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Protectionist dominoes are beginning to tumble across the world
The riots have begun. Civil protest is breaking out in cities
across Russia, China, and beyond.
By Ambrose Evans-Pritchard
Last Updated: 10:30AM GMT 22 Dec 2008
http://tinyurl.com/endoftheworldasweknowit
Greece has been in turmoil for 11 days. The mood seems to
have turned "pre-insurrectionary" in parts of Athens - to
borrow from the Marxist handbook.
This is a foretaste of what the world may face as the "crisis
of capitalism" - another Marxist phase making a comeback -
starts to turn two hundred million lives upside down.
We are advancing to the political stage of this global train
wreck. Regimes are being tested. Those relying on perma-boom
to mask a lack of democratic or ancestral legitimacy may try
to gain time by the usual methods: trade barriers,
sabre-rattling, and barbed wire.
Dominique Strauss-Kahn, the head of the International
Monetary Fund, is worried enough to ditch a half-century of
IMF orthodoxy, calling for a fiscal boost worth 2pc of world
GDP to "prevent global depression". "If we are not able to do
that, then social unrest may happen in many countries,
including advanced economies. We are facing an unprecedented
decline in output. All around the planet, the people have
reacted with feelings going from surprise to anger, and from
anger to fear," he said. Russia has begun to shut down trade
as it adjusts to the shock of Urals oil below $40 a barrel.
It has imposed import tariffs of 30pc on cars, 15pc on farm
kit, and 95pc on poultry (above quota levels). "It is
possible during the financial crisis to support domestic
producers by raising customs duties," said Premier Vladimir
Putin.
Russia is not alone. India and Vietnam have imposed steel
tariffs. Indonesia is resorting to special "licences" to
choke off imports.
The Kremlin is alarmed by a 13pc fall in industrial output
over the last five months. There have been street protests in
Moscow, St Petersburg, Kaliningrad, Vladivostok and Barnaul.
Police crushed "Dissent Marchers" holding copies of Russia's
constitution above their heads in Moscow's Triumfalnaya
Square.
"Russia has not seen anything like these nationwide protests
before," said Boris Kagarlitsky from Moscow's Globalization
Institute.
The Duma is widening the treason law to catch most forms of
political dissent, and unwelcome forms of journalism. Jury
trials for state crimes are to be abolished.
Yevgeny Kiseloyov at the Moscow Times said it feels eerily
like December 1 1934 when Stalin unveiled his "Enemies of the
People" law, kicking off the Great Terror.
The omens are not good in China either. Taxis are being
bugged by state police. The great unknown is how Beijing will
respond as its state-directed export strategy hits a brick
wall, leaving exposed a vast eyesore of concrete and excess
plant.
Exports fell 2.2pc in November. Toy, textile, footwear, and
furniture plants are being closed across Guangdong, now the
riot hub of South China. Some 40m Chinese workers are
expected to lose their jobs. Party officials have warned of
"mass-scale social turmoil".
The Politburo is giving mixed signals. We don't yet know how
much of the country's plan to boost domestic demand through a
$586bn stimulus package is real, and how much is a wish-list
sent to party bosses in the hinterland without funding.
Shortly after President Hu Jintao said China is "losing
competitive edge in the world market", we saw a move towards
export subsidies for the steel industry and a dip in the yuan
peg - even though China already has the world's biggest
reserves ($2 trillion) and the biggest trade surplus ($40bn a
month).
So is the Communist Party mulling a 1930s
"beggar-thy-neighbour" strategy of devaluation to export its
way out of trouble? Such raw mercantilism can only draw a
sharp retort from Washington and Brussels in this climate.
"During a global slowdown, you can't have countries trying to
take advantage of others by manipulating their currencies,"
said Frank Vargo from the US National Association of
Manufacturers.
It is a view shared entirely by President-elect Barack Obama.
"China must change its currency practices. Because it pegs
its currency at an artificially low rate, China is running
massive current account surpluses. This is not good for
American firms and workers, not good for the world," he said
in October. The new intake of radical Democrats on Capitol
Hill will hold him to it.
There has been much talk lately of America's Smoot-Hawley
Tariff Act, which set off the protectionist dominoes in 1930.
It is usually invoked by free traders to make the wrong
point. The relevant message of Smoot-Hawley is that America
was then the big exporter, playing the China role. By
resorting to tariffs, it set off retaliation, and was the
biggest victim of its own folly.
Britain and the Dominions retreated into Imperial Preference.
Other countries joined. This became the "growth bloc" of the
1930s, free from the deflation constraints of the Gold
Standard. High tariffs stopped the stimulus leaking out.
It was a successful strategy - given the awful alternatives -
and was the key reason why Britain's economy contracted by
just 5pc during the Depression, against 15pc for France, and
30pc for the US. Could we see such a closed "growth bloc"
emerging now, this time led by the US, entailing a massive
rupture of world's trading system? Perhaps. This crisis has
already brought us a monetary revolution as interest rates
approach zero across the G10. It may overturn the "New World
Order" as well, unless we move with great care in grim months
ahead. This is where events turn dangerous.
The last great era of globalisation peaked just before 1914.
You know the rest of the story.
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Wakin' it up ...
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