Has Protectionism Found A New Home?

Has Protectionism Found A New Home?

August 17, 2021
Procurement

One of the first acts of the Biden administration was to direct public buyers to buy from American firms. China is apparently doing the same and the EU is seeking to add tariffs to those who make it harder for EU countries to trade with them.

Boris Johnson touted Brexit as a chance to “roll back the influence of the state” and to redirect procurement spending to British firms. More recently, the UK’s Labour Party proposed a new policy of “Buy British” for Government contracts.

A long history of trade liberalisation seems to be fraying, but it would appear only for those in public procurement. At a time when many countries are looking inwards, it makes good electoral sense for politicians to announce the creation of a virtuous circle of public spending, where tax payer’s money is directed by the government to taxpayer-owned businesses.

But this apparently meritocratic policy hides some significant problems: members of the World Trade Organization are required to run liberal, transparent trade regimes. The Government Procurement Agreement explicitly prohibits discrimination against overseas suppliers.

Public procurement is significant, restraining access to significant contract opportunities will likely cause a knock-on effect where a countries exporters are also discriminated against in opposing markets. Countries also need to be honest about their own capabilities, not every country has the local suppliers that can deliver the best products or services. Pushing buyers to buy from inferior, local suppliers will only lead to poorer public services.

Many politicians appear to be suggesting that they can localise public spending, but it is notable that they aren’t suggesting rescinding their membership of the Government Procurement Agreement. The impressive-sounding policy may turn out to be nothing more than soundbites and sabre-rattling. Due care needs to be taken as public procurement is not immune to protectionism and misplaced rhetoric could come at a significant cost.

To find out more about our trade analysis work get in touch.

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