Protectionist Demagoguery

The Transatlantic Trade and Investment Partnership negotiations are headed directly for failure.

The recent debate held between the U.S. presidential candidates has once again brought to light the world’s dangerous move in the direction of protectionism — a movement that continues to win new supporters within the United States and Europe, especially in the years since the great recession of 2007-2008. What’s more, this time around, the call for protectionism has taken on a nationalistic and xenophobic charge.

The most recent clamorous calls for protectionism have arisen in the United States quite paradoxically, despite the fact that unemployment — the very issue viewed as the cause of protectionism’s resurgence — has fallen to its lowest levels in recent years. Nevertheless, the presence of “outsider” Donald Trump has led Americans into an atypical presidential campaign. Trump has reawakened rancid protectionist arguments quite effectively while simultaneously exhibiting skillful populist ignorance.

Trump isn’t the only one, however. Democratic candidate Hillary Clinton has also seen herself forced to adopt an anti-globalization posture. Although her protectionist stance is nothing new — in the Senate she voted consistently against approving free trade agreements — over the course of the campaign, Clinton has come to declare her opposition to the TPP, something she herself had played as an important part in negotiating.

In the case of Europe, the fundamental reason for protectionist sentiment has been high unemployment, as vast sectors of the population have felt that globalization has eroded the welfare state model they’ve enjoyed for the past 60 years. On top of this, dangerous nationalist movements have arisen in Austria, France, the Netherlands and Germany.

Under these circumstances, the TTIP negotiations between the United States and the European Union are headed directly for failure. Mercosur, for its part, will continue with the same string of bad luck that it has experienced over the past 15 years in its attempts to secure a free trade agreement with the European Union.* In the wake of Brexit, France, which is no longer benefiting from Great Britain’s presence as a counterbalance to its entrenched agricultural subsidies, will reject all treaties with major agricultural powers like Brazil and Argentina.

What Must Peru Do in the Face of these New Trends?

We must begin by recognizing that our country has an enormous advantage due to its membership in the Pacific Alliance, Latin America’s sole integration scheme open to the world. Unlike Mercosur, the four economies comprising the Pacific Alliance have already been exposed to competition from the world’s most advanced countries, with their industries not dependent on protection or state subsidies. Each member country contains within it highly competitive productive sectors, which serve as the basis through which Pacific Alliance countries will be able to participate in the modern world’s international trade scene, a place where production is organized in such a way that goods and final products’ various components are traded and cross borders to become part of international value chains.

Isolated from this groundswell of anti-globalization feelings gripping various developed countries, the Pacific Alliance has the advantage—compared to the rest of Latin America—of having active free trade treaties with Europe, Asia and North America, which cannot easily be revoked. In any case, it’s unlikely that these countries will close themselves off to business in any significant way with Pacific Alliance member states.

Having concentrated 80 percent of its commercial trade in the United States, Mexico would seem to be the country most vulnerable to Americans’ eventually heightened protectionism. Nevertheless, in my view, this “vulnerability” is merely a perception that has been generated by Trump and his campaign’s demagoguery. Entire sectors of the United States’ industries and trade — and millions of consumers — depend closely on their beneficial relationship with Mexico. Any attempt to obstruct this mutually advantageous relationship will encounter formidable resistance from thousands of American businesses that operate in Mexican territory.

The clear path forward for Peru and its Pacific Alliance partners in terms of policy is to intensify the integration process by standardizing diverse aspects of member states’ public policies, particularly in the areas of tax treatment, innovation and labor policy. In the meantime, there’s one measure that must be adopted without delay: the harmonization of taxation laws, which apply to the four Pacific Alliance countries’ capital markets, in order not only to ensure that the Latin American Integrated Market functions smoothly, but also to consolidate what could be Latin America’s largest exchange market. President Pedro Pablo Kuczynski could well lead this task.

*Editor’s note: Mercosur is an economic and political bloc comprising Argentina, Brazil, Paraguay, Uruguay and Venezuela.

Roberto Abusada Salah is the President of the Peruvian Economy Institute (IPE).