The Coming Trade Wars

Robert Reich warns of “coming trade wars” in a recent blog, also carried by Big Think. It is an important contribution in as far as it recognises that a debate is beginning to stir over previous unmentionables. These unmentionables would include selective tariffs and exchange controls, and as such their mere mention will throw the advocates of globalisation into an absolute frenzy.

Many countries, including the United States, maintain some tariffs, often under the guise of trade policy, sanctions or just plain protecting the poorest of the poor being exploited even more. The last President Bush famously invoked tariffs to protect the American steel industry, and of course many other countries are openly reluctant to open themselves up to free trade agreements lest they are flooded by cheap imports.  The US in recent years acted as a magnet for cheap Chinese imports. I remember covering an event at the White House two or three years back, and afterwards inspecting the Stars & Stripes which graced the press backdrop. It was made in China.

South Korea is a good example of a country in fear of being flooded – where the political class would like to offer China some form of ‘Free Trade Agreement’ , in return for the country changing tack over supporting North Korea. But South Korea’s industrial and manufacturing bosses most certainly don’t.

For as we know, free movement of goods is also accompanied by a free movement of labour and capital. In times of economic growth, cheap money, cheap goods and cheap labour tend to be welcomed with open arms. But come a recession, particularly one as severe as we are all living under, that is a very different matter indeed. Britain, for instance opened her doors wider than other European countries to migrant labour from Central Europe during the boom years. I remember Tony Blair telling us at a meeting that only around 30,000 people would come. In fact over half a million arrived, largely filling the jobs that had been created by Government. Many were skilled workers who filled gaps in the labour market, but it was also undoubtedly true that they were not unionised and exerted a downward pressure on wages.

Loosely, the free traders would like us to believe that ‘globalisation’ is universally a benign force for good, as indeed some aspects of it are. If ‘globalisation’ can mean universal access to the Internet for instance, that can only be seen as a ‘good thing’. But in reality ‘globalisation’ doesn’t really mean this. At its heart lies the great driving force that seeks out the cheapest production platforms for the maximum profitability. It requires the movement of cheap labour on a massive scale, or the movement of production to where labour is cheapest.  The net effect – maximised in times of recession – is a race to the bottom.

Which is why Robert Reich is correct in predicting new Trade Wars, although I wouldn’t necessarily describe them in such stark language. Take Europe for instance, which only owes money to itself, not China or the United States. It would make absolute sense to begin to regulate the flow of capital in and out of the Euro zone by adopting Exchange Controls. It would also make good sense to begin to introduce some selective trade tariffs for a period, in order to build successful European companies that provide proper, reasonably well paid jobs to citizens. It would also make sense to begin to control the flow of labour, which to some extent is already beginning to happen. From these beginnings, we then may get a semblance of economic growth. Without it Europe will flat-line like Japan for a decade.

It is high time that we begin to protect ourselves from the disciples of the free market, for economics is not a pure science, and global trade is grossly imbalanced despite over a quarter of a century of letting the market rip. Which is not to argue for a retreat behind the walls of trade barriers, but to argue for selective interventions for the common good.

At the core of this approach must be the understanding that we the people are master of the market, not its slaves.