Protectionism is one of this Government’s worst decisions
The short-term lure of protectionism is high, but the long-term cost is always higher. The Government must acknowledge this brutal truth, as it begins applying measures to protect parts of the UK steel industry, in breach of our international trade obligations.
In 2020 I was asked to be the UK’s candidate for Director General of the World Trade Organisation (WTO), where I was extremely grateful for the PM’s support. I believe in free, fair and open trade, not least because recent history shows how it can liberate millions from abject poverty.
As Ronald Reagan, whose administration launched the Uruguay Round that helped create the WTO, put it: “The freer the flow of world trade, the stronger the tides of human progress and peace among nations.”
We need to recapture that spirit today.
One of Donald Trump’s main aims on entering office was to eliminate, or reduce, America’s trade deficit. Yet it soared under his watch to its highest level since 2008. Widespread tariff use had dire consequences for individual sectors of the US economy. Before Trump’s election, farm exports to China had reached as high as $25 billion (£21 billion) annually but they plummeted to $6.8 billion in 2019, when Beijing raised its own duties in retaliation.
Increased protectionism has harmed the world economy for some time. Global trade actually contracted towards the end of 2019, before the pandemic hit, after a decade that saw more and more trade barriers erected. In 2009, only 0.7 per cent of G20 imports were covered by restrictions. By early 2020, this had risen to 10.3 per cent, making it more and more difficult for developing countries to trade their way out of poverty. This will have economic and security consequences as developing countries use mass migration or political radicalisation to achieve their ends. Protectionism, like inflation, always hits the poor hardest.
This will be no different with British steel measures and the consequences will be essentially the same as with the Trump administration. Artificial protections may diminish the pressure on a few UK producers, but retaliatory measures are likely to harm other areas of our economy. South Korea, with whom Britain has trade worth £13.3 billion, is unlikely to stand by and watch its steel exports restricted without imposing measures of its own.
The Scotch whisky industry, cashmere, ceramics and folding bikes may all find themselves on the receiving end of retaliation. The car industry, so vital to north-east England, could find its supply chains even more badly disrupted than they were because of the pandemic. The Boeing/Airbus dispute suggests that governments tend to target the most politically sensitive areas in the event of an international trade dispute.
The PM, in his Greenwich speech after Brexit said that “Free trade is being choked and that is no fault of the people... I am afraid it is the politicians who are failing to lead… The mercantilists are everywhere, the protectionists are gaining ground.”
It is easy to say that the steel tariffs are a necessary exception, made “in the national interest”. Free trade is never destroyed in sweeping moves, but by incremental decisions – a bit of consumer protection here, a bit of producer protection there. All may be politically justifiable at the time, but the cumulative effect is corrosive. But there are alternatives. If the Government is serious about helping the steel industry, then it should look to how domestic energy policies, including self-imposed green tariffs, are creating additional burdens.
Choosing protectionism is one of this Government’s worst decisions. Labour may cheer the policy now, but they will be the first to blame us when retaliatory measures hit. We need to show leadership on free trade, rather than damaging our global reputation and putting other sections of the UK economy at risk. We need to find another answer to our problem if this is not to be a Conservative government in name only.