts the behavior of the vegetarian in a world of carnivores.

The role of the state

In the world to come, the State will have to arbitrate between the interest of the consumer and that of the producer, between the short and the long term.

The state has a key role to play in world trade. It cannot be limited to thinking only in terms of consumer interest, especially when our country sees its industry shrinking, unemployment returning in force and companies begging for state aid.

The State must drive strategic choices for the future of the country. The Covid -19 crisis made us rediscover in pain the virtues of sovereignty in areas as vital as pharmacy, health or food. Finally, we have assessed the risks of excessive dependence on China. But this is not enough. We have to go much further. Can we accept being mere spectators in the technological competitions that are emerging around key technologies such as batteries for electric cars, 5G or artificial intelligence? Such a position is untenable, except to resign yourself to being tomorrow only an American or Chinese colony. No decidedly, protectionism does not contradict economics. By taking into account more than the neo-liberals the power relations between the states, protectionism constitutes the strategic lever of a wise and effective economic policy.

Source: lefigaro

All news articles on 2020-06-03

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