Shooting
From The Hip And Hitting Consumers: Protectionism In France
Wolf
Richter
25
October, 2012
That
France’s economy is hurting is an understatement. Today’s
manufacturing index tested
depths not seen since 2009 during the trough of the financial crisis.
Orders plunged and employment was morose. The service sector index
dove to the lowest level since January 2009. Cited reasons:
“unfavorable business climate and lack of visibility.” It
confirmed yesterday’s Insee business climate index, which, at the
lowest level since mid-2009, was mired
in pessimism.
So
the government deployed its big gun: Industry Minister Arnaud
Montebourg. He’d turn around the economy by revitalizing industry;
and he has been on the forefront with his vision.
In
July, he announced that the government would ask the European
Commission to “monitor” the free-trade agreement between the EU
and South Korea. He pointed at the “very substantial increase in
imports of Korean vehicles” during a time when vehicle sales in
France were cascading downhill. He wanted the EU to stick additional
taxes on Korean cars. In August, the French government submitted the
formal request to the European Commission. At the Paris auto show in
early October, Montebourg attacked the Koreans for the “social
hardness” hiding “behind the windows of every Hyundai and Kia”
and accused them of “social dumping” [Worse
than the Infamous Lehman September: France’s Private Sector Gets
Kicked off a Cliff].
But
on Monday, he got slapped
in the face.
“He is protectionist,” said European Trade Commissioner Karel De
Gucht and then pointed out the big conundrum: France has more of the
world’s 500 largest corporations than any other EU member state,
but they were more successful outside France
than in France. How to re-industrialize France, given its 35-hour
workweek and its salary costs, that’s the big question, Gucht said,
but he didn’t think that Montebourg was “really interested in the
long-term.”
It
was part of Gucht’s smack-down of the French request to “monitor”
Korean imports. And Montebourg’s idea of subsidizing European
industries? “The absence of national subsidies is one of the keys
of the European market,” Gucht explained, in case Montebourg had
missed it in school. And then he mentioned something else the
Industry Minister might have missed: The EU has a €300
billion trade
surplus with
the rest of the world—and France has a trade
surplus with
Korea.
In
fact, of the nearly 400,000 new Hyundai and Kia vehicles registered
in the EU during the first half of 2012, more
than half were
manufactured in the Czech Republic and Slovakia—both EU
members—and in Turkey. Then there is GM, partner of teetering PSA
Peugeot Citroën; most of its 103,000 Chevrolet’s sold in the EU
were manufactured in Korea. Renault imported over 10,000 4x4 Koleos
and Latitudes from its Korean subsidiary. Montebourg had opened his
mouth and had inserted his foot [He should have read my hard-edged
but funny book on the car business,TESTOSTERONE
PIT,
the novel; enjoy the first few chapters for free on Amazon].
He
had better luck posing for Parisien Magazine, dressed in a €49
sailor’s jersey by Armor-Lux, holding up a €230 Moulinex blender,
and displaying a Michel Herbelin watch that retails for €790
($1,000+). Not exactly a watch that the 24% of the young people who
don’t have jobs can afford. Behind him was the French flag. All of
it was “Made in France.”
His
priority was “le
Made in France,”
he said. “There’s a choice that’s more important than any
other, and that is to preserve France’s industrial base.” He
suggested a variety of remedies, such as installing “Made-in-France”
aisles in supermarkets to better guide consumers. He called for
the rebalancing of “unbalanced relationships” between industrial
nations to “defend French and European industries.” The results
of worldwide free trade, as “proposed by the WTO,” were a
“disaster,” he said—not remembering the EU’s €300 billion
trade surplus.
Consumer
groups lambasted him—not everyone can afford a €790 watch. But on
Saturday, the day after the article had appeared in the Parisien,
sales of the jerseys at the company’s 50 stores jumped by
60% - 65%, compared to Saturday a week earlier, said Armor-Lux CEO
Jean-Guy Le Floch. Visitors to its website shot from an average of
2,000 per day to 7,000. And the fancy watch? Internet traffic to the
company’s sitesoared
ten-fold the
day the article appeared. Excellent promo. But naïve.
Only
40% of the products Armor-Lux sells are (at least partially) made in
France. The rest is made elsewhere. And the watch? According
to Atlantico,
the quartz movement, dial, hands, and glass came from Switzerland.
The buttons and enclosure were not French either. While the bracelet
might have come from a French supplier, it would have been made in
Portugal, Mauritius, and Asia. But the watch was assembled in France
and qualified for the “Made in France” label. So, Montebourg’s
vision is unlikely to revitalize the French economy, beyond the
benefits of the promo.
The
US government over the last five years squandered $7.6 trillion on
Keynesian demand-side stimulus to resuscitate demographically
shrinking demand as 80 million baby-boomers moved out of their peak
spending years. But with only 23 million born between 1995 and 2012,
“Generation Z” is too small for demand-side stimulus to revive
the economy. So there are consequences, writes Chriss Street.
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