Stockholm – Defending Europe’s economy against unfair international trade practices has long been a key element of the European Union’s external policies. It is almost an instinct among some politicians and business leaders that if competition is deemed unfair, the European Commission should marshal new trade defenses. But what are Europeans defending against, and what are “unfair” trade practices anyway?
In the absence of international competition regulations to prevent predatory pricing and other anti-competitive activities, trade defenses are a second-best option. By far the most widely used instrument are anti-dumping duties aimed at imposing some restraint on companies that behave in an anti-competitive way. But, by increasing tariffs, prices also rise, which often means a welfare loss for society as a whole. This fact has long been ignored by firms seeking trade defence. What is new, however, is that the firms themselves might not gain from trade defense.
The very word “defense” creates an image of a nation state that is commercially connected to the rest of the world only via traditional trade. For such a state, all imports would truly be foreign goods, and its trade defenses would consequently be directed only against foreign interests.
But this is not true in today’s globalized world. Although we still have traditional trade, we also have foreign direct investment, offshoring, and outsourcing. We have global supply lines in which goods are developed in one country, manufactured in another, and assembled in a third. Capital and know-how flows across borders, so traditional bilateral trade flows have been replaced by a complex web of international commercial relations.