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Were Trade Wars Inevitable?
Were Trade Wars Inevitable?
Trade in which mobile capital is the comparative advantage is a system of Neocolonial exploitation of developing-world nations.
Were trade wars inevitable? The answer is yes, due to the imbalances and distortions generated by financialization and central bank stimulus. Gordon Long and I peel the trade-war onion in a new video program, Were Trade Wars Inevitable? (27:48)
Let’s stipulate right off the bat that trade is not necessarily win-win–the winners (corporations, financiers and the financial sector) have skimmed the majority of the gains, leaving the losers with a few pennies of dubious value.
Consumers’ got a nickel in savings and a disastrous decline in quality, while corporations reaped 95 cents of additional profits:
As I explained in Forget “Free Trade”–It’s All About Capital Flows (March 9, 2018), the comparative advantage into today’s global economy is mobile capital: i.e. access to low-cost credit in nearly unlimited sums.
Those with low-cost credit created by central banks issuing reserve currencies in nearly unlimited sums can outbid everyone else for productive assets.
In effect, trade in which mobile capital is the comparative advantage is a system of Neocolonial exploitation of developing-world nations which don’t have reserve currencies they can create out of thin air. Trade is exploitation via cheap credit.
The winners are the few at the top of the wealth-power pyramids in both exporting and importing nations. I discussed this recently in There is No “Free Trade”–There Is Only the Darwinian Game of Trade (March 12, 2018).
Central bank policies don’t just distort domestic economies, they distort global trade, which parallels domestic distributions of winners (a few at the top) and losers (everyone else).
Trade is intertwined with currencies. China has used its currency peg to the USD to avoid being exploited; China has followed a “Goldilocks” strategy that keeps its currency, the yuan/RMB, in a narrow range: not too costly, not too cheap.
…click on the above link to read the rest of the article…
Ragin’ Contagion: When Debtors Go Broke, So Do Mercantilist Exporters
Ragin’ Contagion: When Debtors Go Broke, So Do Mercantilist Exporters
Papering over the structural imbalances in the Eurozone with bailouts or bail-ins will not resolve the fundamental asymmetries in trade.
Beneath the endless twists and turns of Greece’s debt crisis lie fundamental asymmetries that doom the euro, the joint currency that has been the centerpiece of European unity since its introduction in 1999.
The key imbalance is between export powerhouse Germany and its trading partners, which run large structural trade and budget deficits, particularly Portugal, Italy, Ireland, Greece and Spain.
Those outside of Europe may be surprised to learn that Germany’s exports ($1.5 trillion) are roughly equal to the exports of the U.S. (1.6 trillion), and compare favorably with China’s $2.3 trillion in exports, given that Germany’s population of 81 million is a mere 6% of China’s 1.3 billion and 25% of America’s population of 317 million.
German GDP in 2014: $3.82 trillion
Chinese GDP in 2014: $10.36 trillion
U.S. GDP in 2014: $17.42 trillion
Germany’s dependence on exports places it in the mercantilist camp, countries that depend heavily on exports for their growth and profits. Other (non-oil-exporting) nations that routinely generate large trade surpluses include China, Taiwan and the Netherlands.
While Germany’s exports rose an astonishing 65% from 2000 to 2008, its domestic demand flatlined near zero. Without strong export growth, Germany’s economy would have been at a standstill. The Netherlands is also a big exporter (trade surplus of $33 billion) even though its population is relatively tiny, at only 16 million. The “consumer” countries, on the other hand, run large current-account (trade) deficits and large government deficits. Italy, for instance, runs a structural trade deficit and its total public debt is a whopping 137% of GDP.
Here’s the problem when debtor/importer eurozone members such as Greece go broke and default: Who is left standing to buy all the mercantilist exporters’ goods? Ultimately, much of those goods were purchased with debt, and when debtor nations default, the credit spigot is turned off: no more borrowing, no more money to buy Dutch, German and Chinese exports.
…click on the above link to read the rest of the article…
