By William G. Moseley, a professor of geography and director of the Program for Food, Agriculture and Society at Macalester College in Saint Paul, Minn. Follow him on Twitter @WilliamGMoseley. Originally published at TripleCrisis
While it might not seem like it now, President Donald Trump is a gift to free market-oriented economists and policymakers. His clumsy approach to protectionism has ignited a trade war that inevitably will harm the U.S. economy. When the pendulum inexorably swings the other way after the Trump fiasco, free trade ideology will return with a vengeance. This is a potential tragedy for left-leaning policy analysts who have long been concerned about the excesses of neoliberalism and argued for a more measured use of tariffs to foster local economic development. As such, it critical that we distinguish between Trump’s right-wing nationalist embrace of tariffs and the more nuanced use of this tool to support infant industries.
As a development geographer and an Africanist scholar, I have long been critical of unfettered free trade because of its deleterious economic impacts on African countries. At the behest of the World Bank and the International Monetary Fund, the majority of African countries were essentially forced, because of conditional loan and debt-refinancing requirements, to undergo free market–oriented economic reforms from the early 1980s through the mid-2000s. One by one, these countries reduced tariff barriers, eliminated subsidies, cut back on government expenditures, and emphasized commodity exports. With the possible exception of Ghana, the economy of nearly every African country undertaking these reforms was devastated.
This is not to say that there was no economic growth for African countries during this period, as there certainly was during cyclical commodity booms. The problem is that the economies of these countries were essentially underdeveloped as they returned to a colonial model focused on producing a limited number of commodities such as oil, minerals, cotton, cacao, palm oil, and timber. Economic reforms destroyed the value-added activities that helped diversify these economies and provided higher wage employment, such as the textile, milling, and food processing industries. Worse yet, millions of African farmers and workers are now increasingly ensnared in a global commodity boom-and-bust cycle. Beyond that cycle, they are experiencing an even more worrying long-term trend of declining prices for commodities.
One of the consequences of the hollowing out of African economies has been the European migration crisis. While some of this migration is clearly connected to politics, war, and insecurity in the Middle East and Africa, a nontrivial portion is related to grim economic prospects in many African countries.
After the global financial crisis of 2007, as well as the global food crisis of 2008, even mainstream economists and policy analysts began to realize that unfettered free markets were a problem for the development of African economies, not to mention other areas of the world. As a consequence, some in the development policy community began to reconsider the strategic use of limited tariffs and subsidies to protect and support infant industries. After being demonized for 30 years, import substitution—the idea that some goods could be produced at home rather than imported from abroad—was beginning to have a renaissance.
For example, the middle-income African nation of Botswana has long mined and exported diamonds. In fact, Botswana was and continues to be the largest exporter of gem-quality diamonds in the world. Nearly all of these were exported as rough diamonds, with the actual cutting and polishing done in countries like India and the Netherlands. Beginning in 2013, Botswana made a concerted attempt to onshore some of these value-added activities by subsidizing a domestic diamond-cutting and -polishing industry. Such industries take time to develop, since you need to cultivate a highly skilled labor pool. But the payoff is more and better-paid employment for a country’s population.
While the Botswana example is still unfolding, it is worth noting that both South Korea and Taiwan also skillfully protected industries in the 1960s and 1970s before breaking onto the world stage as export-oriented manufacturers.
Now the recent Trump fiasco with tariffs is threatening to tar and feather the whole idea of fostering local economic development for decades to come unless the left pushes back with a more nuanced perspective. After the inevitable crash of the American economy, not to mention the collateral damage, the global policy community, and broader publics, will likely reembrace free-market policies because they appear to be the opposite of Trump’s racist, nationalist, and nativist stance.
This potential scenario is eerily reminiscent of what unfolded in South Africa in the early 1990s. With the African National Congress (ANC) and Nelson Mandela coming to power, one would have expected that they would have adopted left-leaning, redistributive economic policies given their socialist history and the economic divisions in the country. Instead, what ensued was the full embrace of free market policies. This remarkable shift has been attributed to a global policymaking community that deftly associated any use of tariffs, subsidies, and protection with the Apartheid regime and South Africa’s National Party. This sleight of hand allowed them to position free-market policies as the foe of Apartheid and the friend of the rainbow nation. Sadly, while these policies initially spawned economic growth, they also deepened inequality, creating a problem that continues to plague the ANC and South Africa today.
We need to be sophisticated enough to disentangle policies that promote local economic development from the horrific antics of the Trump regime. Import substitution and the fostering of infant industries are critical aspects of economic development for many countries in the global South. These policies must not forever be associated with the right-wing nationalism of Donald Trump.
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The prime examples of protectionism working well was the USA and Germany in the 19th century, result of which sucesfully managed to start most of the free-trade UK’s industrial base on a decline path by 1900 (eat that Thatcher!), while getting it to pay for the protection of the world trade with its navy, and getting bankrupted in the process.
In fact, Great Britain itself is a perfect example of the use of protectionism to protect and develop infant industries. Only once the local industry became competitive did the british embrace free trade.
The truth is that no country in history has developed an industrial base without protectionism. Instead of saying “3th world” we can say “countries which were forced to embrace free market”.
Why did Japan develop so early (era Meiji) while the rest of asia languished? Because it was strong enough to avoid being forced to embrace free trade.
Last but not least, free trade is never free. No industry can ever survive without some kind of explicit or implicit government support. Take a look at the USA, the land of the free market, the only 3 competitive sectors are heavily subsidize: high tec (MIC), agrobusiness (direct hand-outs), pharma (patents, public research).
Thank you, Yves and Vlade. Super, as always.
The examples of Botswana and, from Vlade, the UK are very appropriate.
Botswana has always had a more forward looking government than its neighbours.
A couple of years ago, Zim tried to emulate the Botswana example with regard to its (smaller scale) diamond production for political, not economic reasons, but that did not get anywhere due to (the Mugabe government) corruption and incompetence.
It’s not just diamonds, but other commodities, vide oil and sugar. How come Mauritian sugar estates, expanding into east and west Africa now, set up refineries and moved up the value chain (vide Omnicane’s confectionery business in the UK and power plants in east Africa) once ACP / Lome agreements with the EU expired, but firms in east Africa and Ivory Coast can’t or won’t, or did not until Mauritian investors came aboard? One would think the well educated leaders in Ivory Coast and Benin would understand that, but they seem unable to shake off neo-liberalism and local “issues”, including cultural.
With regard to SA, the ANC leadership had probably spent too long in the west and were easily swayed by the youthful snake oil salesmen like Blair and Clinton. It was not just economic policy, but SA giving up nuclear weapons. The likes of Cyril Ramaphosa and Tokyo Sexwale had also seen how to get rich quick.
Whisper it softly, but the National Party’s economic policy was more left wing and nationalist than the ANC’s. Perhaps, this policy of nationalism and socialism was born out of isolation from the 1950s and even the National Party’s influence from Nazi Germany. The ANC threw the baby out with the bath water. Even in the early 1990s, the ANC’s policy never made sense for a new nation or one that had to be rebuilt, as pointed out by “verligte” (enlightened) Afrikaner academics. I spent a lot of time in SA in the 1990s. Dad worked on UK development programmes in SA, Lesotho and Swaziland in 1991 – 2.
It’s interesting that apartheid South Africa’s political and business / development allies, Israel and Taiwan, built up their economies behind tariff walls at the same time. It worked for Israel and Taiwan.
If readers want to know more, Patrick Bond’s articles in Counterpunch are good.
With regard to the UK, the arrival of middle class and / or industrial elements into politics from the 1830s and the need for cheap food to feed industrial / urban workers led to the splits over free trade (the equivalent of the EU debate in 19th century Britain). At first, it was agricultural tariffs, but that extended to industrial tariffs, with disastrous consequences for British industry.
Bolivia will soon take its claim to what is now northern Chile to the International Court of Justice. Details of the claim lay bare the extent of British investment (e.g. Antofagasta and Vestey) and interference in Latin America (Bolivia and Paraguay). Lloyd’s Bank was to Latin America what HSBC and Standard Chartered are to Asia. Much of the cheap manufacturing from abroad that began to destroy the UK’s industrial base in the 19th century was either British owned or funded by British investors in partnership with locals, so just like the maquiladoras in Mexico. The comprador class existed then, too.
A few years ago I attended a a book release party in Boston for “Shades of Difference”. A book by Padraig O’Malley on Mac Maharaj who was a ranking member of the ANC and a close associate of Nelson Mandela. Under the ANC there continued to be no (or negligible) change in the miner’s conditions or what we called back in the day – the relations of production. Consequently, the mines were in turmoil and at the time were undergoing a general strike.
While we were enjoying refreshments I introduced myself Maharaj, and the first thing I asked him was why the ANC had not nationalized the mines. Maharaj’s jaw almost literally hit the floor, and when he picked it up he looked at me and burst out, “Oh no, we could never do that!”
It’s hardly any wonder that S.A. would wind up with a President who insisted that AIDS could be cured by eating yams.
That’s probably the only reason that Washington and London ever allowed the ANC to take over South Africa in the first place.
lovely euphemism: ” import substitution”.
makes what should be common sense into something scary and exotic, or hypercomplex and muddled.
Nafta is where I learned about it….flooding Mexico with subsidised US corn, driving campesinos out of business and then North.
I know a guy with a largeish family spread outside of Guanajuato. Avacado orchards, etc.
He’s not allowed to bring any to the US.
Gotta be the right kind of person, I guess (the paper kind), to enjoy “free trade”.
and this sort of thing is happening right here, too.
wheat is subsidised around here for Export.
while non-grain crops are expected to be entirely capitalist, and compete head to head with Mexico, Chile, etc.
Barriers to entry abound, the smaller one gets.
and this is without even thinking about Food Security, nor considering “externalities” like fuel cost as regards the 3000 mile salad.
This article needs to be more clear. It suggests that Trump’s use of U.S. tariffs to retaliate against Chinese import substitution policies will discredit developing countries’ use of tariffs to “foster local economic development” and “nurture infant industries.” Assuming the author is correct that Trump’s tariffs lead to a “fiasco” of some kind, which is questionable, there is no reason that the failure of U.S. tariffs would lead to any conclusions about tariffs applied by other countries for different reasons. The author believes that some people will conclude “one tariff somewhere is bad so all tariffs everywhere are bad,” but does not make clear who will make such a mistake, or how such mistaken beliefs will influence policy anywhere.
I would agree that Trump may, by association, lead U.S. Democrats to reject use of tariffs by the United States for any purpose. This would indeed be a mistake. But any reasonable justifications for use of tariffs by the United States have had nothing to do with protecting infant industries since World War I.
E.F. Schumacher was on to this stuff decades ago. He knew that self-sufficiency, to whatever extent was possible, was the only model by which less “developed’ nations could retain not only their economic viability and sovereign independence, but their unique history and culture as well. As I hit 70, I have come to realize that there is little new in the vast majority of contemporary leftist thought; indeed, that much of it is tamer, more tentative, more domesticated and commodified, than the radical and revolutionary ideas that inspired me when I was young. Schumacher, for example, is to the left of most of today’s leftist economic commentary; Edward Bellamy, to cite another example, is even further to the left of virtually all of today’s leftist political commentary. The most radical and revolutionary among us are “Looking Backward” to see with clarity the possibilities ahead. Is it only this aging Boomer who senses an almost total absence of great thinkers in our midst, the kind of thinker whose voice carves out stunning new ground and thus will be heard and loved by future generations?
…senses an almost total absence of great thinkers in our midst, the kind of thinker whose voice carves out stunning new ground and thus will be heard and loved by future generations?
Pretty sure that’s what the student loans are about, if you’re not in it for the money you’ll be drowned, no room for thinking.
Has there ever been a substantial economy created that wasn’t “grown” under protectionism? I can’t think of one. The law of comparative advantage, shoved down the throats of developing economies is an economic weapon that excludes new competitors from getting into the market. By insisting on “free trade” and “no or low tariffs” developing countries are not allowed to protect nascent industries that could grow into competitive ones. This insistence of “free markets” and “no or low tariffs” is always done by institutions of developed countries whose economies were established under a protectionism blanket. A classic case of “do as I say” instead of “do as I did.”
And as the Free Traderites have used the last few decades to de-develop and reverse-develop the US, the US has become no longer an advanced country which could be claimed to benefit by imposing Free Trade on others. The US has been deformed into a poor backward country which will see an ever-rising share of its population turn to Protectionism for some shred of hope of restoration of economic existence for themselves.
Tell that to this guy,
Steelworker Brought to Tears While Talking About What Trump Has Done for Him
The author stated, “it is worth noting that both South Korea and Taiwan also skillfully protected industries in the 1960s and 1970s before breaking onto the world stage as export-oriented manufacturers.” It is also worth noting that the US itself was a benefactor of high tariffs in its infancy as a nation. In fact, one of the main causes of the Revolution against Britain was the urge to industrialize in the colonies. Britain purposefully limited any industrialization in its American colonies. After achieving independence, the 2nd law passed by Congress was a tariff law. For the next 100 years the US had an almost universal tariff of around 20% on all imported goods, starting at 5% when the the tariff was first imposed and sometimes as high as 35%. In fact, tariffs were the primary source of revenue for the US government up to and including the WWI.
I thought the primary source of Federal revenues–about 60%– at the time of the Civil War was the excise tax on cotton exports.
Out here in flyover country, I have seen years of efforts to develop value-added products. In most cases, they went nowhere due to the inability to meet regulatory restrictions due to scale. For example, you cannot ship meat across state lines without having it processed by a federally inspected locker; a state plant is not good enough. But the overhead and logistics of having a federally inspected facility is prohibitive unless you are huge. Then one group tried it and the feds sent them to prison because they advertised grass fed beef and it turned out some of the ranchers used grain in the winter. I’m not defending those ranchers, but I don’t recall them sending any Tyson execs to prison despite their frauds over the years.
The point is that there is always protectionism. At this point, the protectionism is heavily weighted in favor of the conglomerates at the expense of the 90%. So I’m not impressed that their water carriers are whining now that Trump’s version of protectionism might hurt them now instead of the ones they have ground into the dust.
If a single-state meat-plant within a state wanted to stay in bussiness strictly selling to customers from within the same state, how many in-state customers would such a single-state meat plant need to be able to stay in bussiness? Would it even be theoretically possible?
If it would be theoretically possible, perhaps the grassfed and/or organic beef-grower community should think about 50 separate sealed-off state meat industries within the 50 separate sealed-off single-state markets that the 50 separate states might be able to provide. The 50 separate single-state meat industries could focus on providing good meat at high prices to people who are willing to pay for the good quality. Meanwhile, the Interstate Petro-Corporate Chemical Meat Sector could provide bad meat at low prices to people who want always the low price . . . always.
Larry Summers has written a pro-neoliberal op ed which claims the achievements of globalism and neoliberalism without any objectivity whatsoever. He thinks it created good things all over the planet for 30 years when in fact the good things were created in spite of neoliberalism and global trade. Larry did say that neoliberalism needed to come up with a solution to inequality asap or face the fact that it really isn’t working at all. Funny way to end such a delusional brag. Rock and a hard place for imperialist-globalists like Larry. And yes, it is very disconcerting to think that Trump doesn’t understand this or anything at a very deep level. He might. But I’m not betting on it yet. So this post is very timely in that it teases apart the tangled language of nationalism and protectionism. Both of which can serve a very beneficial social purpose in the hands of wise government.
I’d recommend anyone to read Ha Joon Chang on this topic. Development Economics is one of those side branches of economics that actually makes sense because they study real world conditions and don’t get hung up on models. Needless to say, they are largely ignored by mainstream economics.
International trade is neither good nor bad – it entirely depends on the particular circumstances as to whether it will have a good outcome or not. But it is pretty clear from the evidence that open trade between a developed country and an undeveloped one will lock the latter into an undeveloped status unless they use active and selective protectionism to give themselves a head start. But whether that works or not depends on how intelligently and consistently the policy is pursued.
Might have missed it but nowhere in the article or comments have I seen anything about:
1- using tariffs to save enough jobs so the country will be able to pay for programs like Social Security
2- tariffs to prevent a global race to the bottom to undercut wages or environmental standards
You won’t see it in the article because the article is written by someone who thinks the “Global South” are weak helpless innocent countries which are being victimised and colonized by the evil imperialist countries of the “Global North”. The author has mistaken America for an advanced rich country of the “Global North”. It might have been a rich advanced country decades ago. But after 30 years of International Free Trade aggression, America is not a rich advanced country any more. Its supposed membership in a so-called “Global North” is merely an artifact of its place on the map, now. But you should not expect the author of this article to understand that true current reality. Ever. Ever.
But I think some of the commenters are beginning to understand the true facts of Americans’ real place in the world. People for Clinton supported keeping America relegated to its current place in the world. People for Trump want America to become a First World Nation again. Trump may not be the President to achieve that. Trumpism may be the royal road to “failed ex-Soviet status” for America. But at least the understanding and desire is visible in some of the comments, even if never ever in anything the author wrote or anything the author will ever write.
Protectionism FTW. Yves Smith for Prez! I’m so sick and tired of the fakers. I want a real economically retarded Marxist control freaks to take the reigns. We Americans ain’t seen nothin’ yet. Take the money printing power from the bankers and give it to the MMT LAWYERS who did that babysitter co-op thing that made Krugman weep!
F me, it’s so hard to satire you guys because you do such a good job of it yourselves.
MMTers: Money should never be scarce.
MMTers: But bitcoin sucks because we need to support the welfare/warfare state.
Middle Class Destroyed by Inflation: Fuck you.
The big issue is that the neoliberal movement never really had the best interests of society at heart.
Trump’s actions may lead to blowback of sorts, but the secret about the Establishment is out. They got rich bankrupting the working and middle class. Their ideas are little more than intellectual cover for the rich to dismantle the New Deal. Outside of the top 10 percent, the Establishment of both parties and the so called Deep State is rapidly losing credibility. It may very well be that they have hit the limits of propaganda.
Many of these Establishment figures rightfully belong in jail, but that is another story. Even if they do manage to try to shove neoliberalism down again, the ending will be like an American version of the French leader, Macron. They will become unpopular and discredited quickly.
While what Trump is doing was likely poorly done, we do need to protect our wages, health, safety, labour, and environmental standards. Neoliberalism has no solutions for that and is a big part of the problem.
Peak propaganda.
Peak swindle.
Peak long-con.
Peak getting-away-with-it.