Creeping protectionism – futile struggles to escape crisis

This month’s news has featured yet more attempts by western imperialism to suppress its Chinese competitors, this time by slapping big import tariffs on the $27 billion worth of solar panels China sells to Europe each year. The EU’s trade commissioner, Karel De Gucht, announced on Tuesday 4 June that he was imposing an 11.8% tariff on Chinese solar panels, which would rise to 47.6% in early August if the dispute had not been settled by negotiation before that time.

Solar panel prices have fallen by three-quarters over the last four years and China, which has captured 80% of the European market, is accused of dumping them. This is an entirely spurious accusation designed to justify European protectionism. ‘Dumping’ occurs when the exporting country sells goods in the importing country at a price lower than at home, or, if there is no home market, at below the price at which they are sold in a third country or, failing that, below the cost of production. Currently the world supply of solar panels far outstrips the world demand. When supply outstrips demand, it is generally the producers with the lowest costs of production that survive, as buyers will invariably choose the products that represent the best value for money. The less efficient go to the wall. This is what is happening to both European and US producers of solar panels, simply because their products are not as competitive. Just because a competitor is able to sell cheaper, it does not mean it is dumping.

Were it not for the crisis of overproduction, the concept of ‘dumping’ would be confined to the process of deliberately selling goods below their market price in order deliberately to destroy the businesses of small competitors who cannot afford to take the losses that would arise from selling at that price. This is not, however, what is happening in this case. China relies heavily on its exports of solar panels, which represent over 6% of its exports to Europe, to a value totalling in 2011 some 21bn euros, and is simply desperate to sell as much as it can, having already been undermined in the US market by the imposition of 30% tariffs.

Many Chinese solar companies are already struggling. Suntech Power Holdings, based in Wuxi, was once the world’s biggest solar panel producer but recently was forced to put its main operating subsidiary into bankruptcy. Other solar panel companies are trying to avoid similar fates. In Suntech’s case, the bankrupt operating unit has been turned over to a local government to manage while in receivership, and that government has been trying to protect jobs ” (Keith Bradsher and Melissa Eddy, ‘China divides Europe in fight against tariffs, New York Times, 28 May 2013)

And this of course has led its European rivals to try to protect themselves with tariffs, since they too are being suffocated by overproduction, with some two dozen US and European solar panel producers having gone out of business or significantly reduced production in the last three years.

However, even within Europe there are those countries, possibly even the majority, who do not want to jeopardise their exports to China for the sake of the European solar panel industry. After all, China is the EU’s second-biggest trading partner, taking EU imports worth $212 billion last year and exporting $334 billion. Countries which export successfully to China, like Germany, which has some 99,000 workers employed in the solar panel industry, would rather lose those jobs than the estimated one million German jobs dependent on exports to China.

For the time being China has in turn, in response to tariffs imposed on other commodities in its export markets, announced anti-dumping investigations on imports of steel tubes, chemicals and wine from the EU. The EU, and indeed the US, have much more reason than China to avoid anybody taking too close a look at their export practices. In circumstances of overproduction, market prices may well fall below the costs of production of less competitive enterprises, of which there are very many in the imperialist countries. They are therefore far more vulnerable to accusations of ‘dumping’ than their more competitive Chinese counterparts. Be that as it may, negotiations are being arranged post haste. We note in passing that the EU’s trade commissioner, Karel De Gucht, who announced the tariff on Chinese solar panels, is a 50% owner of a wine-producing estate in Tuscany …

Why protectionism?

Both the US and the EU feel the temptation to take measures to hamper Chinese competition in any spheres in which China is able to produce much more cheaply than its western competitors, and thus put them out of business, while still making a profit. It is ironic that in the name of free trade western imperialism has on a grand scale destroyed the economies of oppressed countries the world over by underselling local producers, yet it is now crying buckets when China doses it with its own medicine. Of course, if Chinese competition does drive a producer out of business in the EU or the US, it does mean loss of jobs for those employed in the enterprises in question. It is therefore easy for western imperialists to mobilise public opinion for the support of restrictive practices in the name of ‘saving jobs’.

Under conditions of capitalism, however, trade barriers do not in the ultimate analysis save jobs. All such tariffs end up doing is to reduce the volume of world trade through a combination of increasing costs of production in the targeted countries, thus reducing their ability to export, and adversely affecting the exports of the countries imposing tariffs through the medium of reducing the ability of the victims of tariffs to pay for their imports. Besides, the imposition of tariff barriers by one country cannot but end up in the imposition of retaliatory tariffs by its opponents. That such a beggar-thy-neighbour course of action can only result in disaster for all sides was amply seen in practice after 1930 when the US, with the intention of protecting its internal producers from foreign competition, raised tariffs on an extremely broad swath of imports by passing a notorious piece of legislation known as the Smoot-Hawley Act. The US economy was at the time severely pressed by the last major crisis of overproduction, the Great Recession, which would have caused massive problems in any event, but these were exacerbated as a result of the imposition of high tariffs. These not only had the effects mentioned above, but, in addition they triggered retaliatory action on the part of those countries whose exports faced this discrimination in the US market. Canada, for instance, which had been a major importer of US produce, turned instead to the Commonwealth, as did other Commonwealth countries to the extent that they could. It has been calculated that the US share of world exports fell from 15.6% in 1929 to 12.4% in 1932, at the same time as the volume of world trade fell 26%. 42% of this huge fall in world trade has been attributed to the overproduction crisis and 58% to the raising of trade barriers (see Peddling Protectionism, Douglas A Irwin, Princeton University Press, Princeton 2011). As can be imagined, this loss of export markets would have lost at least as many jobs as protectionism managed to save.

Proposals for a Transatlantic Trade and Investment Partnership

Yet the US and the EU are planning to try to pull the same stunt again in order to save their producers from competition from not only China but also India. At the G8 meeting held in Ireland on 17-18 June, they commenced discussions to create a US-EU free trade zone, the Transatlantic Trade and Investment Partnership (TTIP), that would be large and powerful enough to “lay down regulatory markers for the rest of the world” (Steven Erlanger, ‘Conflicting goals complicate an effort to forge a transatlantic trade deal’, New York Times, 12 June 2013), i.e., to be able to dictate trade terms to the rest of the world – terms that would not be skewed by the need to take into account the sensibilities of the China, India or any of the oppressed countries. The parties hope to conclude the deal by November next year.

However, their ability to form such a bloc, much though they might think they would gain from doing so, is undermined by both internal and external factors. Internally, not all countries are going to be prepared to open up completely free trade with the US. France, for instance, was among countries standing in the way of a successful conclusion to the Doha Round of trade talks because of its unwillingness, in the interests of protecting its farmers, to open its markets to the agricultural products of oppressed countries. There will be an infinite number of special interests both in the US and in the EU which will oppose their forming a free trade area. As Steven Erlanger notes (op.cit.), ” France has already raised objections about its ‘cultural exception,’ which is aimed at protecting subsidized, domestic movies and television programs….

“At the same time, there is a range of other, probably more serious problems, including agricultural disputes over things like genetically modified food and chlorinated chicken and regulatory questions about car safety, pharmaceuticals and financial derivatives.

“New concerns about widespread American spying on Internet and telephone traffic will make existing disagreements about data privacy, an important issue in Europe, even more fractious .”

The total amount traded as between the US and the EU already stands at $1tr, but it is claimed that, if the TTIP succeeded in eliminating all tariffs and other trade barriers, US GDP could be boosted by 5% and the EU’s by 3.4%. The Bertelsmann Foundation is claiming that if the parties succeed in setting up the TTIP, ” the US would achieve the greatest growth. There, the long-term gross domestic product per capita would grow by 13.4 percent. Social welfare gains would also be achieved in the entire EU region. In all 27 member countries, real income per capita would end up almost five percent higher on average. Great Britain would show the largest increase in income, with a real increase in income of almost 10 percent per capita.

“EU member countries that would profit more than average from a far-reaching liberalization of trade include small export-oriented economies such as the Baltic States and also the crisis-ridden southern European countries, for whom imports from the US would become cheaper. In comparison to the rest of Europe, the large economies of Germany (4.7 percent) and France (2.6 percent) would benefit less than average from a comprehensive free trade agreement” (Gütersloh, ‘The US and the entire EU would significantly benefit from a transatlantic free trade agreement ‘, 17 June 2013).

At the same time, ” For the EU, a far-reaching free trade agreement would result in a significant increase in employment in the participating economies. According to the calculations, the US and Great Britain will benefit to a particularly large degree, with almost 1.1 million and 400,000 additional jobs, respectively” (ibid.)

More importantly, however, these calculations of increased GDP and jobs ultimately depend on exports outside the bloc holding up – and this is most unlikely. The Bertelsmann Foundation quite rightly concludes that countries outside the US and EU would be hurt by the TTIP:

However, the intensification of trade relationships between the US and EU would result in these economies importing fewer goods and services from the rest of the world. Such partners would thus experience a decline in real income per capita. Traditional trading partners of the US, such as Canada (down 9.5 percent) and Mexico (down 7.2 percent) would be particularly affected. In Japan as well, long-term income per capita would be reduced by almost 6 percent. Additional losers would include developing countries, especially in Africa and central Asia .” (ibid)

How can one doubt that as the deepening crisis reduces exports generally, and protectionism further damages the exports of the most efficient producers, the latter will be driven into closer cooperation and trade relations that will pointedly exclude the US and EU. In the unlikely event of the US and EU being able to pull off a genuinely free trade TTIP, the probable result will be an echo of the 1930s Smoot-Hawley disaster – an aggravation and a prolongation of the current crisis.