Germany’s fondness for Russian gas over the past decades has been a double tragedy. This gave the Kremlin leverage over Europe. But it also gave protectionists in the Western world false credibility. Look what happens, they say, when strategic industries are opened to trade.
The first of these tragedies is fixable: there are substitutes for Russian fossil fuels. The second is here to stay. Less than a year after the attack on Ukraine, the US Congress passed a royal ransom of domestic industrial aid and a stung Europe is fashioning its own version. The goal has expanded: from punishing Russian violence to slowing China’s rise. The same goes for key industry: from gas to chips and green technologies. Over time, many sectors will turn out to be “strategic”. Why not agriculture? Why not the professional services that China will need to master to move from middle income to high income?
The West will regret this protectionist shift. Its hard-won cohesion over the past year is already yielding to mistrust, not just between the US and the EU, but within the EU, where trading nations with small domestic markets (Sweden) fear the protectionism of the big states (France). Europe can perhaps make the US Inflation Reduction Act less discriminatory for its own companies. Such is the lobbying power of a 450 million strong entity. But what about Ireland versus Brussels? What about Australia versus Capitol Hill? Joe Biden “never intended” to beg “people who were cooperating with us”. But it is in the nature of protectionism that intentions only matter at the very beginning. It is the logic of escalation that takes over.
It is often said that America is in ideological, and not only material, conflict with China. Protectionism is a tacit ideological concession from West to East. What does he concede? That international relations are a zero-sum game. That the State is essential in the life of a country. This prosperity (which is objectively measurable) is contingent on security (which officials can define at will). That the institutions formed in Bretton Woods one human life ago are relics and that nations must make their own arrangements.
Biden’s protectionist embrace is hailed as “muscular,” meaning “aggressive” when a Democrat is in power. And it must be, given China’s industrial cruelty. But if we go too far, it is also intellectual self-disarmament. It is possible to win the technical-economic struggle with the autocrats and to lose in the broad sense: by granting their vision of the world, by playing on their territory. The United States won the Cold War, in part, by building a trading empire that hesitant third nations could join for their own benefit. In a protectionist world, what is the equivalent of a carrot?
Distrust of China is rational. But it is linked to something else: the belief that the liberal decades on both sides of the millennium have betrayed the poor of the West. This slander, recognized as such when it was Donald Trump who peddled it, must be countered on all points. It is possible – no, common – for an open trading nation to be egalitarian at home. (Trade accounts for a large share of national production in northern European social democracies.) While Reagan, Thatcher and their heirs eased global trade, none succeeded in slashing the welfare state. In 1980, US government spending on social protection, which includes cash benefits and in-kind services, accounted for 13% of national output. It was a little higher in 1990. It is 19%. 100 now. Nothing in liberal foreign trade implies domestic laissez-faire.
One problem with the word “neoliberal,” in addition to the academic left ring about it, is that it allows for none of these nuances. To be pro-trade is to be anti-worker, if not anti-patriotic. You wouldn’t know from the rhetoric of the time that the neoliberal era included the spending cycles of New Labor and the expansion of Medicare under George W Bush.
I have the impression that the elites (in whom the reflex of guilt is strong) have never psychologically recovered from the populist electoral breakthroughs of the last decade. They feel remorse for the globalism of which they are the authors. They are tired of the old Ricardian truths: that workers are also consumers and taxpayers, that protectionism can hurt them invisibly. You hear sensible people attribute the crash of 2008 to “neoliberalism” but not the long economic boom that preceded it. No, it just fell out of a tree.
It is a profound intellectual conquest of the populists. And its saddest result is the reversal against the trade. It used to be said that a British prime minister was “in office but not in power”. Look around you. Trump has achieved the opposite feat.
