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Trade

The worrying return of protectionism

Unsplash Creative 0.0: Photo by Marcin Jozwiak

Trade is not a zero-sum game...

During his speech on French television in June 2020, President Emmanuel Macron outlined a plan for France to regain its economic sovereignty : "We must create new jobs by investing in our technological, digital, industrial and agricultural independence" he declared.

Such a protectionist turn was unexpected. Opposed to Marine Le Pen in the second round of the 2017 presidential elections, Emmanuel Macron presented himself as the candidate of the "open society". Here he is now defending protectionism! He mocked the trumpist rhetoric, and there he is, promising to bring the jobs home! But the most surprising thing is that he does not only advocate for European sovereignty - as he has already done on several occasions - but calls for a national sovereignty plan, disregarding the principles governing the single market.

Macron's "reinvention" -this is how he calls it- lacks originality. The French President only resurrects  the old Ancien Régime fallacy according to which a nation's wealth is not measured by the number of real goods and services at its disposal but by the amount of gold in its chest. An ideology championed by Jean-Baptiste Colbert, a minister under Louis XIV.  "This country does not only flourish in itself, but also by the punishment it knows how to inflict on neighbouring nations", such was his philosophy. But if Colbert is remembered as the Minister who was at the origin of the "greatness of France", it is because history is more interested in the rich and powerful than in the "microhistory" of the average person. In reality, France was "nothing more than a large and desolate hospital", as Fénelon testified in a letter to King Louis XIV in 1694.

Behind the mercantilist ideology, lies a misconception: that trade is a zero-sum game. But as the classical authors have subsequently shown, trade, by definition, is a positive-sum game. Forcing consumers to buy domestic goods rather than the imported goods they desire is not in their interest and, by extension, not in the interest of the nation. As Paul Krugman points out in a 1993 article, "What a country gets from trade is the ability to import the things it wants. France is therefore going to invest massively in certain technologies to "gain its sovereignty" when it could benefit from the experience and competence of its neighbours. A waste of resources.

Emmanuel Macron also said that the advantage of relocation was the creation of "new jobs", but at what price? Examples of the economic war between China and the United States show the shortcomings of such a policy. A study by the American Enterprise Institute (AEI), for example, showed that the cost of the Chinese tyre tax set by the Obama administration was $900,000 per job. Moreover, since this $900,000 could have been spent elsewhere, the increase in tyres' price has led to a drop in the demand for other goods. The AEI therefore estimates that the preservation of a single job in the tyre industry would have actually cost 3,700 jobs in other sectors. And there are plenty of examples like that. Take for instance the steel tariffs imposed by the Bush administration: while they saved 3,500 steel jobs, economists estimate that these tariffs have led to the loss of between 12,000 to 43,000 jobs in steel-dependent industries! 

Krugman's lesson still holds today: "Government support for an industry can help that industry to compete with foreign competition, but it also diverts resources from other domestic industries." 

These examples clearly show that the economy is too complex for a single man, or even a single agency, to ever control it. The idea that an acceptable recovery policy would reduce unemployment is a pipe dream: only entrepreneurs who create jobs, not bureaucrats. Outside of the crisis, about 10,000 jobs are created every day in a French economy that employs a total of about twenty-five million workers. Who can claim to be the direct source of so many jobs? At best, Emmanuel Macron may manage to arbitrarily create a few thousand jobs. Still, it will be to the detriment of tens of thousands of jobs which will disappear as a result.

Of course, what applies to France also applies to Europe: sovereignty is only legitimate when it is applied on a single scale, that of the consumer.

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