Sources

The New Forms Of Protectionism Go Well Beyond Trump's Mouth

At first glance, it looks as though leaders of the world’s most powerful countries learned the lesson from the 1930s: Closing the borders is harmful. But in reality, protectionism has taken on new forms.

The EU is probing the Chinese purchase of German robotics firm Kuka.
The EU is probing the Chinese purchase of German robotics firm Kuka.
Jean-Marc Vittori

-Analysis-

PARIS — Global trade seems to have been saved from the brink. According to researchers at the International Monetary Fund, commercial exchanges are growing by 4% annually, and their weight in production is on the rise again after years of stagnation. Though he delivers protectionist soliloquies, U.S. President Donald Trump, for now, looks more of a Don Quixote than a Herbert Hoover, his early 1930s predecessor who slammed the door in the rest of the world's face. The current world, meanwhile, is dropping its guard. Statisticians from the World Trade Organization (WTO) have counted just over 100 restrictive measures taken over the past year, about half the number for the previous year.

Apparently, leaders of the world's most powerful countries aren't repeating the mistakes of the Great Depression. Less than six months after the stock market crash of October 1929, the U.S. Congress passed the infamous Smoot–Hawley Tariff Act, which raised tariffs to 59% on more than 20,000 products. Europe answered with the same weapon, igniting a trade war that would bring down production levels in all industrialized countries.

Haunted by this memory, post-War governments created mechanisms to open their markets, which later morphed into the WTO. For the same reason, G20 leaders of the top industrialized country proclaimed in November 2008, in the middle of the financial storm triggered by Lehman Brothers' bankruptcy, their commitment not to do the same again.

New barriers depend on money, or its scarcity.

But are low tariffs evidence of an open door? In the latest report of Global Trade Alert, an observatory for international trade, Simon Evenett and Johannes Fritz express their doubts. According to these two researchers from Switzerland's University of St. Gallen: "For far too long the G20 has maintained a diplomatic fiction that crisis-era protectionism has been tamed. It wasn't — governments just titled the commercial playing field in ways that differed from the 1930s. Those fixated with avoiding another Smoot-Hawley failed to see, or take action against, the widespread resort to other trade distortions."

The new barriers often depend on money, or rather its scarcity. "Financial protectionism is the greatest danger to global trade," says Ludovic Subran, chief economist of credit insurance company Euler Hermes. On a global scale, cross-border bank credit is barely growing, whereas it had increased by 15% a year before the 2008 crisis. However, loans are a powerful lever for growth in trade. When they dry up, the impact on exports is brutal, as we witnessed in the fall of 2008 — and during the Great Depression.

In Evenett and Fritz's detailed study, three-quarters of G20 exports are affected, in one way or another, by restrictions, which is 10 times more than in the WTO assessments. Tariffs rank only fifth, behind the export tax incentives and the preferential financing granted to companies selling abroad.

Sunset over the port of Nantes, France — Photo: Olivier Letourneux

Three barriers seem destined to rise, and thus damper the enthusiasm of importers. The first is local content requirement: I will sign a big contract with you if you build a factory in my country to honor it. That's how Airbus opened its first plant in China a decade ago, and why Boeing eventually resigned itself to doing the same. Local content requirements are common for the purchase of trains. Donald Trump's rants pushed European and Chinese firms to multiply projects for new industrial sites across the heartland of America. The U.S. president's new tax reform includes provisions that could have the same effect. Hoover's 1933 Buy American Act has attracted renewed interest. It has just been extended to school cafeterias. And a Buy European Act featured in Emmanuel Macron's campaign program on the way to winning the French presidency.

The second barrier is the protection of the capital of national companies. China is a leader in this regard. Successful buyouts of Chinese firms by foreign companies, such as SEB's operation on the Supor rice cooker manufacturer, are very rare. Forty years ago, the U.S. created a defensive organization, the CFIUS (Committee on Foreign Investment in the United States), which investigates such cases. Trump has blocked the purchase of a chip manufacturer, Lattice Semiconductor, by a Chinese group. In Europe, the idea of protection was compromised in 2005 by the French will to counter the acquisition of Danone by Pepsi-Cola, in the name of national security. Germans protested when one of their robotics giants, Kuka, was bought by the Chinese company Midea in 2016. The European Commission is working on the case.

The third barrier, meanwhile, is an American specialty: It is court sanctions of foreign companies for not having respected national rules, even if it happened on the other side of the world. This "extraterritoriality" is both a ransom levied on companies competing with firms in the country and a form of intimidation. French companies are thus moving very cautiously in Iran, as their bankers are reluctant to follow them after the heavy fine paid by BNP Paribas for working with the country while it was under U.S. embargo.

Yes, protectionism is alive, but with a new face. It's a masked face, and it will no doubt be harder to erase than mere customs tariffs.

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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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