Comment
Trump Is Giving Protectionism a Bad Name
Tariffs and subsidies to support infant industries can be key
for economic development in the Global South.
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the
September/October 2018 issue.
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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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