View from Europe: the ugly rise of protectionism

The return of protectionism is a familiar refrain but events appear to be developing a dangerous dynamic of their own.

The countries with the most protectionist measures currently in place are Russia, China, South Korea, Turkey, Brazil and the US. During 2017 and 2018, China and the US in particular introduced a whole range of new protectionist measures, or stopped foreign takeovers outright. The US government, for instance, blocked the Qualcomm takeover by Broadcom and takeover attempts of the Chicago Stock Exchange and Lattice Semiconductors by Chinese investors.

But often protectionism is far more subtle. China, for example, has reclassified a number of the HS-Codes of semiconductor parts. What sounds like a boring technicality essentially amounts to the imposition of tariffs and the rolling back of commitments China entered into in the context of its accession to the World Trade Organisation.

Less subtle is Russia’s new requirement that Russian hydrocarbons can only be transported on Russian-flagged vessels, in one of the rare instances where the country has taken a leaf out of the US's book, as owing to the Merchant Marine Act of 1920, goods shipped between US ports can only be transported on US-flagged, US-manufactured and US-owned ships.

Such measures nearly always turn out to be self-defeating in the long run; it is difficult to find a mode of transportation more expensive and less efficient than US domestic shipping, which means that this policy now constitutes a serious competitive disadvantage. 

But before we Europeans get on our high horse, we are not exactly inactive ourselves in that field. In March 2019, Italy tightened its screening and approval processes for 5G-related FDI projects, as did the French government with its decree No. 2018-1057, requiring prior authorisation for space operations, cybersecurity, artificial intelligence, additive manufacturing and robotics-related FDI. So did Hungary, with its ‘law on the control of investments detrimental to the interests of Hungarian national security’. 

At the end of the day, we are all in the same boat and it is in our own interest to keep international markets open and avoid these little semi-clandestine activities, as they are starting to jeopardise the system. Admittedly, some big global actors are incredibly aggressive, and Europe can only stand idly by for so long. But we should be wary of having a hand in the creation of a new protectionist era of complex barriers, market entry restrictions, technology transfer obligations and ownership limits. 

Martin G Kaspar is head of business development at a German mittelstand company within the automotive industry. E-mail: martin.georg.kaspar@gmail.com