DNB warns: protectionism is advanging and the Netherlands is vulnerable

The Netherlands has become prosperous due to world free trade and globalisation, but the tide is turning. Relations of power in the world are under pressure, international cooperation is stagnating and protectionism and economic nationalism are advancing, notes De Nederlandse Bank (DNB). Take the America First of the United States, the Brexit and the rising trade conflicts with the economically large China, after the US is the largest economy in the world.

On its own, the Netherlands is unable to cope with the protectionist tendencies; instead of less Europe, a stronger Europe is needed. โ€œFor both the Netherlands and the EU it is important to strengthen their own (trade) position,โ€ writes De Nederlandsche bank in a study on the impact of growing economic nationalism and protectionism on the Dutch economy.

Due to the coronacrisis, the vulnerabilities are completely painfully exposed, says DNB. Worldwide trade and economic activity collapsed and production chains fell silent. Dependence from elsewhere caused the call to do it yourself. Reshorting production, making a lot of weather at home and building large buffer stocks are seen as a remedy to make the economy more resilient and resilient.

Small and vulnerable

As a small open economy, the Netherlands is vulnerable and strongly dependent on international trade and cooperation. One third of the Dutch economy is earned from international trade, accounting for 2.4 million jobs. Globalisation has a heavier impact on the Dutch economy than on other euro area economies.

The advancing protectionism and the call for less globalisation is not a temporary phenomenon, writes DNB. International cooperation has been increasingly complex and difficult for decades. Take the WTO, the World Trade Organisation. It has more than 160 countries with as many requirements and preferences.

The scepticism of free trade has become strong in the last decade, partly fueled by growing income inequality. The global middle class in particular seems to benefit too little from the increased prosperity. Companies enjoy free trade and lower costs and profit, but consumers do not see enough of it and do not understand what Europe is good for. Corporate profits and stock exchange rates are rising, but wages are not.

Wage and income

The studies Burgerperspectives 2018 and 2020-2 of the Social and Cultural Planning Bureau show that a significant number of people in the Netherlands think globalisation is detrimental to them due to increased income inequality and the lagging income growth of the middle class. It feeds the support for more protectionism, for its own economy first.

โ€œ To create more support for our open economy and world free trade, it is important that internationally active companies allow their employees wages to move more along with their profits,โ€ says DNB Director Olaf Sleijpen.

The call for higher wages sounded for some time and finally found a hearing in 2019. In new collective agreements, wage increases of more than 3% were agreed. However, the coronacrisis in 2020 put an end to this. The collective bargaining remained largely silent and substantial wage increases were not discussed.

There is no question of catching up anymore, the cake is gone. โ€œIt must have happened to you too: just when you are in line, it is exactly the bread you wanted to sell outโ€, wrote DNB economist Ria Roerink a year ago at the FD.