In Davos China President Xi argued that protectionism was like closing oneself in a room to keep out the wind and the rain. The problem with this strategy, he said, was it also kept out the air and the light. Like all good politicians Xi is clever. He calls on the world to work against protectionism while practicing it himself. China is a closed market with the key sectors like capital (banking), communication, energy, mining, transport, and many manufacturing sectors exclusively in the hands of state owned enterprises operating within the confines of detailed five year plans which set targets the achievement of which determines success in society and in particular within the Communist Party of China. The market is closed to foreigners.
At his inauguration newly appointed US President Trump heralded the new era of putting the US first, and first and first. On trade, Trump advocates a new approach of closing the US market to foreigners. In other words, the Trump way is pretty similar to the Xi way.
What both Trump wants, and Xi already has, is a system promoting specific businesses rather than creating a neutral market in which success is determined by fair competition. Trump wants to champion US enterprises and not the US market. Xi already does this at home in China. The worry today is that Xi is taking this business champion approach abroad so as to create global Chinese champions.
Trump and Xi have the same concept of power. It must be used to bring specific preidentified gains that are mercantilist in nature and not based on vague ideas of comparative advantage and fair and free competition.
That leaves the EU as the only liberal open economy of any size. Commissioner Malmström recently said in Paris that the EU should not be naïve about China. She said this in the context of how the EU should reform its anti-dumping and anti-subsidy laws, the limited means that the EU has to counter unfair trade practices. The EU and its Member States must ask if it is naïve to leave itself defenceless at a time when it is the only entity standing for open and fair trade.
2017 will see the EU debating modernisation of the trade defence instruments and the Commission’s proposal to change the way the EU deals with trade from markets that are distorted. Parallel debates will begin in February in the two EU legislative chambers, the Council (the 28 Member States) and the Parliament. Many thought the debate was really just about China. Is it? The debate must be about having the appropriate tools to ensure that the EU market remains free and open and can counter unfairness before it undermines the only free and open market remaining.