Last Thursday, July 4, saw one of the most important events in global trade and industrial policy in the past 50 years, but the press and politicians had little time to think about it. Starting today, the punitive 38.1% tariffs on Chinese electric car imports approved by the European Commission go into effect. This is a brutal Copernican turn, because the EU has been one of the great champions of free trade since its inception, and its experts have argued for decades that the best industrial policy is no industrial policy at all; but now, suddenly, industrial policy matters a great deal.
This sudden and paradoxical shift constitutes an attempt to resolve the insoluble contradictions in the design of the European Union that our politicians and experts ignore out of ignorance, incompetence or lack of interest. If we want to understand this complex institutional framework, the first thing we have to take into account is that in 1957, the year of the Treaty of Rome, there was no such thing as current globalization. The Bretton Woods system that emerged after World War II was centered around the convertibility of the dollar into gold and a fixed exchange rate system, while Western countries applied, to one degree or another, Keynesian macroeconomic policies: expanding the budget and public debt combined with structural deficits that allowed the currency to be effectively devalued against the dollar and thus improved the competitiveness of national industries thanks to the creation of captive national markets. The process of industrialization through import substitution meant, in practice, educational protectionism to achieve economies of scale that made national factories more productive and required political guidance; that is, some economic planning.
In this context, small European countries such as Belgium, the Netherlands or Luxembourg were unable to create national markets of sufficient size to allow their industries to expand. For this reason, they decided to create the Benelux Union, a customs union that served as a model for the European Economic Community. The idea, at first, was that there would be no free trade, no free exchange of capital with third countries, but a free European market would mean free movement of factors of production (workers, goods and capital) within European borders, but strong customs tariffs with third countries and a fixed exchange rate with the dollar. The European market was supposed to be a captive market for European producers that would allow European companies to integrate and concentrate thanks to competitive market mechanisms. This was not an intellectual or imaginary model of the international free trade scenario.
However, as Quinn Slobodian points out in GlobalistsThe group of German economists known as the Regulatory Liberals realized that the creation of the European Union was an opportunity to impose complete liberalization of our economies with the rest of the world, to promote the dismantling of the state, and, finally, to suppress the economic liberalization of the democratic principles of our political systems. This goal would accelerate on August 15, 1971, when Richard Nixon issued a decree that the dollar would not be convertible into gold. The fixed exchange rate system collapsed and national currencies began to trade like stocks representing the value of their national economies. Free floating currencies were a synergy that led to free movement of capital and increased competitive pressure between countries. To accelerate economic growth and control inflation, captive markets had to be opened to the world. This was the beginning of globalization and free trade agreements.
Unfortunately, the original design of the euro was also intended for the Bretton Woods world that has disappeared. A monetary union without a fiscal union would have been a colossal nonsense in an open economy, but for Germany it was a historic opportunity to realize their dream of subjugating France that they could not afford to miss. Blinded by neoliberal rhetoric that promised the end of nations, economic growth without crises and monetary neutrality, the French and Italian elites led their countries into a long and painful process of deindustrialization and economic decline that benefited Berlin exclusively. After the failure of the two world wars, the Germans achieved their historic goals thanks to diplomacy, trade and the construction of a pseudo-scientific economic model shared by all the global elites.
This model, which is the pillar on which the European Union is based and the ideological unifier of its elites, was buried on December 14, 2022 with the publication of Regulation (EU) 2022/2560 Which allows for the imposition of punitive customs duties on the import of products from companies that receive public subsidies that distort the internal market. For the first time, our bureaucrats are trying to solve the problem of voluntarily subjecting our companies to the rules of the free market, while the major economies of the world have not followed these principles and have never followed them, but have historically practiced educational protectionism. The preamble to the regulation is an admission of the ideological failure of the EU project and a clear contradiction with all the economic literature issued by the European Commission in the past forty years.
According to the consensus of our economists, if China subsidizes national companies to compete against European companies, this behavior will only have negative effects on its economy, because the state produces a distortion in the efficient allocation of resources. The market through free competition is the best guarantee of achieving maximum efficiency, and the intervention of the Chinese authorities can only push its companies to make inefficient economic decisions that will make them lose their competitiveness in front of our industrial sector. Moreover, these subsidies mean that Chinese citizens subsidize our consumption, and thus transfer some of their income to us. For all this, we should not worry about their subsidies, because they benefit us and harm them.
On the other hand, the regulation is a legal gibberish with no pretense of complying with the legal façade required by the European institutions. The company investigation mechanism is discretionary, but it is based on the absurd assumption that third parties will voluntarily provide all the documents requested by the Commission (Article 13.6) and even inspections On site (Article 15). Penalties (Article 17) and precautionary measures (Article 16) are unilateral and, At first glanceIt is hardly compatible with the arbitration mechanisms of the WTO, which should be the appropriate forum for resolving such disputes. However, the most serious part is the technical shortcomings and the lack of specificity of the regulation. For example, on the economic side, it can be considered that tax laxity, an expansionary credit policy or a refusal to distribute corporate profits can constitute indirect subsidies (Article 5). This is a wide range that is impossible to control as the European Commission arrogates its rights of inspection and control over the exercise of sovereignty of other countries.
However, the legal aspect is more serious. The regulation imposes an investigative process that considers non-cooperation as evidence of guilt (Article 16.3), which is a reversal of the presumption of innocence to a presumption of guilt that contradicts the fundamental rights enshrined in the EU Treaties and the case law of the European Court of Justice. The regulation is fundamentally destructive to the legal and institutional framework that supports the EU, because it is a coercive instrument aimed at forcing companies to submit to public cases ordered by the Commission in the face of the threat of sanctions for lack of cooperation. It is a powerful political tool in the hands of European bureaucrats to force companies, while the task and goal of European bureaucrats was precisely to disarm nation states, leaving them without any possibility of regulating or controlling companies, because they were completely free and uncontrollable.
The scene has been dramatically reversed. The Commission is taking on tasks that are contrary to nature and, at its discretion, for political reasons, is blowing up the entire legal framework, the famous legal certainty, which was essential for economic growth. In fact, as they admitted in the weekly PoliticoThere is only a political motive behind the sanctions on Chinese imports. The aim is to force their companies to invest in Europe and open more production plants in cooperation with European manufacturers to promote the transfer of technological know-how and ensure better integration of French and German companies with Chinese companies. Although the entire press has presented it as an escalation of the conflict with China, the reality is quite the opposite: it is an acceptance of a position of dependency. In practical terms, we want to legally force them to comply with the direction of our industrial policy by favoring their assembly in Europe to avoid the application of tariffs. We must realize that this measure is logical enough, because we have been adept at deindustrializing ourselves while your country has been leading an unprecedented industrial revolution.
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