china warns US against protectionism
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Syed Bakhtiyar Kazmi |

The fact that he was the first Chinese president to attend the annual bash was a pleasant development for the fawning world elite, who had once again gathered to churn out their perspective of the world economy from the Ivory Tower in Davos, which perhaps the common man neither understands nor is interested in.

Nonetheless, what the Chinese President said, standing with an ice panda, however comes as a major surprise for developing nations still reeling from the blitzkrieg, commonly referred to as Globalization.

“No one will emerge as a winner in a trade war,” he said, in a swipe at Mr Trump who has threatened, among other mercantilist acts, to slap heavy tariffs on Chinese goods. He went on to liken protectionism to “locking oneself in a dark room” and said “that Wind and rain may be kept outside, but so are light and air.” and assured those present that, “China will keep its door wide open and not close it.”

“No one will emerge as a winner in a trade war,”

Ironically, this comes from a Head of State of a country, which has practised and perfected the art of protectionism for decades. This was perhaps the U-turn of all U-turns; something we Pakistanis know all about and have come to adore or hate depending on our political leanings. To be sure, China has kept its door open for a while now, but any business who has walked through the door has wished it had stayed back home.

So why the U-Turn by China?

He went on to liken protectionism to “locking oneself in a dark room” and assured those present that, “China will keep its door wide open and not close it.”

Chinese are par excellence practitioners of pragmatism. When pragmatism demanded, China completely ignored the call for free trade by the West. Who in order to increase their markets often sold the idea to developing nations, forcefully through the International Monetary Fund (IMF).

Today, China wants to practice those abstract 19th century economic theories, because they suit its global trading interests. After all, if President Trump does initiate trade wars, it is the Chinese economy, built on exports, that will be most hit as it goes into a serious recession.

Is Trump wrong to want to keep jobs in America for his people?

So perhaps it is the right time to ask President Xi what exactly is wrong with a government safeguarding jobs in its own country by protecting its domestic manufacturing and services sectors from foreign companies. Especially from companies that are themselves helped by their governments, allowing them to achieve unassailable size, resources and market strength?

Is it not wise for a Trump administration, that faces an incoming challenge that the US has huge trade deficits and rising foreign debt, to resort to tariffs on imports. Why should it not focus and in fact direct resources towards export oriented and import substitution industry. By restricting, US domestic consumer choices it will help to reduce consumption but will enhance domestic savings for further investment.

Perhaps a few years, ago Mr. Xi would have spontaneously responded that there was nothing wrong with all that, this is exactly why China is an economic power house today. It is only when President Trump threatens reverting to similar protectionism does China worry about getting locked in dark rooms.

“One thing is clear from the history of trade: protectionism makes you rich”, George Monbiot.

History of growing rich through protectionism

Before they became harbingers of free trade, protectionism was practised by every country that is today considered developed. And now that they are suffering at the hands of their own ideas of free trade they would like to revert back to protectionism.

It is only when President Trump threatens reverting to similar protectionism does China worry about getting locked in dark rooms.

Japan and Germany are exporting miracle countries, but how did they come to be? Japan created the Ministry of International Trade and Industry in 1949, the government’s most powerful division, which was charged with running the country’s industrial policy.

MITI crafted Japan’s successful export policy through giving ‘support’ to targeted industries. In Germany’s case, protectionism went far back as the nineteenth century, and even today the European Union continues to give subsidies to its agricultural sector and impose tariffs

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MITI crafted Japan’s successful export policy through giving ‘support’ to targeted industries. In Germany’s case, protectionism went far back as the nineteenth century, and even today the European Union continues to give subsidies to its agricultural sector and impose tariffs in sectors where it suits them.

However,  international trade is a zero sum game. If a country is exporting there has to be another which is importing its goods. So once the developed nations were industrial powerhouses, they needed export markets. From the 19th century onwards the UK, Europe and later the USA, through a different mechanism, used the ripe Third world for exploitation, by hook or by crook; and mostly crook for their exports.

In America’s case, Report on Manufactures, the magnum opus of the first US Treasury Secretary, Alexander Hamilton, and one of the founding father’s, set forth economic principles based on the mercantilist system practiced successfully by the UK. However,  international trade is a zero sum game. If a country is exporting there has to be another which is importing its goods. So once the developed nations were industrial powerhouses, they needed export markets. From the 19th century onwards the UK, Europe and later the USA, through a different mechanism, used the ripe Third world for exploitation, by hook or by crook; and mostly crook for their exports.

if President Trump does initiate trade wars, it is the Chinese economy, built on exports, that will be most hit as it goes into a serious recession.

This onset of needing bigger markets for their exports, is when the western countries, in particular, decided that abstract theories of free trade, comparative advantage, globalization were needed.

They managed to link these with greater social and political freedoms so that the appeal gained ground amongst the masses everywhere, such as democracy, freedom of expression, fundamental rights and the one vote. They successfully sold the idea that greater consumer choice was in essence greater freedom for the people and the middle class in all developing nations were sucked in to become solid believers of free trade and supported through

They successfully sold the idea that greater consumer choice was in essence greater freedom for the people and the middle class in all developing nations were sucked in to become solid believers of free trade and supported through free flow of currency. Although free trade was never meant to include free flow of people or free flow of ideas as protectionism continued in the garb of copyrights or tight visa controls.

Read more: China shocks the west by supporting globalization?

Even today new economic theories are floating around which try to explain why Globalization is still the best option, something to do with dark rooms!

Today, if President Trump actually goes through with his campaign promises, the world will enter a new era of trade wars; which if coupled with currency wars, will have a devastating impact on economies around the world.

What does this mean for Pakistan?

For Pakistan, the entire Chinese economic corridor, including CPEC, will come to a grinding halt if countries practise selective international trade; which is why Mr. Xi suddenly loves free trade today. CPEC for China is a trade enabling route to the West, where will the trucks travel to if the West no longer buys Chinese goods.

Furthermore, protectionism will hit Pakistan also not only in exports but also as its workers are sent back home. Pakistan already has a stagnant growth in exports and is seeing a menacing growth in the trade deficit, as workers remittances are growing slowly. Under the auspices of the IMF and ideas from its IVY league educated elite, it is increasing its foreign debt to levels that are unsustainable.

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The government needs to revisit its economic policy and disassociate itself from ideologies and abstract economic theories. A pragmatic approach is needed to fix the economy, whatever works is what needs to be pursued, and not IMF prescriptives as those haven’t worked in the past either. We need to manage our economy by what works in the real world and not Mars!

Right policy at the right time!

Syed Bakhtiyar Kazmi is an accountant in Islamabad. His email address is syed.bakhtiyarkazmi@gmail.com and he tweets @leaccountant. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.

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