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April 2018

Protectionism not a solution

Mauro Severi - President AICA

From Trump’s “America First” to the “Made in China 2025” plan, statements towards a closed world market are being multiplied. In this scenario Europe risks being the weaker subject. We need economic interventions and a common strategy to react to aggressive industrial policies
A new protagonist has appeared on the International scene in the last twelve months: protectionism. A temptation to be shunned as it would hardly lead both European and Italian industrial players to increased competitiveness. Europe must not only remain an open market, but learn to react quickly and effectively to the pressures induced by aggressive industrial policies coming from non-European countries. In the United States - for example – a medium-term positive knock-on effect in terms of innovation and technology could be favoured by the latest tax reform adopted last December. The measures contained - which makes the US tax system much less complex - will encourage companies to invest and grow. Therefore, considering the developing industrial scenario, the European Union is called upon to make its own entrepreneurial "framework" more competitive.
And it doesn’t end there; the Trump Administration is preparing large investment plans in infrastructure to stimulate business growth, employment and attract foreign direct investments. An opportunity that European and Italian engineering companies alike are running the risk of losing due to these new measures demanding to "Buy American". These are the first bitter fruits of that America First strategy which, appealing to "reasons of national security", has recently spawned a riot of tariffs on steel and aluminium against Europe and China. All signals, and unfortunately not isolated, which indicate the desire to drastically reduce free trade.
It comes as no surprise, therefore, that at the same time China launched its "Made in China 2025" plan, an ambitious strategy to upgrade its manufacturing industry. The Asian giant has identified ten sectors in which it aims to become the global leader. An industrial development that may not be beneficial for the world economy since China has chosen a path of substantial "autarky". In other words, it has decided to exclude foreign companies from its supply chains with the aim of reducing its dependence on foreign countries, supporting the domestic industry and gaining shares in the global market.
All these things confirm that our main competitors are engaged in the strenuous effort of bolstering their industrial systems, protecting, as far as possible, their strategic interests as well as job markets. Two actions that, when combined, could have a heavy fallout on Italian exports, which was in the region of 450 billion euro in 2017, a 6.5% increase over 2016. As we wait for a new Government to take office, we sincerely hope that no one is deceived into responding to protectionist strategies with nationalistic policies. In that case the game would be lost even before taking the field. All the more so if we remember that the European Union – and Italy as a member – is already grappling with a Brexit.
Europe can and must deal with this wave of protectionism only as a united front. Let us remember that Europe is still the world’s richest market with lower aggregate debt compared to the United States. Therefore, Europe is in the position to effectively react to such protectionist policies and promote positive measures in its quest to boost both the local and global economy. As for our country is concerned, the agenda is clear: Italy must modernize, simplify and become more efficient.

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