The promises of protectionism
The call for protectionism dominates in France in the name of climate protection, the agricultural sector and national sovereignty. It is reinforced by massive new customs duties that close the American market to Chinese technology exports (solar panels, lithium-ion batteries, electric vehicles, etc.). Access to European demand is all the more crucial for China as it relies on these exports to sustain its growth. A collapse in prices in Europe, which would be good for accelerating decarbonisation, would destroy investment efforts aimed at limiting dependence on Chinese technologies.
But the economic impact of protectionism needs to be clarified, as the 27 Member States disagree on this strategy.
For its part, the United States has a primarily political priority: to preserve its position as the world’s leading power by slowing down China’s capacity for innovation. Washington has not hesitated to break with the rule of non-discrimination, the cornerstone of the multilateral order. But this comes at a cost. According to the Tax Foundation, Trump’s continued tariffs on steel and aluminium imports have increased production costs for manufacturers, reduced employment in these industries, increased prices for consumers and hurt exports. In the longer term, the erosion of innovation capacity and competitiveness would cause a 0.21% decline in GDP, a 0.14% decline in wages and a loss of 166,000 full-time equivalent jobs. Retaliation by third countries would further reduce GDP by 0.04% and eliminate 29,000 jobs. The Peterson Institute for International Economics estimates the cost to consumers of each job ‘saved’ in the steel industry at $650,000. The cost of Biden’s additional tariffs, and even more so those proposed by Trump if he is re-elected (60% on all Chinese imports and 10% on all other imports), will be much higher for the American consumer.
In Europe, European preference would be justified in order to develop a European defence industry – a sector that obeys specific supply and demand rules. But generalising it would affect competitiveness all the more, as production costs in Europe are already higher than in the United States (electricity remains twice as expensive and labour costs five euros more per hour on average). In an election campaign in which the French say they are primarily concerned about the cost of living, the inflationary impact of protectionist measures cannot be ignored.
A priority on the agenda of the next Commission will be to strengthen the Union’s economic security strategy, which aims to ‘protect without protectionism’. This balancing act will require the continued active use of safeguard clauses and new trade defence instruments (control of foreign subsidies, reciprocity in public procurement, anti-coercion instruments) to ensure fairer competition. Europeans can also support demand through demanding carbon-free production standards rather than tariff barriers. Furthermore, not enough attention is being paid to the new security challenge of trade negotiations to ensure access to strategic raw materials and support the diversification efforts of businesses.
Above all, however, the Single Market must be made more attractive to businesses: investment in education and infrastructure must be prioritised in order to provide a skilled workforce and reduce operating costs, and finally, massive investment must be made in innovation. A niche leadership strategy, which would make European companies indispensable to the smooth functioning of global technology value chains and reduce their exposure to economic coercion, would enable them to focus on rebalancing interdependence in a way that is less costly for the competitiveness of the economy than the American strategy, which remains one of decoupling from China.
