More than ever in the past seven decades, it seems we are in danger of forgetting the lessons from Bretton Woods – said Roberto Azevêdo, the former head of the World Trade Organization (WTO), in 2019, reflecting on the growing trend of raising trade barriers between the world’s largest economies. Faced with a potential blow to its automotive industry – specifically, primarily Germany – the European Union decided in mid-June to increase tariffs on Chinese electric cars. Thus, it chose to follow the United States, which had previously raised tariffs on Chinese technology goods, marking a new episode in the global trade war that began in 2016.
From the perspective of the European Commission, the problem is that the Chinese government heavily subsidizes its automotive industry, thus the economic rationale for these measures is to enable fair market competition. However, this move also has a political dimension: the European Union has sent a message to China with these tariffs that it should withdraw its tacit support for Russia in its aggression against Ukraine. Although European tariffs are essentially quite mild (between 17 and 38 percent), diplomatic courtesy dictates that such a move should be met with retaliation. Therefore, Beijing has already announced an investigation into the import prices of European food coming to China. The target is primarily the import of European pork worth three billion dollars, which immediately alarmed Spanish and Danish pig farmers, the largest exporters of that type of meat to China.
Thousands of Barriers
The extent to which it has become increasingly redundant to speak of free trade in global terms is illustrated by last year’s analysis from the International Monetary Fund (IMF). By the end of 2022, there were more than 2,600 trade barriers on goods and services worldwide, ten times more than in 2013. The barriers to investors grew the fastest: the IMF counted 239, four times more than in 2021.
Of course, protecting the domestic market through various types of barriers, such as tariffs and quotas, is not a modern invention. Protectionism – or ‘economic patriotism’, as its political advocates today more pleasantly call it – has existed for centuries. It was criticized as early as 1776 by the famous English economist Adam Smith in his seminal work ‘The Wealth of Nations’, a sort of economic bible. That protectionism is not a harmless phenomenon in international relations is evidenced by some historical experiences. One of the more tragic examples is the so-called Great Famine in Ireland between 1845 and 1849 caused by a poor potato harvest on the island. It claimed a million lives and was exacerbated by the British Corn Laws of 1815, which raised the cost of food imports to keep British grain prices high.
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