Are we all protectionists now?
In a world of competing priorities and perspectives, nations are putting free trade in its place, Professor Anthea Roberts and Associate Professor Nicolas Lamp write.
We are used to hearing free trade bashed by the likes of former United States President Donald Trump. But in the past two years even staunch defenders of international integration, like the European Union (EU), have begun to change their tune.
The EU’s announcement of a 'European Chips Act' — designed to ensure that the EU can manufacture its own semiconductors — is only one recent example of a major power adopting a policy in which free trade principles appear to have taken a back seat. The European Act follows a similar American initiative by the Biden administration.
The EU also made waves in 2021 by announcing a plan to slap carbon tariffs on emissions-intensive imports, and recently agreed with the US to bury their disagreement over Trump’s steel and aluminum tariffs. They will negotiate a deal to support the production of low-carbon steel — simultaneously taking aim at both climate change and China.
Do these actions mean that we are all protectionists now? No.
While these restrictions on free trade have been decried as discriminatory and harmful, they are far from classic protectionism — the desire to grab market share from foreign competitors to shore up domestic employment. Instead, trade policy has become a clash between multiple narratives in favour of specific objectives — such as resilience, security or sustainability — the pursuit of which can, but does not have to, involve trade-restrictive measures.
Protection of domestic industries may be an effect of the policies, but it’s not their only or necessarily primary aim. As the EU’s Director-General for Trade, Sabine Weyand, has explained: “Trade is seen as a tool to attain broader objectives more than ever. These go far beyond climate, the environment and human rights to include geostrategic interests, security, public order and more.” The future of international economic relations will be shaped by how governments decide to pursue these objectives.
Take the example of ever-louder calls to increase the 'resilience' of supply chains. This narrative has been ascendant since the onset of the COVID-19 pandemic: no public official wants to scramble to procure masks, ventilators or vaccines ever again. In recent months, this narrative has been supercharged by global shortages of everything from semiconductors to shipping containers.
But reshoring production — the protectionist solution — is not the only, and may not even be the most effective, way to build more resilient supply chains, particularly for smaller economies like Australia. Diversifying sources of supply or building up stockpiles are alternative strategies.
In the context of vaccine procurement, the US and EU have gone one step further and are actively collaborating to set up production facilities across the globe. Achieving resilience is not a zero-sum game. While the resilience narrative can justify export restrictions and other trade restrictive measures in emergency situations, it can also motivate international cooperation and efforts to keep international trade flowing freely.
The resilience narrative is not the only new kid on the block. The 'geoeconomic' narrative, which highlights the national security risks that can arise from dependence on a strategic rival, is another perspective that has recently gained traction, particularly in light of intensifying great-power rivalry. This sort of geoeconomic narrative appeared several years ago in areas such as 5G and investment screening, but quickly spread to issues such as export controls.
For the US, concerns about a geostrategic foe typically relate to China. Following China’s economic coercion of Australia, the same is true for Canberra. By contrast, the EU seems worried about being dependent on both the US and China.
There is considerable overlap among the trade policy prescriptions of the resilience and geoeconomic narratives. The EU justifies its quest for “tech sovereignty” with reference to the general chip shortage (resilience) and as part of a “global technological race” with other superpowers (geoeconomics).
However, these two narratives part company on one key question: whether a strategic rival can be part of the reconstructed supply chains. If the goal is simply resilience, Chinese and Western producers can be part of the same resilient supply chain. If the goal is also to avoid dependence on a strategic rival, then only supplies manufactured at home or by allies will do. Meanwhile, reshoring overlaps with those who have protectionist impulses, whereas diversification and ally-shoring do not.
The climate crisis has given rise to yet another narrative with direct implications for trade policy: the 'sustainability' narrative provides the rationale for the border carbon adjustment mechanism proposed by the European Commission in July 2021. The mechanism imposes a levy on imports to make up the difference between the price of carbon in Europe and in the country from which the imports originate.
The EU’s goal is to prevent carbon leakage, whereby the production of emissions-intensive goods would simply move outside of Europe to escape the carbon price. On its face, this policy has a protectionist effect by imposing an additional tax on imported products. But the ultimate aim is to incentivise the EU’s trading partners to impose their own price on carbon, which would allow them to avoid the levy.
Whether narratives in the debate about trade policy are driven by concerns about the fragility of supply chains, great power competition, or the climate crisis, they all argue emphatically that achieving an efficient international division of labour can no longer be the sole or even primary aim of trade policy; governments have many other objectives to attend to.
None of these other objectives require the protection of domestic producers; in fact, resilience, security, and sustainability can often be achieved more effectively through international cooperation, at least among allies. Governments adopting protectionist measures often represents a 'protectionist-plus' approach, where protectionism and another more respectable motivation intersect.
Not all states are taking the same protectionist-plus approach. Australia, for example, is best characterised by a mixture of an establishment, pro-free trade approach, with qualifications for resilience and geoeconomics.
What is safe to say is that simple black-and-white dichotomies, such as the one between protectionists and free traders, no longer allow us to make sense of the increasingly complex debates around trade.
Professor Anthea Roberts is based at the ANU School of Regulation and Global Governance.
Associate Professor Nicolas Lamp is based in the Faculty of Law at Queen's University in Canada.
Their book, Six faces of globalisation: who wins, who loses, and why it matters, is published by Harvard University Press.