Ideas

A French entrepreneur would use tariffs to level the playing field.

Bloomberg Businessweek - 26 décembre 2019 - Par Peter Coy*

French entrepreneur Denis Payre thinks he can level the tilted playing field of global trade: He wants nations to sign a global contract that would set human and environmental standards that all participants in trade would have to live by—including China, which he regards as a particular problem. Payre’s plan would depart from strict adherence to free trade by imposing a tariff on imports coming from poor nations that don’t abide by high standards.

Is this a blue-sky scheme that has serious drawbacks and a slim chance of being adopted? Possibly, yes. But it’s worth listening to Payre simply because he has a plan, which is more than most people have. As former U.S. Treasury Secretary Timothy Geithner used to say, “Plan beats no plan.”

Payre is a serious player in the French and American business worlds. He co-founded Business Objects, a software company, and sold it to German giant SAP SE. Then he co-founded Kiala, a logistics company, which United Parcel Service Inc. purchased. In France he started Croissance Plus (“growth plus”) to advocate for entrepreneurship and Nous Citoyens (“we citizens”), a centrist political party. Now he is president and chief executive officer of Nature & People First, an energy storage company.

Payre visited Bloomberg and later shared with me a manifesto he’s written about what he calls “globally unfair competition” in trade. Here’s an excerpt:

“We must acknowledge that the West bears much responsibility for this situation. Driven by our unshakable thirst for short-term profits and accompanied by deep political naiveté, Western companies went all-in for outsourcing and offshoring activities to low-cost countries. This enabled China to gain tremendous power in many strategic industries.”

He points to solar panels, lithium batteries, rare-earth ores, and 5G telecommunications as areas in which China has built a dominant position or is building one.

To make his case that the playing field isn’t level, Payre cites an example from his own energy company, which he says had to abandon plans to develop a site in the U.S. because it would disturb some salamanders. Batteries are the main competition to his new technology, which is known as micro pumped storage. “In China, where most batteries are manufactured,” he writes, “child labor is common, workers’ rights are repressed, joining a free union is impossible, collective bargaining is not accepted, and access to health care and pensions is subpar at best.”

Payre sees his proposed global contract as a successor to Jean-Jacques Rousseau’s social contract, in which government must obey the general will of the people. Rousseau is the one who said, “Man is born free, and everywhere he is in chains.”

Payre favors a special tariff of 10% or less on nonstrategic goods coming into developed countries. Half of the proceeds from the tariff would fund improvements of social programs and institutions in developing countries, primarily through nongovernmental organizations to minimize theft and corruption. The other half would assist regions in developed countries that have been harmed by globalization, through retraining, investment, and other measures.

For strategic industries, the tariffs could be considerably higher. “The final price of Chinese cars in the U.S. will be as if their labor costs were $50 an hour like in the U.S., and not at $8 anymore,” he writes in his manifesto. He also favors tariffs to level the playing field on environmental standards, so countries such as Sweden, which has high self-imposed carbon taxes, aren’t disadvantaged.

The program “should be overseen and run by a legitimate and far-reaching international institution” such as an alliance of the World Trade Organization and the International Labor Organization, Payre writes.

The Austrian economist Christian Felber proposes a similar scheme in Trading for Good: How Global Trade Can Be Made to Serve People not Money (2017; English edition 2019). He writes that tariffs “might be set at 20% in the case of serious refusals to abide by human rights pacts, at 10% in the case of environmental agreements or the agreement to protect cultural diversity, and at 3% in the case of the ILO’s [International Labor Organization’s] core labour standards.” Undoubtedly there are yet other plans in circulation.

There are obvious problems with Payre’s plan aside from the resistance it would face from China and other developing nations. It could crush the economies of poor nations by making their exports unaffordable in wealthy nations (and the rebates funneled through NGOs wouldn’t compensate for that harm). His plan could also hurt consumers in wealthy nations, who’d have to pay more for domestically made stuff. There’s a reason economists tend to like free trade.

On the other hand, a lot of people would agree with Payre that something’s wrong with the current system. Plan beats no plan.
(Corrects title of book in 12th paragraph to Trading for Good.)

Peter Coy *Peter Coy is the economics editor for Bloomberg Businessweek and covers a wide range of economic issues. He also holds the position of senior writer. Coy joined the magazine in December 1989 as telecommunications editor, then became technology editor in October 1992 and held that position until joining the economics staff. He came to BusinessWeek from the Associated Press in New York, where he had served as a business news writer since 1985.

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