The rising tide of economic nationalism

30 January 2009

As the global economic crisis continues to deepen, the unmistakable stench of economic nationalism is on the rise around the world. Confronted with collapsing industries and growing anger over job losses, governments are reaching for protectionist measures despite the disastrous consequences of such beggar-thy-neighbour policies in the 1930s.

 

At the G-20 summit in mid-November, the leaders of the world’s largest economies pledged not to raise barriers to trade and investment—even those allowed under World Trade Organisation (WTO) rules—for a year. The joint communiqué also promised to restart the failed Doha round of trade talks as a means of boosting world trade.

 

However, as the Financial Times noted this week: “The solemn pledge intended to bind its signatories for a year lasted less than 36 hours before Russia said it would go ahead with planned increases in car tariffs. Moscow’s violation of the pledge was followed by several other G-20 countries—India, Brazil, Indonesia and Argentina—all pushing for increased protection.” Since then protectionist measures under various guises have been enacted in country after country, including the US and the European Union.

 

As for the Doha round, WTO director general Pascal Lamy last month called off a planned ministerial meeting aimed at kick-starting negotiations, declaring that there was “an unacceptably high risk of failure which could damage not only the round but also the WTO system”. This week, Lamy tried to sound a more optimistic note. In an interview on British television, he described the completion of the round as “low-hanging fruit” and emphasised that 80 percent of the package had been finished. But there is no sign of any end to the bitter wrangling over the “remaining 20 percent” that led to the collapse of talks last year.

 

The new Obama administration spurred on the rising tide of protectionism with the comments last week of Treasury Secretary nominee Tim Geithner accusing China of manipulating its currency to boost exports. Designating Beijing as a “currency manipulator” would allow the White House to invoke a broad range of punitive tariffs and other economic penalties against China under US trade legislation.

 

The Democrats in the House of Representatives went one step further by including a “Buy American” provision in Obama’s $825 billion stimulus package approved on Wednesday. The clause, which requires infrastructure projects funded by the package to use only US-made iron and steel, has provoked protests from European steelmakers. Democrat senator Byron Dorgan is proposing a broader measure to exclude most foreign-made manufactured goods when the package reaches the Senate.

 

Such measures threaten to provoke escalating retaliation and a full-blown trade war. A comment in the US journal Foreign Policy warned that the “explicitly protectionist language” contained in the package would “certainly be taken as a bad sign by the rest of the world. The world can deal with a protectionist India or Indonesia. The trading system will have much more trouble if the United States starts to renege on its traditional leadership role.”

 

Cautions about growing protectionism have been sounded already at this week’s Davos Economic Summit, including by the Chinese and Russian premiers. Igor Yurgens, a senior adviser to Russian President Dmitry Medvedev, gave vent to some of the bitterness in Moscow and other capitals over the impact of the various US rescue packages. “Of course, [Mr Obama] expects the Chinese or Russians to buy US Treasury bills [to fund the massive US deficit]. That is pretty selfish and philosophically it is protectionism,” he declared.

 

Tit-for-tat trade measures and legal challenges are on the increase. In only its second case before the WTO, China pressed ahead this week with a complaint against US measures restricting the import of steel pipes, tyres and woven sacks. After Beijing initiated the dispute last September, Washington began legal action against subsidised Chinese branded goods. China, which is the world’s second largest exporter after Germany, has been the target of seven WTO disputes, all of which involve the US.

 

There is no shortage of economic commentators issuing dire warnings about the potential for protectionism to catapult the world economy into a depression akin to the 1930s. International trade is slowing dramatically, with the IMF forecasting this week that world trade volumes would contract 2.8 percent in 2009 after rising 4.1 percent last year. Nevertheless, as the global economy shrinks, the capitalist class in every country is driven to foist the crisis onto its international rivals as well as the working class.

 

In 1930, many foresaw the disastrous consequences of the Smoot-Hawley tariff act, which increased nearly 900 American import duties. Some 1,028 US economists signed a petition pleading with US President Herbert Hoover not to sign the bill into law. The Economist magazine recently cited the comments of Thomas Lamont, a partner of J.P. Morgan, who recalled: “I almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley Smoot Tariff. That act intensified nationalism all over the world.” Nevertheless, Hoover signed the law, provoking an avalanche of retaliation, the collapse of world trade and the formation of antagonistic currency blocs that set the course for the Second World War.

 

While those promoting “free trade” speak for the bankers, financiers and more globally competitive sections of capital, there is a definite constituency for protectionism among less competitive industries. The whipping up of economic nationalism also serves a vital ideological function in diverting the anger of working people over job losses and the precipitous decline in living standards outwards rather than at the real source of the crisis—the profit system itself.

 

Those who push this reactionary poison in the working class are the trade unions and their various middle class radical allies. Far from defending jobs and conditions, economic nationalism goes hand-in-hand with the continuing impoverishment of working people. Whether in the US, Europe or any other country, the same union bureaucrats who have presided over the decimation of manufacturing industry over the past three decades now insist on the further sacrifice of wages and conditions as part of the protectionist packages to defend American or European companies.

 

The bailout plan for the US auto industry backed by the United Auto Workers is conditional on a savage restructuring of the industry that will result in plant closures, layoffs and the systematic lowering of wages. In France, Germany and other European countries, the unions are collaborating with governments and corporations in plans to defend “their” auto industries, using the threat of job losses to enlist the support of workers. The logic of economic nationalism is class collaboration in a dog-eat-dog competition that pits workers in one country against their class brothers and sisters around the world. The end result is trade war and military conflict.

 

The working class cannot defend its interests under the banner of either protectionism or “free trade”.  The precondition for any genuine struggle to defend jobs and living standards is the political independence of workers from all wings of the capitalist class. The natural allies of workers in advanced economies such as US and Europe are workers in cheap labour platforms like China and India who are often exploited by the same global corporations and share a common class interest in abolishing the anarchic profit system and replacing it with a world-planned socialist economy. That is the perspective advanced by the World Socialist Web Site and the International Committee of the Fourth International.

Peter Symonds