Protectionism: Solution or Problem? (I)
President Donald Trump has imposed tariffs on the US’s three largest trading partners, prompting immediate retaliation from Mexico, Canada and China and sending financial markets into turmoil. Starting on March 4, 2025, tariffs of 25% on Mexican and Canadian imports and 10% on electricity imported from Canada will take effect. Canada’s representatives argue – and they do – that the tariffs are inconsistent with the provisions of the General Agreement on Tariffs and Trade (GATT) (1947) and the World Trade Organization’s Trade Facilitation Agreement (WTO) (1964). The next day, the White House announced that President Trump would exempt car manufacturers from the punitive 25% tariffs on Canada and Mexico for one month if these countries comply with the North American Free Trade Agreement (NAFTA).
China responded to the increase in customs duties imposed by the US, announcing on the same day increases of 10-15% in tariffs on a wide range of US goods, including agricultural and food products. Being also imposed a series of new restrictions on 25 US companies, both for exports and investments.
Europe has not yet been affected by the tariffs, with the measure reserved for the EU to be announced on April 2. Brussels announced that it was organizing “very productive” meetings with US representatives, while Trump repeated the 25% tariff threat.
In Romania, in the media, on social networks at rallies and in parliament, protectionist measures are often demanded: subsidies, “51% Romanian products”, restrictions for foreigners to buy land, closing large stores on weekends, boycotting supermarkets, etc. The reasons invoked to justify these measures are the support of Romanian capital, food and/or energy security, avoiding the closure of (loss-making) enterprises and unemployment, etc. Although they are presented as being of “strategic” importance and inspired by “patriotism”, the aforementioned measures would seriously affect the Romanian economy, jeopardizing the continuation of structural reforms – already stagnant – aimed at modernizing it. In addition, these decisions would violate the provisions of international treaties to which Romania is a party (GATT/WTO, EU accession treaties, FAO, IMF, OECD, etc.).
Protectionism is an economic policy aimed at limiting the access of foreign products to the national territory.
Its aim is to favor domestic products on the domestic market, without discouraging exports. Regardless of the form, the general principle of protectionism is the same: the creation of obstacles to the entry of foreign goods into the national territory, in order to limit consumers’ access to those goods and to induce them to turn to indigenous products.
The history of protectionism is closely linked to the history of world trade. At the beginning of modern trade, in the first decades of the 19th century, the great nations of the world were generally protectionist. After the repeal in 1846 of the English Corn Law, which prohibited the import of grain and other cereals, keeping food prices high in favor of English landowners, a period of gradual liberalization of international trade began. This trend was driven by the Franco-British Treaty of 1860, which removed restrictions on trade between the two countries, reduced customs duties and, for the first time, established the most-favoured-nation clause: any advantage granted to a third country by one of the two signatory countries was automatically granted to the other party. The liberalization process was interrupted in the late 1870s, when the developed countries of that era returned to protectionism, which made the period 1979-1945 marked by numerous trade wars and reprisals. The peak was reached in 1929-1930, when protectionism seemed to be the only possible response to the crisis. Faced with the economic difficulties specific to the crisis and the hostile international political atmosphere created by the danger of war, the world’s states tried to defend themselves not through new agreements between them, but each on its own, by limiting imports, exporting at dumping prices, repeated devaluations of national currencies, creating monetary “blocs”, etc.
In interwar Romania, foreign trade policy was out of step with developments in the world economy. Thus, in the years 1922-1928, liberal governments pursued a policy of economic nationalism and semi-autarchy (“by ourselves”), at a time when European countries were making an effort to re-establish free trade. In the years 1928-1931, when the Romanian economy was hit by a crisis and the European economy was evolving towards a new period of protectionism, the national-peasant government attempted to liberalize foreign trade (“open doors”). The reorientation of trade policy from the liberalism promoted during the crisis to the restriction of economic relations with abroad for fear of the outbreak of war also occurred with considerable delay compared to other European states, which had adopted similar measures.
Unlike the period 1846-1945, when international trade and attempts to liberalize it were dominated by bilateral trade treaties, after the Second World War the practice of multilateral trade agreements and the international bodies responsible for managing them became widespread. According to the preamble of the respective official texts, the purpose of these agreements is to achieve genuine international cooperation and to establish general and lasting free trade. During the period 1947-1994, this cooperation took the form of the aforementioned agreement known under the acronym GATT. In 1964, a new international institution was created, the “World Trade Organization”/WTO, which was endowed with genuine disciplinary power. The fundamental objective of the WTO, which took over the GATT (1965), is the gradual reduction of protectionist barriers in order to promote the growth of the world economy, without harming infant or ailing industries. After the failure of the Seattle conference (1999), the WTO launched a new round of negotiations (the Doha conference in 2001), which aim to give developing countries an increasingly important role and to strengthen their capacity to benefit from international trade, supporting them in the fight against poverty.
In 2013, the construction of a new important pillar of the institutional framework for international trade began: the free trade agreement negotiated by the EU with the US, called the “Transatlantic Trade and Investment Partnership”/TTIP. Its aim is to remove barriers to trade (customs tariffs, unnecessary regulations, investment restrictions, etc.) in a wide range of economic sectors, in order to facilitate the buying and selling of goods and services between the EU and the US. Despite the fact that the US is the EU’s largest trading and investment partner, there is no free trade agreement between the two. The negotiations on TTIP ended in 2016 without conclusions and were officially closed in 2019.
The Romanian economy was rebuilt after World War II according to the Stalinist model. This model was characterized by state or collective ownership of production facilities and the adoption of economic decisions by the state apparatus in a centralized manner, through a plan that establishes production objectives and the level of other important economic variables: prices, wages, distribution of national income for consumption and accumulation, imports, exports, etc. Under these conditions, in the last years of the communist regime, through the plan, imports were drastically limited and exports were forced to obtain the foreign exchange necessary to repay the external debt and reduce dependence on external financing. In the communist economy, customs duties were practiced, but they did not serve to protect the national economy from foreign competition, but to be able to offer formal reciprocity to other countries, which eventually reduced their customs duties on imports of Romanian goods. The Romanian economy was hermetically closed and completely isolated from the economies of other countries, and to achieve this autarky there were other means than customs duties: the state monopoly on foreign trade, the establishment by plan of the volume and structure of imports and exports, the administrative fixing of prices of goods subject to foreign trade, the drastic limitation of the right to travel abroad, etc. After the fall of communism, the state monopoly on foreign trade was abolished, and Romania became a member or resumed relations with multilateral international organizations of the type mentioned. Consequently, the customs regime was revised in accordance with the obligations assumed by the respective treaties.
(To be continued.)
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