Protectionism In France

Shooting From The Hip And Hitting Consumers

By Wolf Richter  

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 site soared ten-foldthe 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. Read.... Supply-Side Economics Is Coming Back.