A new protectionism

Europe should know by now that its insistence on an international free market system has started to backfire. Washington too has a dog in this fight, even though the US arsenal includes weapons that the old continent lacks. The truth is that Europe’s political elites are blind to the fact that have fallen prey to their own doctrines about international development. Europe has turned what used to be mere strategy into gospel. It was once thought that in the global division of labor, the Western economies (and the Japanese) would be able to maintain their technological lead and that the periphery would only attract labor-intensive industries, mainly because of low costs. After the Asian tigers, China’s dynamic rise in the global economy shows that the old theory no longer holds. China is not a Third World country. Potentially it can substitute most if not all Western products. And we have only seen the tip of the iceberg. In the medium and long term, Europe has no answer to this growing challenge. The gap in wages, labor markets and working conditions is so big that it renders the free market system pointless. Pointing to the Japanese experience, some observers claim that in time, China will lose its advantage in cheap and disciplined labor. This argument misses China’s vast, underdeveloped mainland – a huge reserve of potential labor that promises to keep wages down in the years to come. Europe is in danger of being the first casualty in this uneven competition. Its productive force is shrinking. Current prosperity levels cannot be sustained on dividends alone. The continent, and its trading partners, will soon be tempted to take protectionist measures to avert the looming catastrophe. The sooner the issue gets on the agenda, the better for Europeans.

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