The Socialist 22 February 2006 |
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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
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
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
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
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
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.
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
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
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
- 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
- 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
SINCE THE beginning of the workers' movement there have been demands
at times of increasing unemployment and economic crisis for
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
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.
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
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
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
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.
ONE PARTICULAR example shows how Militant took up the issue in the
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
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
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.