Print this article

Google search the site

Home   |   The Socialist 22 Feb - 1 Mar 2006   |   Join the Socialist Party

Subscribe   |   Donate   |   Bookshop

World economy:

Trade wars and protectionism

THE FAILURE of the capitalist powers at the recent WTO (World Trade Organisation) talks in Hong Kong to further 'liberalise' world trade reflects the growing difficulties and contradictions inherent in the world economy.

The big powers - such as US, Japan, the EU countries etc - hypocritically advocate "free trade" while applying tariffs and subsidies to protect their own economies against developing countries' exports.

This resulted in a clash between the EU and China last year over the latter's export of cheap clothing to Europe dubbed "bra wars" - a sign of things to come.

KEN SMITH looks at these rising tensions and the prospects of a slide toward "protectionism".

TONY BLAIR and his closest supporters are fervent evangelists of an acceleration of capitalist globalisation and an increasing world division of labour. He asserts that further cutting trade barriers by one-third could add $600 billion to the global economy.

Moreover, Blair claims - in a sideswipe at French and European Union protectionist measures on agriculture - that free trade would benefit 'developing' countries to the tune of $47 billion a year if 'rich' countries cut agricultural subsidies and lowered barriers to agricultural imports. Africa, he claimed hypocritically, could receive a $70 billion boost if it increased its share of global trade by 1%.

Yet, it's highly unlikely that this current ("Doha") round of world trade talks will reach the agreements Blair advocates. Indeed, there appears to be a trend developing amongst some sections of the capitalist class internationally towards greater protectionism as their economies head for choppier waters.

The Economist bemoaned in June 2005 that "wherever you look, trade tensions are on the rise."

Responding to repeated barbed comments from Gordon Brown calling for the 'old European' economies to face reality and open up to more competition, French President Jaques Chirac said in October: "France will never let Europe become a mere free trade area." His prime minister Dominique de Villepin called for "economic patriotism".

Tensions

CHINESE TEXTILE imports to the EU have grown by an average 23% annually in the last five years. A European Parliamentary committee warned that Europe's textiles industry could lose a 1,000 jobs a day because of this.

There is also the possibility of deeper protectionist measures in the USA, through the Schumer-Graham Bill, proposing tariffs on Chinese imports into the US. China now exports six times as much to the USA as the USA imports from China. This imbalance widened the US trade deficit to a record $726 billion last year.

However, the economic patriotism of different capitalist classes only stretches so far. At the same time as Chirac and de Villepin were busy trying to keep protectionist barriers around French agriculture, for fear of the social upheavals that cuts in subsidies would provoke, they also presided over French companies advancing a new form of colonialism through $71.8 billion of acquisitions in other countries.

Although the capitalist classes internationally extol the virtues of global free trade, their major difficulty is there are too many vested interests at stake for them to altruistically decrease their own national share of world trade.

Throughout the world trade talk negotiations there will be serious horse trading going on. Areas like the USA and the European Union will try to give away as few cuts in agricultural protection as possible in return, they hope, for an opening up of countries like Brazil and India to imports of manufacturing goods and services from advanced capitalist countries.

British capitalism, because of the scale of de-industrialisation of the economy and its dependence on financial and service economies has more to gain at this stage from liberalisation and globalisation than protectionist measures.

National economies

SINCE THE beginning of the capitalist system, the classical economists' ideas about free trade - an unimpeded worldwide market in goods, labour and services - have never been the reality. There has always been argument about whether following free trade policies or protectionist measures benefit a national economy better.

Each national capitalist economy has always had in place some degree of protectionist measures, whether it is exchange controls, migration controls, tariffs on imported goods and services or special subsidies to certain industries the capitalist class want to see developed.

Even in the 20th century, countries have attempted to use tariffs, subsidies or special measures to protect developing or weak industries. This was especially so in the Asian tiger economies during the Cold War when their economic growth was promoted by the West for strategic reasons. Even to this day advanced capitalist countries and trading blocs use tariffs and quotas to protect and develop certain industries. A current example is the row between the USA and EU over subsidies given to the aircraft industries to assist in developing a new generation aircraft to outsell their rivals.

To one degree or another all countries pursue, as far as they can get away with it, systems of tariffs, quotas and subsidies to allow various national capitalisms or trading blocs such as EU, Nafta and Asean to gain competitive advantage over others.

In the USA, President Bush had protectionist quotas for steel imports in place before the last election to shore up the Republican vote in key states where loss of steel jobs was an election issue.

For a capitalist class the decision whether to follow a free market position or protectionism is not a principled issue but one they will adopt on the basis of what suits them. However, the general feeling amongst leading sections of the capitalist class internationally is that free(er) trade acts as a lubricant to the world economy.

Retaliatory measures

THE BIG danger associated with imposing protectionist measures for any capitalist class, as well as a slow down in world economic growth, is that it brings the prospect of retaliation and closes down areas of the world market to them.

Whilst there are tensions between different sections of the capitalist classes about how far to advance globalisation and free trade, the capitalists generally prefer to avoid greater protectionism in the global economy, whilst trying to create the most favourable conditions - often through disguised protectionism - for their own indigenous industries.

An almighty economic crisis, however, could probably bring about deep-rooted protectionist measures in most major economies - as happened in the 1930s. The capitalist classes are aware that this could lead to a depressing effect on world economic growth - again as happened in the 1930s.

The capitalists are not blind to the consequences of their actions but these measures would be deemed necessary to protect national economies against their rivals

At present, there is little chance of the advanced capitalist countries going fully down a protectionist road. Yet, as the pace of job losses and industrial closures increases in the USA, Europe and other parts of the world, the demand for protectionism to safeguard jobs could find a bigger echo in the workers' movement.

Workers cannot safeguard their future through adopting the type of protectionist measures advocated from time to time by certain sections of the capitalist class.

For socialists it does not matter so much where production is situated in a global economy but it is a question of which class in society controls production.

The only way for workers to protect jobs and conditions is conducting successful, militant industrial struggle that forces the bosses to accept less in profits and make workers' jobs secure.

The only way workers can properly protect themselves against the volatility and instability of the capitalist economy is ultimately, through taking over the means of production, distribution and exchange and for the economy to be democratically owned and controlled by the working class in a socialist plan of production.

World Trade Organsiation: Subsidies and tariffs

The WTO talks in Hong Kong between 13-18 December 2005 agreed to phase out farm export subsidies by 2013, but there has been no agreement on import tariffs. Likewise, rich countries will phase out export subsidies for cotton, but there is no agreement on a date for reducing domestic subsidies for US farmers.

• While 96% of the world's farmers live in 'developing' countries, their share of global trade in agriculture is just 31%.
• Governments in rich countries dole out $300bn a year in farm support, mostly to wealthy landowners and agribusinesses.
• By spending $18bn on cotton subsidies between 1999 and 2004, the US nearly doubled its share of world cotton exports from 24% to 39%. 28,000 US cotton farmers received $2.4bn in subsidies - more than the entire GDP of Burkina Faso, a country with two million cotton farmers.
• Two-thirds of US farmers receive no subsidies at all, while $104bn of the $143bn paid out over the last decade went to the wealthiest ten percent of farmers.
• The EU spends €108bn a year on the Common Agricultural Policy (CAP). Four-fifths of the budget goes to the richest one-fifth of farmers.
• European sugar producers receive big subsidies enabling them to export sugar to Africa at 56% below cost.
• In 2003, Ghana raised its tariffs on imported rice from 20-25%, as a result of growing protests from its own rice farmers. But the move was subsequently reversed as a result of pressure from the IMF, which controls Ghana's access to foreign funds.

Neither 'free trade' nor 'protectionism' but international socialism

SINCE THE beginning of the workers' movement there have been demands at times of increasing unemployment and economic crisis for protectionist measures.

The increased globalisation and liberalisation of the world economy, leading to outsourcing and moving production to the cheapest labour costs, has increased demands for a 'level playing field' or greater state assistance or intervention along with the same redundancy conditions to apply as elsewhere in Europe etc to make it more difficult for the bosses to sack workers in Britain.

The profits system is plagued by economic crisis with overproduction leading to economic downturn and increasing unemployment, lowering of wages etc.

It is a system that makes jobs and industries obsolescent without caring about the lives of working people and their communities. The capitalists are forever moving on to create new industries and markets; often relocating to cheaper resources, a cheaper workforce or both.

At different times workers have used various measures to try and protect their jobs from the smashing up of machinery - 'Luddism' - (the early 19th century social movement of English textile workers against the effects of industrialisation), through to collective bargaining, strike action and political campaigns.

Some of these methods were more successful than others depending on the economic climate and strength of workers' movement.

Socialists are not opposed to industrial change but our starting point will always be what best protects workers' jobs and conditions. In order to achieve this socialists are guided by an internationalist outlook and argue against measures that set workers in one country against workers in another.

The 1970s

ONE OF the most prominent examples of workers' organisations advocating protectionist measures was in the 1970s when the idea of import controls gained widespread support. Import controls were seen as a way of protecting jobs and shielding Britain from the vagaries and turbulence of the world capitalist economy.

It was part of the official strategy of the Tribunite Left, then in the leadership of the Labour Party - advanced by people like Tony Benn and most trade union leaders. However, Militant supporters, the forerunner of the Socialist Party, argued against import controls for a number of reasons.

Although the idea of introducing a system of selective quotas for imports appeared superficially attractive as a means of safeguarding jobs, in fact their introduction would have had the exact opposite effect to that claimed by its advocates. Unwittingly, it was another variation on the theme of workers paying for the privilege of maintaining their employment.

Import controls are not the same as a monopoly of foreign trade or export controls and controls of movement of capital, which can form part of a socialist plan of production. Any idea today that there could be control on a capitalist basis of the flow of financial capital - amounting to trillions every day - from City of London and elsewhere is a non-starter.

One claimed economic advantage for import controls - over devaluation of the currency for example - was that it would not drive prices up.

However, Militant argued that workers in Britain or any country would face higher prices if import controls were introduced.There would have been little doubt that British capitalists would have increased their prices in a more sheltered market. And those foreign capitalists who were allowed to import would also push prices up with an easily guaranteed market.

There was no guarantee under private ownership that capitalists would take advantage of this so-called 'breathing space' to invest more and improve the productivity and competitiveness of the British economy.

We argued that British capitalism, after world war two, saw a Labour government effectively create a regulated economy in an attempt to protect itself from foreign competition. Yet, even though British firms were flush with cash and had a guaranteed market, the British capitalists in the late 1940s were only investing half to two-thirds that of their overseas rivals.

Another issue with import controls is that more jobs could be lost than saved as tariffs and quotas are put on British exported goods in retaliation. This would have had a much bigger impact in Britain in the 1960s and 1970s when a much larger section of manufacturing depended on exports.

The only real experience in this country of import controls being introduced was when the 1964 Labour government introduced a Temporary Import Surcharge (TIS) but was forced to scrap this mild measure within two years because of the threat of retaliation from other countries.

Coal industry

ONE PARTICULAR example shows how Militant took up the issue in the 1970s.

The NUM miners' union argued for selective import controls because of the continuing rundown of the industry and rigged market for coal. Many other countries were either using cheaper labour or a higher level of subsidy to produce 'cheaper' coal than was produced in Britain.

The pits in the 1970s were made to look increasingly uneconomic and liable to closure by starving the industry of funding. There was a continual rigging of the NCB accounts - to portray the industry as a loss-making operation - and an increasing use of the discovery of geological problems at pits by a new more hardline management.

The NCB was charged over £100 million in interest to store the millions of tonnes of coal that was stockpiled. Additionally, British coal had the lowest level of state subsidy in Western Europe.

Socialists around Militant were sensitive to the miners' predicament and supported their fight for jobs and a 'level playing field'. But this, we argued, meant campaigning for greater subsidies and reinvestment in the industry as the more effective way to make the cost of British coal more competitive.

Import controls, Militant argued, would set miners in one country against another and would sow the illusion that there could be a 'national' solution to the looming crisis in Britain's coal industry at the expense of other miners abroad.

Militant argued that whilst it was necessary to campaign against pit closures there also needed to be a campaign for socialist plan of production for the industry and a socialist, integrated energy policy rather than limited measures which were potentially divisive such as import controls.

This included calling for workers' control and management of the coal industry; nationalisation of all private concerns in the fuel industry under workers' control and management and for the setting up of a national fuel corporation as part of a socialist national fuel policy.

Our argument for this political approach was borne out years later, ironically by Margaret Thatcher in her memoirs when she said: "The coal strike was always about far more than uneconomic pits. It was a political strike."

The situation today

AFTER THE defeat of the miners' strike, along with the increasing de-industrialisation of British industry, the arguments about import controls faded.

But, the loss of over a million manufacturing jobs under the Labour government since 1997 has, as explained at the start, led to new demands being raised to protect workers' jobs.

Socialists could, in certain circumstances, critically support some of these temporary measures, whilst guarding against illusions that they could provide a long-term solution to protect jobs.

However, one of the biggest problems with all forms of limited protectionism, is it raises illusions that there can be a national economic solution for workers and capitalists alike.

This holds workers back from looking for a socialist and class solution to their problems and they lose sight of the impact protectionist measures could have on workers' jobs in other countries.

Our approach starts from the common struggle of workers worldwide. We fight for taking control of industry with democratic working-class ownership and control through a socialist planned economy to organise investment and planning to guarantee job security and economic growth.

Home   |   The Socialist 22 Feb - 1 Mar 2006   |   Join the Socialist Party

Subscribe   |   Donate   |   Bookshop