6.6: Protectionism

National governments want to protect their companies and jobs from foreign competition. Protectionism takes many forms. The simplest kind is tariffs, which are simply import taxes. For instance, South Korea charges 100% tariffs on imported cars. Japan charges 700% duties on imported rice. Bush 2 imposed 30% tariffs on imported steel.

There are also a large variety of non-tariff barriers. One type is quotas on imports, as was done on Japanese cars entering the U.S. in the 1980s. (The Japanese responded to the quotas by building car manufacturing plants in the U.S., which at least generates U.S. jobs.) Another dispute was over cheap textile and clothing imports from China. Clothing manufacturers in Europe and the U.S. demanded that quotas be reinstated on these goods. In fact, the Chinese imports were so cheap that even companies in the Global South demanded that quotas be re-imposed.

There are also subtler barriers, some of which are very ingenious. French skis were once banned from Japan because ‘Japanese snow is different.’ The French only allowed Japanese video recorders to be imported into the inland city of Tours, where Charles Martel defeated the Huns in 741 AD. U.S. soybeans are subjected to special inspections in China which significantly raise their cost. Fruits and vegetables from Thailand are delayed so long by Chinese inspections that they spoil. The Chinese government only buys Chinese products and services, allows only 34 foreign films a year, and has banned foreign animated films to help protect the local industry. So much for their commitment to free trade when they joined the WTO. Hollywood is trying to crack the Chinese market by engaging in co-production deals with Chinese companies to evade the quota. (This means giving roles to Chinese actors, avoiding ‘sensitive’ political subjects and toning down the sex scenes.) Meanwhile, the Chinese are buying U.S. theater chains, movie studios and production companies, and are also building their own mega-studios.

Some countries give exporters subsidies, price supports, tax breaks, free infrastructure, and worker training programs. For instance, the U.S. complained that the European aircraft company Airbus has an unfair advantage from cheap government loans. Airbus countered that Boeing is subsidized by tax breaks from the State of Washington and U.S. defense contracts. (Both are correct.) China gives exporting companies like solar cell companies government contracts, cheap loans and free land, buildings and infrastructure. The U.S. shipbuilding industry cratered when Reagan stopped matching the subsidies given by Japan, South Korea, Europe and China.

The Doha round of global trade talks deadlocked and died because countries in the Global South demanded that the U.S. and European Union stop their farm subsidies, which encourage over-production, cause a glut on the world market and lower prices for corn, wheat, cotton and other crops for farmers across the world. These countries have resisted allowing cheap U.S. farm imports, saying this will hurt poor farmers. In Mexico after NAFTA, massive imports of cheap corn from high tech U.S. farms ruined Mexican farmers and increased illegal immigration to the U.S. So far there has been little change on U.S. and EU farm subsidies because the farm lobbies are so strong.

A humanitarian issue is drug patents. Patients in the poor countries of the Global South cannot afford $10-20,000 a year for AIDS and other drugs. So, a thriving illegal copycat industry has developed in India, Thailand and Brazil to provide these and other important drugs cheaply or for free. The western drug companies made some moves to license their drugs or allow them to be sold cheaply in the poor countries. However, U.S. drug prices remain the highest in the world.