Protectionism to slow growth, global free trade still the answer – Wacker CEO

MUNICH (ICIS)–German export-intensive industries like chemicals continue to show fears about a more protectionist world and Wacker Chemie’s CEO argued on Tuesday the principle of free trade previously taken for granted is being put in jeopardy, adding that protectionism would only slow down economic growth.

The Munich-based chemical company’s CEO Rudolf Staudigl went off script and started his speech at Wacker’s annual results presentation with a broadside against populist policies gaining ground in the US and Europe, where the company has important operations.

Staudigl said earlier that international politics may be a key factor during 2017 which could harm Wacker’s performance, together with rising raw material prices.

“2016 will be remembered as a year of upheaval and rising populism. The principle of free trade is being abandoned and protectionism is rising. They are very worrying tendencies,” said Wacker’s CEO.

As an example, he mentioned the protests in Germany against the US-EU free trade deal TTIP, which has finally been abandoned, arguing he could not understand how there could be opposition to free trade policies in an export-intensive country like Germany.

“Free trade is indispensable for a thriving economy. Intervening in free trade is always harmful and global supply chains will be badly affected [if protectionist policies are implemented],” he said.

He quoted China’s president Xi Jinping, who in January in Davos appeared to be the highest level politician to defend free trade: “Pursuing protectionism is just like locking oneself in a dark room. While wind and rain may be kept outside so are light and air. No one will emerge as a winner in a trade war.”

Asked whether US President Donald Trump had already congratulated Wacker for its capacity expansions in Charleston, Tennessee, which would fit well with the new President’s intention to bring back manufacturing jobs to the US, he had not received “a note from the president yet” and reflected how the protectionist winds coming from the country could affect future economic performance.

“In the US, the question of protectionism has not been discussed to the end. If you think what might happen if the US were to introduce higher customs or border taxes on Chinese goods, that would mean prices would go up, especially for those people who voted for Trump,” said Staudigl.

“If the prices at [US popular discount supermarket] Walmart and the likes go up, I don’t think American politics would stick to protectionism for very long.”

Wacker CEO went on to say that there have been cases of recent localisation in which companies who had moved to emerging markets to start up production facilities are returning to the country, but added that not all production which was delocalised will return.

“That is not possible anymore, and also [I wonder] if the US would have the workforce to do so,” he said.

Although he did not go into US’ criticism of Germany’s large trade surplus with the country, as the country exports much more than it imports, Staudigl praised Wacker’s own record as most of its investments in the last 10 years have been made abroad to “diversify our [capital] flows as much as possible.”

While he praised the labour and economic reforms Germany undertook between 2000 and 2010 as the base for the current success of the country’s economy, he dismissed proposals by some people “running for office” in the September national elections who wants to “reverse [the reforms]”, which would harm the economy.

Although he did not mention his name, the centre-left SPD candidate Martin Schulz, who is running high in the polls, has proposed to reverse some of the reforms his own party passed between 2000 and 2005.

“I hope Xi Jinping, Trump or [UK’s prime minister] Theresa May, as well as [politicians at EU capital] Brussels stick to these ideas and promote free trade, which does a lot for jobs,” said Staudigl.

However, pressed whether voters in Europe or the US have had enough of free trade policies which have dominated the last 30 years of international trade, he dismissed the idea.

“I’m not sure whether we should call for the end of free trade. Every movement has a countermovement, and analysis carried out by research institutes say that, overall, we would be not doing a good service to the world’s population if we had protectionism, which would bring a loss of competitiveness and a loss to the economy.”

Pictured above: Wacker’s CEO at press conference in Munich
Source: ICIS