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Protectionism is on the rise around the world, as the above map shows from Global Trade Alert (GTA).  Thousands of new measures have been introduced since the start of the financial crisis in 2008.  This is not good news for chemists, who have already suffered from the major R&D cutbacks made by companies who are pressured by investors to boost their share price in the short-term, at the expense of their long-term earnings potential.

 

Protectionism has also come to the fore in the U.S. presidential election, with both the main candidates expressing doubts about the proposed Trans-Pacific Partnership trade deal, which involves 12 Pacific Rim countries including the U.S.  It is also on the rise in Europe, where leading politicians in Germany and France have come out against the proposed Transatlantic Trade and Investment Partnership, an agreement being negotiated between the U.S. and the European Union.

 

These views parallel the plateauing that has taken place in global trade itself.  Trade has been a key driver for global economic growth, helping U.S. GDP per capita—a good proxy for living standards—to rise threefold between 1950 - 2010 from $9,651 to $30,491 (in Geary-Khamis dollars) .  Similar improvements took place in the emerging economies, with China’s GDP/capita rising 17-fold over the same period from $448 to $8,032. Even India, which has been far less successful in promoting economic growth, saw a 5-fold increase from $619 to $3,371.

 

One worrying fact is that this plateauing of global trade, and its likely impact, is still not widely recognised.  Most people still think in terms of a slowdown, which would be bad but at least manageable. Instead, countries are closing in on themselves, seeking to preserve local jobs by imposing new restrictions on foreign imports. As Justin Trudeau, Canada’s premier, has warned:

 

When the middle class are anxious about their economic realities in their future, it’s easy to get trapped in demagoguery and protectionism.”

 

Trade has now plateaued for 15 months according to the latest GTA Report, something not seen since before the fall of the Berlin Wall in 1989. This means we are looking at a world where the potential market for a new drug or other product or service could be many times smaller than in the past, due to the new barriers that are being put in place on a day-by-day basis. In turn, this makes it more likely that companies will further reduce their R&D activity creating a vicious circle.  Bill Gates recently commented on how protectionist policies will impact R&D:

 

“I wish for a week that we could shut down trade and then, you know, Boeing, Microsoft, Hollywood, pharma would resize their R&D departments for a couple of weeks for fun. And then two weeks later people would go ‘Holy smokes, that was not a very good deal’.”

 

The growth of protectionism is therefore a very serious issue for chemists and ACS members, as well as the wider population.

 

As Gates warns, closing down R&D automatically reduces jobs, something that the industry can ill afford, given the poor job market that chemists have endured in recent years.  And these are not the jobs of the “gig economy,” poorly paid, with few benefits. These are the skilled jobs which have previously been the engine of growth for the economy, and the mechanism by which individuals can create a better life for themselves and their families. Importantly, these are also the jobs that drive improvements to everyone’s standard of living – whether by providing better healthcare or in countless other ways.

 

Of course, the trend to globalisation had its critics, and many of their complaints were justified.  In China, for example, economic growth was accompanied by widespread pollution and a vast increase in corruption.  In the U.S., too many of the gains have gone to a small proportion of the population – which helps to explain why populist pressures are now growing in society.  But the risk in implementing widespread protectionist measures is that we end up throwing out the baby with the bathwater.  Instead of resolving the problems that have been created from free trade agreements, we could find ourselves going back to a world where trade and tariff barriers rule.

 

Yet as we know from history, trade wars stifle innovation, and help to create a vicious circle where opportunities for individuals and society become more and more reduced.

 

So how do we break out of this potential vicious circle? R&D is still vitally needed – not just in pharma, but in the vast range of areas that are critical to the continuing improvement of living standards, here and abroad.  I would welcome your ideas on this critical topic.

 

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Paul Hodges is chairman of International eChem (www.iec.eu.com), trusted advisers to the chemical industry and its investment community. He is a member of the World Economic Forum’s Industrial Council on chemicals, advanced materials and biotechnology, and presents the ACS ‘Chemistry & the Economy’ webinars.