Restricted EU is better than US when it comes to protectionism
Disruption to supply chains during the Covid-19 pandemic is bad for most, but an opportunity for some. Specifically, they clear a path forward for politicians potentially eager for an aggressive industrial policy to try to bring manufacturing home.
In the EU, Japan, and especially the US under President Joe Biden, some policymakers have gleefully disclosed their state subsidies, procurement budgets, and Toolkit for domestic content requirements, focusing on products including semiconductors, batteries, rare earths and electric vehicles.
With a few exceptions, such as some Asian governments subsidizing semiconductor companies Open a store In their country, this hasn’t yielded much action.Given the potential to break protectionist interventionism – creating excess Inefficiencies and reduced diversity of supply – which can be a good thing.
While inertia seems unlikely to last indefinitely, it will last longer in some places than others. The EU and Japan appear to be relatively well protected against intervention loopholes; the US is less immune.
The political space for state-led restructuring has recently been cleared by a media blitz.Biden more or less claims to have saved christmas, or at least part of consumer durables, through a series of official interventions late last year to lift port blockades and restrict retailers.Thierry Breton, the EU’s overactive internal market commissioner, accepted last year persuasion tour Vaccine supply chain in Europe, and suggested he personally stimulated production.
Some of these declarations look a little fragile check carefully. Biden claims to have increased throughput at the notorious West Coast port, including putting workers on 24-hour container-handling operations.In fact, the number of container ships waiting outside the port is increasing record highEurope, the self-proclaimed pharmacy of the world, is well-positioned to run efficient medical supply chains, as long as governments implement sensible procurement policies and don’t overcrowd them with export barriers.
Still, the story is there now. What about action? The U.S. government is already testing its ability to micromanage complex private sector supply chains.Biden is enforcing the domestic content provisions of the U.S.-Mexico-Canada pact on auto production inherited from Donald Trump’s administration, although this quickly ran into trouble, such as Dispute Resolution Brought by two other members of the deal.
Undeterred, the Biden administration also wants a tax credit for electric-vehicle makers that condition production in the U.S., and additional relief if the business is unionized.Union bits may not survive Congress: West Virginia has a non-union Toyota plant, home to galaxy’s powerful swing-vote senators Joe Manchin. but despite alarm in Mexico, Canada and Europe, the domestic production segment has a good chance of passing, which seems unlikely to lead to optimal productivity.
As Mary Lovely of the Peterson Institute think tank puts it: “The question is whether it can do anything other than just sell very expensive North American cars in North America.”
Supporters of the Biden administration argue that supporting domestic production will encourage the spread of electric vehicles.They may be right – last year’s peerless super bowl ad Will Ferrell’s GM is targeting that sentiment — but even patriotic Americans don’t think money isn’t an issue over $35,000 on electric vehicles.
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The cynical protectionist calculations could also fall apart in the long run if the program is seen as a costly special-interest handout. The use of ethanol as a green fuel a decade or two ago has similar green technology potential. But it’s unclear whether its adoption in the U.S. will actually help to become the expensive and environmentally sub-optimal jerk of Iowa corn growers.
Despite the interventionist instincts of a country like Brittany, the EU is unlikely to succumb to the lure of self-sufficiency. Its self-limitation is its strength.There is hardly any concentrated EU cash to subsidize the repatriation: EU member states have so far only cobble together billions of dollars to subsidize semiconductor investment, while the $52 billion made in the United States.
State aid system restricting handouts have relaxed For products like semiconductors, but it’s nowhere near free in the US.Tesla last year withdraw application Germany reportedly received 1.1 billion euros in state aid due to additional restrictive rules. The EU, while not flawless, has shown more respect for trade rules than the US under Trump and Biden.Its efforts so far have been largely limited to modest public-private partnerships, such as Battery Alliance.
Meanwhile, Japan has set up a catalyst fund for its companies to study bringing supply chains back from China, but the need to invest in China to sell to the Chinese market has limited Japanese companies from major restructuring.
A dose of government intervention is needed in advanced economies to encourage resilience, a plausible argument that focuses only on overreliance on specific inputs. But at least the ideas should pass through institutional policy filters to filter out misleading projects. The EU has such a mechanism, not entirely by design; the US has even less. European protectionists are likely to be saved.