Friday 8 April 2016 4:59 am

Steel crisis: Protectionism is a disastrous policy – but don’t thank the EU for banning Parliament from even considering it

Tom Welsh is City A.M.'s business features editor.

Tom Welsh is City A.M.'s business features editor.

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Protectionism is bad for you. It stifles the free exchange of goods and services, it pushes up prices, and it kills jobs – not just in the competitor nation whose trade is blocked, but in the nation which believes it is protecting itself by raising trade barriers.

Take steel, the latest fashionable focus for those seeking to obstruct international competition. Without a doubt, cheap Chinese steel exports are a major factor in the troubles faced by Port Talbot and other UK steel plants.

This isn’t the industry’s only problem – the foolish deployment of green policies to push up British energy prices was explicitly intended to kill off high energy jobs, for example – but it clearly bears sizeable responsibility for this particular crisis happening at this particular time.

What would happen if we were to implement huge tariffs on the import of steel? Port Talbot might well be saved, but other industries would suffer as the price of its life support.

The remarkable renaissance of the British car manufacturing sector, which has seen the North East of England produce more cars than the whole of Italy, would be dented at the very least. The construction sector, which faces more than enough challenges already, would have an extra cost to add to its woes.

Blocking cheap imports to save one set of jobs would cost others elsewhere in the economy – it might be politically attractive to buy some positive headlines, but it would likely bring a net cost to the economy. In short, it would be irresponsible government.

Of course, this is all hypothetical. Even if every single British voter, MP and minister agreed that we ought to raise barriers to the import of Chinese steel, we would not be allowed to – trade policy is a power we have given away to the European Union.

Given that such protectionist measures are a bad idea, should we therefore be grateful to Brussels for forbidding Parliament from pursuing such unwise measures?

No. We might ban policies, but we cannot ban ideas. Simply forbidding Parliament from considering protectionism has not extinguished the concept, nor has it prevented it from gaining a renewed popularity.

In fact, it has lulled free traders into a false sense of security – for too long many on our side of the argument have simply abdicated the responsibility to make the case against protectionism.

One only needs to look at how swiftly and widely the idea has gained currency in recent weeks to realise that, while EU law may give us victory in this instance on a technicality, we are losing the public debate. That is a dangerous position to be in – and we got here precisely because Parliament gave away its control of trade policy.

It’s also worth noting that the EU’s control of trade policy has not been a purely happy story for those who oppose trade barriers. While national parliaments are forbidden from obstructing trade unilaterally, the EU is a dedicated practitioner of protectionism in a wide range of sectors.

Although the Union enforces free trade internally, it is at heart a customs union – the Common Customs Tariff applies to a huge variety of different imports from most countries around the world.

Professor Patrick Minford estimates that the EU’s tariff and non-tariff barriers artificially increase import prices by 10 per cent. The cost of handing control of our trade policy to Brussels is not just conceptual, in the failure to make and win a democratic case against protectionism, it is a daily economic cost to consumers here in the UK.

Nor is trade policy the only instance where pooling sovereignty at the EU level has led to short-term victory but risked long-term defeat. Nationalisation and state aid, too, are forbidden – like protectionism, they also offer false hope but bring large costs and inefficiency in practice. Raising our eyes to Brussels for salvation from these bad ideas has not helped to defeat them.

It might be tempting to seek a silver bullet by which such fallacies can be killed off for good, but anti-democratic solutions are no solution at all. These measures are currently beyond legal use, but the clamour for them has not gone away as a result.

Relying on the EU to forbid these concepts has not driven them out of the popular debate – the only way to fight off these big state mistakes is to accept that Westminster should have the power to make errors, and then take on and defeat them in the battle of ideas.

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