GLOBAL PROSPERITY GHOSTS : WORLD CLASS ESSAY

 

EFFICIENCY be damned. Subsidies, export controls and curbs on foreign investment are proliferating around the world. What then is the fate of the developing world?

Trade ministers are not known for histrionics. Yet South Korea's, Ahn Dukgeun, is alarmed. 

The world is on the verge of opening Pandora's box, he warned recently. If the European Union follows through on threats to mimic America's protectionist industrial policies :

'' Japan,Korea, China, every country will engage in this very difficult race to ignore global trading rules.'' The international system of trade and investment, painstakingly negotiated over decades, will be upended.

William Reinsch, who used to oversee America's export controls as an undersecretary of commerce, is just as blunt. America has always wanted to maintain a technological edge over other economic powers, he says.

These days, however, it is pursuing that goal in a new way : '' We have moved from a 'run faster' to a 'run faster and trip the other guy' policy. ''  The great powers are coming to see economic advances, at least in the broad swathe of industry they define as strategic, zero-sum terms. The implications for global prosperity are bleak.

In a speech in September America's national security adviser, Jake Sullivan, spelled out the basic tenets of this beggar thy-neighbour approach. Merely retaining a technological lead over China and other rivals are no longer enough, he argued.

Instead, he said, America had to pursue '' as large of a lead as possible '' in chipmaking, quantum  computing, artificial intelligence, biotechnology and clean energy. 

To that end, America needed not only to welcome clever people and foster innovation, but also to impede technological advances in countries like China and Russia.

Mr. Sullivan described two main ways to ensure American supremacy : using subsidies and other forms of industrial policy to shift supply chains away from geopolitcal rivals, and stricter investment screening and export controls to keep advanced technology out of unfriendly hands.

AS AMERICA, once the world's loudest advocate of free trade and open economies, adopts and reinforces such policies, other countries are mimicking its approach.

The result is a proliferation of obstacles to international trade and investment at a time when both were already stagnating.

The sudden enthusiasm for industrial policy in America and elsewhere epitomises the trend. In 2022 Congress passed lavish bills aiming to bolster domestic industry, in the name of national security,  job creation and decarbonisation.

The CHIPS Act, which provides $52 billion of incentives for the semiconductor industry, attempts to reverse a multi-decade decline in America's share of chip manufacturing.

The Inflation Reduction Act [IRA] will spend nearly $ 400 billion to boost clean energy and reduce dependence on China in important supply chains, such as for batteries for electric vehicles.

'' Briefing Zero-sum economics. ''

The Publishing of this Master Essay continues. The World Students Society thanks The Economist.