The Misconception of the New Protectionism

 

Immediately after moving into the White House, Donald Trump signed a series of executive orders, including the refusal of entry for people from seven mainly Muslim countries. Even though this ‘travel ban’ was repealed in court, Trump’s political agenda reveals an almost textbook plan to institutionalize protectionism. The US president bases this on his voters’ perceived unfairness of the globalized world and the promise of bringing back times past.

 

There is no other way to explain why Trump’s labor market and economic policies focus on one particular instrument: isolation. Whether punitive duties, taxes on imports or entry bans – restrictions are sure to come, even though for the time being there are no specific changes scheduled for the visa groups that are most relevant for German companies. While Germany is not a main target of entry and import restrictions, it is advisable for German companies with branch offices or staff in the US to keep a close eye on changes introduced by the government and be diligent in fulfilling the latest immigration requirements to maintain compliance. Trump’s government is not likely to be gentle when it comes to sanctioning foreign companies.

 

 

The return to isolationism and nationalism is not limited to the United States. The European Union, too, is in a serious crisis: It is the simple, nationalist slogans of the anti-globalization activists that capture both the American and the European voters and link Donald Trump to Brexit as well as the growing nationalist movements in several European countries. Election analyses reveal that many Brexit supporters feel like modernization losers who experience both economic and social change as a downward spiral. To protect themselves, they choose to turn away from open borders and markets.

 

It is still uncertain what consequences Brexit will have for economic exchange and labor migration in Europe. Some other EU member states are also seeing an increase of centrifugal forces that would question a limitless freedom of movement for workers while unemployment rates remain high in some European countries. Elections are on the horizon in France, the Netherlands and Germany, which could give this dynamic an added boost. Tough Brexit negotiations are to be expected and will likely bring a good deal of uncertainty and interim measures with them, particularly for immigration and employment permits. Negotiations are also sure to have an impact on the power balance in the rest of Europe regarding free movement. Distancing itself from Donald Trump’s protectionism is already a difficult task for the EU, but it is almost impossible to cut ties with the United Kingdom. Great Britain’s economic strength and key role for Europe’s security and culture make it a valuable partner.

 

 

Focusing on Brexit and various right-wing conservative political movements in Europe shouldn’t distract from the fact that protectionism has already been among us for a long time. The European Union formally establishes not only freedom of movement for workers, but also free movement of services. Nevertheless, various EU member states still uphold high individual standards regarding reporting and registry obligations. Belgium, for instance, already had to deal with infringement proceedings for this and Austria, Denmark, Norway, Finland and France are also each following their own path in this matter. This is based in what might be called ‘moderate protectionism’.

 

The impulse is understandable. Shared economic zones are always also competition grounds. But for the European Union this ‘silent protectionism’ may mean death by a thousand cuts.

 

 

However, neither radical nor moderate protectionists will be able to stop globalization in its tracks. It is already noticeable since the 1990’s that there is no going back to times gone by. Industries as well as services are much too closely interconnected across continents and countries. Experience has shown that the economy (except for some exceptions such as North Korea) always manages to find a way to exchange goods, services, and employees. Politics can manage these processes, but cannot stop them completely – the populists will realize this sooner or later.

 

The winner in the protectionist squabbles between Europe and the US, is China – and it is already catching up. In times like these, smart entrepreneurs will do well to assess the situation realistically instead of being driven by kneejerk reactions and prejudice, and thus to take an economic chance where and when it arises, whether in North America, Europe or Asia.

 

The article was originally published in German by manager magazin. Read the article in German here.