The liberal West was protectionist before Trump
Obama and the EU pursued their own PC-flavoured trade wars before the Donald arrived
Is Trump intent on starting a trade war? Proclaiming, in his inaugural address, that ‘Protection will lead to great prosperity and strength’, Trump has withdrawn from the Trans-Pacific Partnership. He may impose a 20 per cent border tax on imports, starting with Mexico. He wants to renegotiate the North American Free Trade Agreement with Mexico and Canada. He’s promised to raise tariffs on Chinese goods to 45 per cent of their value, and wants US manufacturers to reshore production back to America. Now commentators fret that Trump is walking in the ‘ominous’ and ‘dark’ footprints of the 1930 Smoot-Hawley Tariff Act, which taxed some imports at 60 per cent of their value and is today widely seen as contributing to the international disorder of the 1930s.
We will see what Trump does. But nobody should be under any illusions. Over two terms, Obama’s own protectionism, much of it directed against the EU, fully prepared the world for the Trumpian sort today. So did the stench of protectionism emanating from Brussels.
The narrative that Trump is a qualitative break from a previous era of peaceful, liberal, free trade globalisation is a travesty of the facts.
A pattern of PC posturing
In trade and investment, Obama always played hardball. He took sanctions against Russia and Syria. He only eased sanctions against Iran in January 2016, and left America’s historic sanctions in place around Cuba. Obama also imposed tariffs more than 500 per cent on some of China’s exports of steel products. In the World Trade Organization, his representatives aggressively pursued ‘enforcement’ actions against trade rivals.
Yet Obama also played a new kind of softball.
For decades, economists used to lament growing ‘non-tariff barriers to trade’ – niggly regulations barring foreign carmakers if their bumpers weren’t right. And for decades trade has been growing in services, where technical regulations and standards are especially tricky for foreign firms to adhere to (there is, for example, little EU Single Market in services). Put those two trends together, recognise that foreign direct investment (FDI) is actually more important than trade, and sprinkle in a strong White House dose of virtue-signaling, grandstanding and moralising regulation. Result: apart from the imposition of old-fashioned sanctions and a few harsh tariff barriers, Obama repeatedly engaged in other unilateral, arbitrary and intimidating actions against foreign firms active in America.
His people fined Britain’s BP billions of dollars for the 2010 Deepwater Horizon oil disaster, and Obama himself castigated BP as British Petroleum. In 2012 Obama’s Department of Justice (DoJ) fined UK pharmaceutical giant GlaxoSmithKline $3bn for bribing doctors to prescribe anti-depressants to children. On a much smaller scale, the US Securities and Exchange Commission fined Dutch auditors KPMG in 2014 for iffy accounting, going on to fine Ernst & Young for much the same in 2016. Last year, too, the Supreme Court awarded Apple $399m in damages against Korea’s Samsung for making smartphones with ‘a rectangular front face with rounded edges and a grid of colorful icons on a black screen’. Obama’s DoJ also fined Volkswagen $4.3bn for faking its diesel emissions, arranging for a German VW executive to be shackled in Miami and threatened with a life in jail. Finally, in its dying days, the Obama DoJ fined Britain’s Rolls Royce $170 million for bribery.
Obama’s fierceness toward inward investors was, then, only ‘soft’ in that it singled foreign companies out for longstanding Democratic Party anti-corporate gripes around the environment, safety and corruption. In this sense, we can say that Obama initiated trade wars under the guise of culture wars against the bad behaviour of foreign firms.
The EU has replied in kind. Posturing as the last bastion of ethical resistance to American cultural norms, Brussels might not agree that its measures amount a trade war, but it has been unrelenting in its pursuit of US companies – especially IT companies. The EU made anti-monopoly moves against Intel ($1.17bn, 2009), Microsoft ($731m, 2013), and Google (up to $7.45bn, 2016), and attacked Apple for not paying enough tax. It now has Google, Apple, Facebook and What’sApp in its sights over Internet privacy.
The behaviour of American IT companies remains, in the eyes of the EU, just a little too big for their boots. They lack the finesse of, say, European companies. In this way the EU’s politically correct protectionism can distract from its failure to build a computer and software industry like the US.
Are multiple Trumps to blame?
The ‘Trump means Trade War’ narrative gets still more shallow when it adds that just as Trump will make trade hard, so other authoritarian national leaders – Turkey’s Recep Erdogan, India’s Narendra Modi, Russia’s Vladimir Putin and China’s Xi Jinping – promise to do the same. Thus Guardian economics editor Larry Elliott believes that ‘just as in the 1930s, there is a prevailing cult of the strong man’ around the world; so if Trump could ‘bring the globalisation of the past quarter of a century to a juddering halt’, he might be aided and abetted by multiple Trumps abroad.
This is preposterous. Even Thomas Carlyle, the father of the ‘Great Man’ school of history, would blush at such a personalised, almost Freudian account of world trade. By focusing on easily disliked dictatorial figures, this knowing whitewash completely exonerates liberal politicians, on both sides of the Atlantic, from having ever signed an international trade or investment document in anger.
It is all far too convenient. Trump may well like the brutish, tariff-based protectionism of the pre-war era. But he will also continue in the modern, righteous protectionism pioneered by Obama and the EU. The forces of world economy and politics are bigger than any one man.
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