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Economy

Protectionism, A False Promise For France's Future

In France's presidential campaign, like last year's race in the United States, protectionism is being used to woo the struggling working class. But workers would be its first victims.

Workers protest at a Whirlpool plant slated for closure in France
Workers protest at a Whirlpool plant slated for closure in France
Jean-Marc Vittori

PARIS — For Donald Trump, it's been an obsession for decades. In the Le Pen family here in France, it's a precious recipe passed down from father to daughter and daughter to niece: To save the country, for the economy to do better, to avoid factories closing down and reverse widespread unemployment, we should effectively close borders to foreign companies with higher tariffs, a depreciated currency and a national preference.

These seemingly simple, common sense measures, however, miss one tiny point. They will inevitably lead to higher prices. The "clever protectionism" that Marine Le Pen wants would be first and foremost an inflationary protectionism. In a world in which transferred revenues grow bigger and bigger, the poorest would be the ones hit hardest, if only because the population is aging. Well, is that social justice?

That money didn't go to employees, but to stockholders.

First things first: rising prices. A quick example does a good job to reveal the machinery at play. In late 2009, Barack Obama drastically raised tariffs on Chinese tires (from 4% to 39%, then brought down a bit to 29% in two steps). Economists Gary Hufbauer and Sean Lowry studied what happened in this case, basing their research on very cautious calculations. As expected, imports from China dropped by half, while prices soared (up 25%). But exporters from Mexico, Indonesia and Thailand seized the occasion offered by lower Chinese pressure to also increase their prices. U.S. producers followed suit, as they struggled to meet the demand, given they had long abandoned the lower-end market to their counterparts from China.

In the end, U.S. consumers now spend $1.1 billion more every year on tires. With the 1,200 jobs that were saved in the American rubber industry, that comes out to roughly $1 million per job saved. And most of that money didn't go to the employees, but to the stockholders of non-Chinese producers.

The story doesn't end there. In the U.S., you need 3,500 employees in trade to make $1 billion of revenue. But since consumers paid more for their tires, they spent less on other items. The destruction of $1.1 billion in revenue thus led to the loss of 3,700 jobs in distribution — a lot more than the number of jobs saved in the industry. This doesn't even factor in the jobs lost in the poultry industry as a result of a retaliatory measure from China.

This isn't the only lever that pushes prices higher. Over the past two decades, "long commodity chains' stretched "between production and consumption," as historian Fernand Braudel had predicted. With the opening of former Communist countries and the exchange of information made easier with the internet, these chains often travel right across borders. So much so that 80% of global trade now takes place within the value chains of transnational companies, according to the United Nations Conference on Trade and Development.

Introducing barriers on borders would break these chains, provoking brutal price hikes. Examining closely what would happen in companies, economists Joachin Blaum, Claire Lelarge and Michael Peters reached the conclusion that "French consumer prices in the manufacturing sector would be 27.5% higher if French producers were forced to source their inputs domestically."

You buy Chinese socks, not those made in France.

In the end, consumers largely benefit from these imports, as they increase their purchasing power. According to the calculations of researchers Charlotte Emlinger and Lionel Fontagné, the sole imports of consumer goods from low-wage countries save each household between 100 and 300 euros every month. And the price hike caused by tariffs penalizes the poorest the most — those for whom paying as little as possible is essential. When you're down to counting every cent from the 15th of every month, you buy Chinese socks for 1.50 euros rather than those made in France that are ten times more expensive.

French daily bread — Photo: Philippe Vieux-Jeanton

In the U.S., economists Katheryn Russ, Jay Shambaugh and Jason Furman (the last two were advisers to former U.S. President Barack Obama) clearly demonstrated that, proportionately to the money they spent, the poorest families paid more tariffs than the rest. It's the opposite of a progressive tax: "Tariffs function as a regressive tax that weighs most heavily on women and single parents," they concluded.

The defenders of protectionism prefer to ignore this basic truth. They highlight the need to defend the producer, to the detriment of the consumer — as French politician Jules Méline did in the late 19th century, backed by then Socialist leader Jean Jaurès.

The problem is that things changed in the 20th century. Revenue depends less and less directly on production, and more and more on a welfare state that is responsible for about half of the domestic product (and slightly more in France). Pensions, social benefits, unemployment compensations account for about one-third of the French's wages, and a lot more for the poorest. Now, the protectionist inflation would hit first and foremost those worse off — utterly different from the situation in the 19th century, when tariffs on farming imports could potentially lead to higher revenues for the half of the population that worked in the agricultural sector.

Yes, we are now in the 21st century, where protectionism is a policy bound to undermine social justice.

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Geopolitics

The Trudeau-Modi Row Reveals Growing Right-Wing Bent Of India's Diaspora

Western governments will not be oblivious to the growing right-wing activism among the diaspora and the efforts of the BJP and Narendra Modi's government to harness that energy for political support and stave off criticism of India.

The Trudeau-Modi Row Reveals Growing Right-Wing Bent Of India's Diaspora

Canadian Prime Minister Justin Trudeau and Indian Prime Minister Narendra Modi at the G20 Summit in New Delhi on Sept. 9

Sushil Aaron

-Analysis-

NEW DELHI — Canadian Prime Minister Justin Trudeau has brought Narendra Modi’s exuberant post-G20 atmospherics to a halt by alleging in parliament that agents of the Indian government were involved in the murder of Hardeep Singh Nijjar, a Canadian national, in June this year.

“Any involvement of a foreign government in the killing of a Canadian citizen on Canadian soil is an unacceptable violation of our sovereignty,” Trudeau said. The Canadian foreign ministry subsequently expelled an Indian diplomat, who was identified as the head of the Research and Analysis Wing (RAW), India’s foreign intelligence agency, in Canada. [On Thursday, India retaliated through its visa processing center in Canada, which suspended services until further notice over “operational reasons.”]

Trudeau’s announcement was immediately picked up by the international media and generated quite a ripple across social media. This is big because the Canadians have accused the Indian government – not any private vigilante group or organisation – of murder in a foreign land.

Trudeau and Canadian state services seem to have taken this as seriously as the UK did when the Russian émigré Alexander Litvinenko was killed, allegedly on orders of the Kremlin. It is extraordinarily rare for a Western democracy to expel a diplomat from another democracy on these grounds.

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