Trump's trade war may give us a new data-point

Trump seems to have fired the first salvos of a new global trade war.  Does he imagine, as did Putin with his shooting war, that opponents will rapidly fold and it'll all be over in days or weeks?  Well, maybe.  But Colombia might not have set the pattern.

Old Pa Drew was in the international foodstuffs game and, having been a WW2 soldier in his time, brought me up to the slogan "trade is better than war": and I'm a free-trader.   Well, but it was never a cure-all, as I readily admit.

On the other side of the account, history records nations who viewed sea-faring merchant activity as the work of the devil, and sought to ban trading altogether.  Which is a debate we perennially return to here at C@W in rather more subtle form: what's the appropriate degree of dependency on trade, as opposed to national self sufficiency?  There's no scientific way of resolving this question, even though there are metrics one might try to deploy.  

In any event, some trade-dependencies are faut-de-mieux:  I was once posed a deliberately provocative question in a seminar by a Chinese energy economist, relating to Europe's dependency on cross-border electricity trade to keep our highly interconnected grids functioning: this was surely a major strategic weakness and a Very Bad Thing, she demanded.  I politely replied that, yes, sometimes import dependency can work against you, and that *ahem* some countries were dependent on imports for their oil ...

Anyhow: the rationale for trade is, of course, that it engenders efficiencies.  The Trump Trade War might just give us some hard data on just how costly are the inefficiencies his stymying of free-flow might bring about.

Then again, maybe everyone hastens to do his bidding...

Looking forward to hearing from some of you supporters of mercantilism and self-sufficiency out there.  (I'm caricaturing a bit, I know.)

ND  

Trade War ahead

Trade wars get you nowhere, but they can be hard to avoid.


One of the markets of the decline of liberalism over the past 20 years has been the failure of the WTO (Previously GATT) to make further progress and build on the achievements of the mid-1990's.


There are many reasons for this;


- Globalisation has been so successful and become endemic, the need to promote trade has therefore fallen as people thought the battle was won and politicians no longer gained much political capital from signing trade deals (something in the UK at least Brexit will change).


- China has spent a long time getting into the WTO process on its own terms, and using the traditional Chinese policy of taking things very slowly, has succeeded. With the world in a great place to receive Chinese exports, China has no interest in changing the status quo.


- Also though, of course, the contradiction of globalisation is that it has been unevenly distributed. China and Asia as a whole have done very well, Europe OK but not so much, relatively America has done badly  - we may have noticed since the Great Financial Crash that politics has started to be heavily impacted by some of these changes.


- Which in turn has led to Trump and his businessmen's eye for helping out the US firms. This plays really well to his voting base. It is not very likely to help the world economy though, as tit for tat economic barriers will reduce global trade overtime and lower overall GDP.


Which in and of itself will affect the largest trading countries the most, which at the moment is the group doing the grandstanding. Of course, underlying Trump's anger are some stark truths, Chinese steel is very cheap, the central government has over-procured kit and enable effective dumping on the world market, they have done the same with Solar panels. This does indeed hurt US steel manufacturers - but longer term, it helps make cars, bridges and buildings cheaper in the US. It acts as a transfer of Chinese labour and wealth back to the US. This is a good thing, in the UK for a long time we realised that it was better to be the best at a few things or grow new industries than to try and prop up the failing ones. As a result we had an overall economic transformation, even with the deeps scars it left behind.


It requires a grand vision though to see this, which is why trade wars are the operative of base political operators. Sadly at the moment, politics across the world is very base (see Italian elections today where no centrist parties are going to be near Government, imagine the UK with a UKIP/Green stand-off as the two biggest parties), so we maybe discussing trade war impacts for sometime to come.