This is not a concept taken from the stale archives of Latin American populism of the mid-20th century. It is the title of an extensive special report from The Economist magazine for the month of October 2023, referring to the new economic trend that is displacing the free market on a global scale.
A year ago, this prestigious and conservative weekly newspaper that serves as a compass for all followers of economic liberalism, had already issued the warning about the risks of the “end of globalization” promoted by the geopolitical fragmentation of the markets.
Today, more defensively, he denounces the “alarming trend” towards the growth of a set of measures that the governments of the world are adopting; of an ascending current of business and academic opinion, favorable to national protectionism of industries, the application of subsidies to economic activity, the increase in public spending and the regulation of markets. All of this grouped under the heading of “economic nationalism” or “homeland economics”.
But it is not only The Economist that detects this change of era. During the last year, the influential North American newspaper The New York Times has provided numerous studies and opinions on the return of the so-called “industrial policies”, the name given to the set of state interventions to support the manufacturing activity, through tax exemptions, subsidies, soft loans, public guarantees, state contracts and, if necessary, nationalizations.
One of the animators of this debate is the Nobel Prize winner in economics P. Krugman who, in passionate articles in defense of President Biden’s subsidy policies, states without complexes that, if this led to a proliferation of economic nationalism throughout the planet, then, welcome is that protectionism.
Projet Syndicate, which brings together more than 500 media outlets around the world in which renowned academics from the most prestigious universities write, in recent months has captured the intensity of the debate on the topic.
The prestigious North American university Massachusetts Institute of Technology (MIT) has just published a book referring to the history of “industrial policies”, while the renowned Harvard professor, Dani Rodrik, has been recommending for months how to apply “correctly” ” that economic nationalism.
In the midst of all this, it is no coincidence that there is a revival of Keynesian and Polanyian debates, but also new editions of the classic work of protectionism, that of the German economist Friedrich List (The National System of Political Economic, 1841), appear. which Marx dedicated dozens of critical comments to in his reading notebooks from 1847.
And this industrial neoprotectionism is not just a new academic fad, but a tectonic transformation of the economic structures of the global order that is underway under our feet. Let’s see:
Goodbye to “free” markets.
A self-regulated global market was the great neoliberal utopia of recent decades. The end of the “cold war”, the incorporation of China into the WTO and the expansion of value chains that integrated the entire world based on efficiency and opportunities, encouraged this great dream.
In the original tension between the global territoriality/local-national territoriality of the commodity (exchange value/use value), history seemed to lean towards the former. But it was just an illusion. Markets are incapable of uniting societies, which ultimately leads to political polarization.
Markets are unable to balance production with finance, which ultimately leads to the deindustrialization of the wealthy, and the loss of their global leadership. This is precisely what is happening now in “the so-called West” and, in particular, in the United States.
Therefore, it was foreseeable that the US and Europe would someday desperately seek to stop their imperial decline in the face of an ascending industrious “Asianism.” That moment has arrived.
The first historic turn was launched by the US in 2018 when it embarked on a war of tariffs on Chinese imports, imposing on them the payment of up to 25% taxes on their total value. On the other hand, China has done the same with North American imports. With this, the two most important economic powers on the planet have buried free trade.
The European Union has not been left behind. Since January 2022, it has reduced its purchase of gas from Russia, from 45% of its total consumption, to 13% (European Commission, 2023); including in this cut the blowing up of the nord stream 2 supply gas pipeline.
And this reduction has had nothing to do with the “efficiencies” of the market, but rather with geopolitical reasons. Russian gas, which for decades supported cheap energy from Europeans and the thriving German industry, cost about $6 per MBTU. In 2022, they had to pay $45 per MBTU to other friendly providers, including the US. The efficiency of markets has knelt before the “buddy market.”
Along with this, in March 2023, the EU approved a “trade defense against economic coercion” law, which allows raising tariffs and restricting participation in tenders to countries that exert “undue economic pressure”, that is, China. The symphony of the 21st century no longer accompanies odes to free trade but to national security.
That Huawei will then be restricted from entering the European market, that the sale of agricultural land to Chinese be prohibited or that, in August, President Biden will issue executive orders to prohibit North American exports and investments in China in the area of semiconductors, artificial intelligence , etc., is the new reality of markets subordinated to states.
This new global spirit is perfectly mapped by the IMF when it laments the increase, on a geometric scale, of restrictions on global free trade, which from 250 marginal measures and in marginal countries in 2005, have risen to 2,500 in 2022; mainly in the most economically advanced countries (Globalization to the top, June, 2023). Litigations against trade obstacles due to national security issues have gone from 0 in 2005 to 11 in 2022 (OMC, The impact of security…,2023)
All of this is causing a geographic reorganization of the division of labor or, as it is often called now, of “value chains.” The World Trade Organization (WTO) reports that since 2009 this global articulation of production processes has no longer continued to expand and, since then, has begun to gradually retract (WTO, Global value chain…2022). The buzzwords among the world’s CEOs are now “nearshoring”, “friendshoring” or, in the classic euphemisms of the president of the European Union, Von der Leyen, “reducing risks”.
In the last decade, the globalist shelf, previously already cracked by Latin American progressivism, begins to crumble. The sacred commandment that states must be austere and reduce expenses to a minimum is now counterfactual nonsense.
In 2008, as a result of the subprime mortgage crisis that dragged the world into a financial crisis, advanced economies had to mobilize the equivalent of 1.5% of their GDP to contain the fall in banking stocks and stock markets. values. In 2020, in the face of the “great confinement” against Covid-19, the extraordinary fiscal effort reached 18% of GDP, flooding society with monetary issuance to pay salaries, resolve business debts, support the actions of companies and implement social aid. (IMF, fiscal monitor, 2021.
Global public debt, which during the “golden” years of neoliberalism adhered to rigorous fiscal discipline with low public debt, around 50% of GDP, has jumped to 80% in the last decade, and in the US to 110% ( Kansascity FED, 2023). For its part, public spending, which for 30 years remained around 24% of GDP, has jumped to 34% in recent years (World Bank, 2023). High public debt is neither a temporary economic illness nor a Latin American heritage. It is the new global normal.
And for the liberals’ nightmare, there is not only a new spending State, but also now an industrialist and market generator. North American President Biden, since 2022, has mobilized nearly $400 billion to subsidize the manufacturing of electric cars, green technologies and microchips in the US, with US technology and workers in the US (IRA Law, Chips Law).
“Consume American” is the new protectionist slogan. Europe is not far behind. According to the Brugel Economic Observatory, between 2022 and July 2023, governments have had to subsidize the final price of electricity to their citizens with 651,000 million euros. For Germany, this has reached 5% of its annual GDP. In the old liberal language, a staggering inefficiency. But in these times, the interests of the war against Russia are above the delicatessen of the market.
In addition to all this, since 2019, state subsidies to the European Union industry, directly through transfers and tax reductions; and indirectly through loans and guarantees, they add up to 3.2% of GDP annually (OECD, June 2023). In more daring cases, states have nationalized the generation of electricity (France), or the distribution of gas (Germany).
For their part, India and South Korea have just approved generous state incentives for the production of certain products. And in China, its plan is underway so that by 2025, 70% of the basic raw materials for its manufacturing will be national. (Harvard Review, Fall 2018). From less than 34 “industrial policy” interventions in the world in 2010, it has increased to 1,568 in 2022 (Juhasz, Rodrik, August 2023)
The global order is changing rapidly and so are the dominant ideologies. From the old governmentality sustained in the free market, globalism, the minimal State and solitary entrepreneurship, we are moving to a political legitimacy that is still diffuse, but in which other anchoring bases seem to begin to stand out, such as local industrialism, autonomy technology and competitiveness in segmented markets (Thurbon, 2023).
Certainly, all this does not prevent the melancholic attachment to the imagined glorious years of free trade from being reborn here or there with violent fury. They are political fossils that do not mean they are harmless and merely carnivalesque.
These defenders of the free market who, as The Economist laments, are now treated as “a colonial relic” in extinction, have caused much social pain in their adventure as in Brazil, and will continue to do so, as in Argentina. The curious thing is that Latin America, which pioneered this return to protectionist policies, is also where the most perverted and cruel versions of this liberal anachronism are generated.
This does not mean that economic nationalism will soon prevail. The time of global uncertainty will continue for a decade or more. But this protectionism that is now beginning to expand is different from that which existed in the 40s of the 20th century. State subsidies no longer support a producing State so much as a private sector that needs state protection and guidance to prosper.
Likewise, the new “import substitution”, which reminds us of the old ECLAC slogan, is now selective, in strategic areas ordered by political-military criteria; while the rest of the imports that will remain, seek to be relocated to other closer or politically allied markets. It seems that we are facing the birth of a new hybrid, amphibious model, which combines protectionism and free trade, according to national needs.