Protectionism in a Globalized World: Is Free Trade Really Free?

"John Bull Kicking Away the Ladder" Canadian caricature poking fun at the hypocritical relationship United Kingdom had with her colonies in regards to economic self development. 18 June 1870,

“John Bull Kicking Away the Ladder” Canadian caricature poking fun at the hypocritical relationship United Kingdom had with her colonies in regards to economic self development. 18 June 1870,

Background

If you look throughout human history, we have been motivated to innovate by variety of different factors. Over our 10,000 year journey we have established ourselves at the top of the food chain and we never looked back since. Upon closer inspection, three main motivators particularly stand out.

Firstly, motivation for appeasement of a deity or royalty have induced us to build countless wonders such as the pyramids and the churches and castles of Europe. Not so much relevant in the modern world. Secondly, humans have been motivated to modernize at the prospect of war. Through recognition of war, we have built the Great Wall or commence the Manhattan Project. Thirdly, we have been spurred to advance at an expectation of economic returns. For the promise of profit humans have been driven to innovate. The silk road or the “New World” were founded upon such provocations.

Based on above, we can see how all the great feats we have accomplished have been motivated by one or all three factors. By the dawn of 18th century, extensive world trade and colonization, the histories of most civilizations had become substantially converged giving rise to what we know as globalization. In the last quarter-millennium, the rate of growth in population, knowledge, technology, commerce, weapons destructiveness and environmental degradation has exponentially accelerated, creating opportunities and perils that now confront the planet’s human societies.

Introduction

These instrumental last two century has been shaped by the Anglo-American sphere of influence due to the innovation and expansion they have achieved in pursuit of the latter two of the three motivators. Through its influence, the Anglo-American sphere has spread its culture and its ideologies and have fashioned the world’s move to globalization according to their interests.

The geo-political landscape has essentially remained static until the recent phenomenon, ‘the rise of the rest’. Out of this rise, China has been the only one to elbow themselves into the world power structure due to their industrial capacity and its economic volume.

According to the popular narrative, besides the key exports of ‘democracy and capitalism’, the Anglo-American sphere’s greatest gift to world is the economic policy of ‘free trade’. In the name of ‘free trade’, its opposite ‘protectionism’ has been demonized by most developed nations.

In this paper, I will closely examine the cultural history of the dichotomy between protectionism and free trade and how its utilization have shaped the developed world. More specifically, I will focus my report on is the current rise of renewables, specifically photovoltaic or solar energy as a fledgling industry and the clash of cultures that have been occurring as a result. And finally, I will analyze the current backdrop of the geo-political and socio-economic scene where the future history will be written.

With that being said, I want to analyze the trends of protectionism that can be seen in European and American markets in response to the influx of cheaply manufactured Chinese solar panels. Moreover, I want to critically look at the roots of this political and economic reality through the lens of culture and identify the middle ground where nations and economies can coexist and compete without driving each other into the ground.

Race for Renewables

Over the last few years, economies across the world, especially developed nations, have looked to expand the use of renewable energy sources. As it becomes more apparent that our exponential growth is having a negative effects on our environment, the need and call for sustainable sources of energy has been becoming more vocal. Across the globe, players have been jockeying for the position of prominence in this developing sector. According to data compiled by the Renewable Energy Policy Network, the “total investment in renewable energy reached $257 billion in 2011, up from $211 billion in 2010.”

The top countries for investment in 2011 were China, Germany, Spain, the United States, Italy, and Brazil. Continued growth for the renewable energy sector and promotional policies helped the industry weather the 2009 economic crisis better than many other sectors. Out of the lot, two economies that have persevered to become a major players in the renewable energy sector are United States and China. Besides the fact that both governments highly subsidize and protect their domestic renewable sectors, each country traveled a different road to this summit. United States have achieved this position due to their bleeding edge R & D sector and its investment environment. On the other hand, China using its industrial capacity and the intellectual properties of others to establish a vast solar panel manufacturing industry.

History of Protectionism

According to Encyclopaedia Britannica, protectionism by definition is a “policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors.” In contrast, “free trade, also called laissez-faire, a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports).

In the industrial era, (usually dated starting in the 1800s) protectionism as an economic instrument have been utilized by various nations across the globe. With the onset of “Industrial Revolution”, Great Britain catapulted itself as the first true global power. With assets in all five continents and the navy to enforce their rule on the high sea, Great Britain’s ascent to prominence is well documented. With that being said, it is easy to assume that Great Britain reached this zenith by employing free trade policies. However, upon closer inspection of the country’s history and economic policies, it is clear that Great Britain participated variety of initiatives to protect their infant-industries whether that be through import tariffs or export subsidies.

According to Ha-Joon Chang, an economics professor at Cambridge University “Britain entered its post-feudal age (thirteenth to fourteenth centuries) as a relatively backward economy. It relied on exports of raw wool and, to a lesser extent, of low-value-added wool cloth to the then more advanced Low Countries. Edward III (1312–1377) is believed to have been the first king who deliberately tried to develop local wool cloth manufacturing. He only wore English cloth to set an example, brought in the Flemish weavers, centralized trade in raw wool, and banned the import of woollen cloth.”

These policies had continuation under the Tudor monarchs. Daniel Defoe, the world famous merchant, politician and the author of the novel, Robinson Crusoe was contemporary of these events. He recounted in his book A Plan of the English Commerce about the numerous measures the Tudors took to elevate England from a raw-wool exporter into the most prominent wool manufacturing nation in the world.

According to Defoe “from 1489, Henry VII implemented schemes to promote wool manufacturing, which included sending royal missions to identify locations suited to wool manufacturing; poaching skilled workers from the Low Countries ; increasing duties on the export of raw wool; and even temporarily banning the export of raw wool.”

Despite its widening technological lead over other countries, Britain continued its policies of industrial promotion until the mid-nineteenth century. It was only after 1860 that most tariffs were abolished. However, the era of free trade did not last very long. It ended when Britain finally acknowledged that it had lost its manufacturing eminence and re-introduced tariffs on a large scale in 1932.

Friedrich List, the nineteenth-century German economist succinctly put his observation in his famous quote:

“It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations. Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth”

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