Protectionism and the Economic Meltdown: How About Going Beyond a Crisis Response?

By Stephen Greenberg · 22 Apr 2009

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Picture credit: World Development Movement
Picture credit: World Development Movement

The South African Department of Trade and Industry’s (DTI’s) recent announcement that it is considering the reversal of some tariff cuts appears to fly in the face of a global anti-protectionist rhetoric. At the recent G20 Summit to discuss responses to the crisis engulfing the world’s economies, politicians were falling over each other to reject ‘isolationism’ and protectionism. Everywhere the bogey of protectionism is being warned against - not only by the same people who put us in this mess in the first place, but also by other, more progressive, voices.

What is protectionism? In essence, it is an economic policy of restricting trade through tariffs and quotas on imported goods, and the use of measures to prevent the take-over of local economies by external companies. The conventional wisdom has it that the protectionist Smoot-Hawley Act, passed in the US in 1929, caused the Great Depression to be longer and deeper than it needed to be because it limited trade and provoked a downward spiral of retaliation from other countries. This revisionism conveniently forgets that the decade leading up to the Depression was characterised by widespread deregulation and a frenzy of speculation, which inevitably created a bubble that had to burst - just as we have witnessed in the contemporary crisis.

Rhetorically, neo-liberalism stands for the opposite of protectionism: a free market and free trade in all goods and services, with competition ensuring quality (differentiated according to what people are willing to accept) and low cost. Free trade and protectionism both have a long history and have been fashionable in waves, ideologies that ebbed and flowed depending on the interests of the dominant economic and political powers of the day.

In practice, neo-liberalism in not quite the model of free trade and competitive advantage that its boosters make it out to be. In the face of the global economic crisis, the US, France and others have included ‘buy local’ clauses in stimulus packages, and have moved to raise tariffs and limit foreign ownership. But this protection is not only employed in times of crisis. It is an inherent part of the architecture of global capitalism.

Take the by now infamous example of agriculture. Despite an ideological argument that there should be free trade and open markets for all agricultural goods, the US and the EU in particular retain massive subsidies for their farm sectors. The WTO Agreement on Agriculture (AoA) in 1995 reinforced an exceptionally unequal trading relationship between the ‘Quad’ countries (the US, the EU, Canada and Japan) for whom there was one set of rules, and the rest of the world, for whom there was another. The AoA permitted the US and the EU to maintain farm supports denied to other countries. At least some of these supports were located in the so-called ‘Blue Box’ which had a permanent status and which was only available to a small group of countries. A ‘peace clause’ prevented other countries from challenging blue box supports legally, even if they were against the terms of the overall agreement. The EU in particular benefited from the blue box (in exchange for agreeing to US subsidies of a different sort).

Between the signing of the agreement and 2006, the US government subsidised its farmers to the tune of US$177bn, with 75% of all subsidies going to 10% of producers. In the EU, the Common Agricultural Policy (CAP) is a farmer support scheme worth €55bn. Eighty percent of the export subsidies in this programme go to 20% of farmers. Large agribusinesses are the major beneficiaries of the subsidies. In the US, the top three recipients were Riceland Foods Inc, the world’s largest miller and marketer of rice; Producers Rice Mill and Farmers Rice Co-op. Between them, these three received over US$1bn in subsidies from 1995-2006. Other global agribusinesses on the top 20 list include a division of Cargill and Tyler Farms. The same is true in the EU, with Tate & Lyle and Nestle amongst the main beneficiaries. Even the Queen and Prince Charles received more than GBP1m from UK farm subsidies in 2003/04!

Since the 1940s, these subsidies and their precursors helped the US and the EU to keep their farming sectors alive. New technologies allowed farmers to produce huge surpluses that threatened prices unless the state stepped in with schemes to remove these surpluses, divide up the global market between the big players, and provide domestic supports to farmers. The laws and agreements that underpinned this protection (the US Farm Bills and the EU’s CAP) also formed the basis for the AoA. Other countries had to fit in. The gradual realisation of this fraud was the primary reason for the collapse of global trade talks after Seattle, as subordinate countries asserted the need for transparency and fairness.

Trade and protectionism are integrally bound together into a system that benefits some at the expense of others. The desperate pleas and threats not to engage in protectionism are part of the WTO logic: protectionism is okay for some, but not for others. It is the biggest traders and exporters - the dominant countries - who stand the most to lose, and therefore who shout the loudest.

This model of production, increasingly reliant on global trade for its survival, takes us ever further away from production for need and towards the total domination of production for profit. In the case of food, this is a travesty. Instead of producing what people need, country by country and in accordance with the histories, cultures and tastes of different people, industrial capitalist agriculture imposes uniformity and standardisation and locks people into an unnecessary dependency on others to produce their food for them.

In 2007, South Africa became a net importer of food for the first time in its history. What is the benefit of this? Yes, South Africa has been able to get cheaper wheat from the US and Argentina than it could produce at home. But what is the non-financial cost? Business shrinks or at least becomes less responsive to local needs and the local economy is forced into export mode to generate the foreign exchange to pay for the imports. The jobs carnage in South Africa since the dawn of ‘national liberalisation’ is well-known to all. Food prices become ever more volatile as conditions in Argentina and the world dictate what the cost of bread will be next year. Is this worth the price of some cheaper grain in the short term?

In this light, the DTI’s consideration to reverse some tariffs must be welcomed. But it is far from enough. After 1995, the South African government obligingly reduced tariffs faster and further than required under WTO rules. Any tariff reversals contemplated will remain within the WTO framework. But more importantly, the reversals are considered to be a short-term protection in the face of other countries making similar plans.

Rather than just being a short-term crisis response, protection needs to be part of a longer-term strategy to build the local economy to produce first and foremost for local needs. Protectionism does not have to be about xenophobia or anti-trade. It can be used as a way of nurturing economic activity for all who live in a country, directed towards their real needs, with trade a valued, but secondary aspect of that activity. In light of the global crisis, protection rather than free trade should become an integral part of future economic development.

Stephen Greenberg is a freelance researcher with an interest in food systems, land, agriculture and rural development.

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