Pretensive protectionism?

Imtiaz A. Hussain | Published: June 28, 2018 21:23:55

Dambiso Moyo is no fan of protectionism. In "Protectionism's false promise" (Time, June 04, 2018, 23-4), she attributed the three causal factors why the United States is marching towards a new form of isolation. Even though meritorious, her argument may still be the wrong one to make at the wrong time for the wrong country. A more realistic appraisal might de-emphasise the US role globally, since other dynamics show growth. In turn may emerge a paradoxical fourth reason for isolationism alongside nudges to fight US isolationism.

Her three causal factors have produced corresponding political economic shifts. The first finds the United States in "a more siloed world", each silo representing one locality within the United States as opposed to the hitherto global corporate reaches. To wit, corporations would localise costs, borrowings, and hiring. Were it not for far lower factory wages abroad making many more US consumer goods fit the drastically reduced disposable purchasing power, this might have appealed. Clearly, there is a 'shift' in this direction to support Moyo's claim, but to see this becoming all-encompassing may be painting the picture of a bridge too far to reach. Simply to replace low-cost imports with domestic counterparts would hypothetically create more jobs than consumers, thereby disguising long-term pains behind short-term gains. Moyo recognises outcomes of this type, but by pushing the silo thesis, she may find her own thesis backfiring soon enough.

In fact, her second 'shift' almost says as much. Low energy costs, low-wages, and low borrowing costs, she reckons, would produce short-term deflation before tariff impositions culminate in long-term inflation. Here the bridge may be farther apart. Throughout 2018, we have noticed the gradual but steady rise in energy prices, with oil on track to double its price to what it was in 2017 within another year, while economic growth registered particularly across West Europe suggests borrowing costs will become incrementally higher, if not already doing so. This US domestic dynamic may not at all tally overseas, where the abundance of money China is putting into particularly infrastructural projects globally will have the effect of keeping borrowing prices low. Though Chinese interest rates imposed on these project-borrowings have begun to surpass even corresponding World Bank rates, those borrowing still continue given the no- or low-strings attached compared to borrowings in the Atlantic zone. Added up, these dynamics predict both deflationary and inflationary sectors cohabiting the financial market, predicting both long-term growth and constraints, with inflation as only one element in that panoply.

Moyo's third 'shift', of governments rallying behind national champions is neither new nor depicting exclusively the US economy. For a start, not all national champions have found US government support, particularly under Donald J. Trump. His protectionism was on behalf of national manufacturing champions, beginning with automobiles, but also including steel. Yet, the information industry, wherever artificial intelligence (AI) is being utilised, and skills management, show diametrically opposite performances than the mauled economy Trump depicts. On the other hand, almost all of the booming Chinese multinational producers and financiers just happen to be national champions profiting from governmental incentives, a feature so common in many emerging countries. One will find in any Fortune 500 listings more US corporations with no 'national champion' tags (many have been on that list long before the 'national champion' label was even invoked inside the United States). Shifting to similar lists including foreign entries, we will find the proportion of 'national champion' corporations to be a lot higher. With her third 'shift', Moyo might be describing an atypical international variation, not the US type.

That may be why her elements just do not add up. To be sporadically valid even within one country does not make them universally valid even within that one country: adding other dynamics, such as the number of US corporations still seeking franchises abroad or producing for foreign markets, would seriously modify Moyo's features. Five years ago her arguments and elements may have rung with a lot more resonance, meaning that her 'short-term' description was more valid then, not now. It only follows that her 'long-term' is today. That, too, does not gel: behind the inflationary tendency we see today, deflationary outbursts can also be found, even more so, the global political economy is far more brisk than Moyo's clustered argument projects.

If today's market performances are to be measured by the 2008-11 Great Recession yardstick, then we find very different impact zones, with the Atlantic seaboard economies hurt the most, emerging countries barely touched, and China being constrained only to the extent of its upper-end exports to Atlantic seaboard countries. In other words, it was not at all a global phenomenon, and though the affected Atlantic seaboard countries dominated and dictated global dynamics throughout the 20th Century, that is becoming less and less a factor in the 21st Century. Moyo and others commenting on Atlantic seaboard dynamics must attune their arguments just as the Atlantic seaboard countries have been urged by the Great Recession to attune to the 21st Century economic playground in which hi-tech more than manufacture-driven markets lead.

Dr Imtiaz A. Hussain is Professor & Head of the newly-built Department of Global Studies & Governance at Independent University, Bangladesh.

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