Trumped Up Trade Talk

“Sooner or later every war of trade becomes a war of blood.” – Eugene V Debs

This past week has been an interesting one in terms of international trade news. President Trump announced, via a Tweet, that he was slapping import tariffs on Chinese steel and that “trade wars are good, and easy to win“.

The ripples of this announcement are still spreading but already countries and trading blocs like Canada and the EU are considering retaliatory tariffs.

The thing is, China isn’t even a particularly major player in US steel imports. It barely factors on any of the top fives by specific products.

US Steel

But Trump can’t target just China with those tariffs. He has to hit everyone equally under the WTO’s “most favoured nation” rules. He just doesn’t want to say “Canada took our steel”.

Of course, this isn’t economics at play here. It’s politics. “China” is a code-word aimed at Trumps working-class base. “They” took your jobs and now you have to buy the stuff from them that you used to make. The US’s trade deficit is deepening and now we can bring those jobs back. That’s the story, anyway.

Meanwhile, over in the UK, the slow, grinding process of Brexit is clawing itself inevitably along and the UK Government’s Cabinet has FINALLY decided that it has a position on Brexit. It’s the one that the EU said no to six months ago…

It is quite interesting that the EU has been playing this whole game from a position of structure, bureaucracy and legal documents. Detail.

Whilst the UK has been playing via tabloids, speeches and vague aspirations.

I long ago predicted that, one day, the EU would simply get fed up waiting for the UK to come to the table sensibly and would just write the withdrawal treaty itself and then hand it over with a pen.

This is precisely what has now happened.

The UK is being offered a deal which is essentially a hard Brexit for Great Britain but Northern Ireland being allowed to stay within the Single Market and the Customs Union – which would allow there to continue to be no hard border between it and Ireland.

Except the UK has said no to this deal too. It is demanding a deal which allows 1) no border between Ireland and Northern Ireland. 2) No border within the UK (i.e. between Great Britain and Northern Ireland) and 3) a hard border between the Great Britain and Ireland (and the rest of the EU).

So it’s all turning into a mess again and it’s not clear how it’ll all come out in the wash.

PM May is now claiming that the US-Canada border could be the model of a no-border border. That would be this border. The border where they don’t even let the trees cross it. Ireland has, of course, ruled this possibility out entirely.

There’s also a second problem in that it is being reported that US lobby groups are trying to persuade the UK to drop geographic protection labels on premium products as part of a trade deal. This means that US producers would be allowed to make and sell “Scotch whiskey”.

So, what is the common thread in all of this? It’s “Take Back Control”. It’s “America First”. It’s a creeping economic nationalism that is emerging after a long period of globalisation where trade barriers came down and both jobs and people started moving about (though in most cases the former moved more easily than the latter).

And there is a point to that. When companies can move jobs more easily than the people that fill them, then they tend to move to places where they can do business more cheaply. This means cheaper goods and services…but you’re now buying them rather than producing them.

There’s also a certain appeal to being the top producer. To shipping your goods across the world. Except, if you are a net exporter then someone else must be a net importer. The goods are only moving around a finite Earth and our all-time total of export of goods to other worlds is so far only on the order of a few billion dollars.

Economist Dani Rodrik described the interaction of these desires as a global trade trilemma. One could have national sovereignty over rules on trade. One could have globalised trade routes and supply chains, and one could have democratic politics on trade laws. But you can only have two at a time.


Why? Let’s go through the combinations.

National Sovereignty plus Global Trade – The Golden Straitjacket

So, You’ve globalised your supply chains and you trade globally. You have also “Taken Back Control” from those multinational institutions like the EU and can make your own laws…except if you do, the companies based here can easily leave and go elsewhere. Or they can move their money around and not be taxed on it. You might be able to convince them to stay, but it’ll be on their terms. You’ve taken control…and given it to non-democratic multinational companies to make and abide by the rules. Sure, you can place those geographic protectors on your goods. But can you enforce them overseas?

National Sovereignty plus Democratic Politics – Bretton Woods Compromise

So, you’ve raised the flag of your nation and taken back your laws from those people “over there”. The laws affecting your country will be made by the people in your country. That’s fine. Except the same applies “over there” too. When they decide that they want to put up trade barriers, the only thing you can do is retaliate or play diplomacy. Geographic protectors are only as strong as each nation is at enforcing them. Global trade cannot function stably in such an environment and there’s always the chance that things could get out of hand. Tit-for-tat escalates and, as the opening quote goes, things progress beyond trade. It’s worth noting that the terror of this ever happening again between France and Germany was a founding principle behind the EU project.

Globalisation plus Democratic Politics – Global Federalism

So, you want the free movement of goods and people between nations and you want people to have a democratic say over how such things are regulated. Well, that means that everyone involved has to have a say or some kind so that everyone can sign up to and abide by the same rules. Which means some kind of global or – at least – supra-national form of government. One with at least as much clout as needed to enforce those geographic protectors at least within their members and possibly with trading partners outside. But it also means that individual nations can’t just strike out on their own. They must surrender their sovereignty over such matters to that supra-national body. The world becomes a federation and the very concept of the nation-state may begin to dissolve into irrelevance. We all become citizens of nowhere.

Now, the option that is closest to your preferred one may be significantly different from mine but I hope it shows how one cannot have one’s cake, slice it themselves AND get to eat it (to extend an already over-used metaphor).

And, of course, one doesn’t need to charge right to the extremes of the corners of the trilemma. Sometimes compromise is possible. We don’t have one global trading bloc but we have developed regional ones like the EU and Mercosur.

Customs Unions

Of course, the EU project is entirely about dissolving competing nation states in favour of multi-national trade whilst maintaining (at least in theory) democratic control of those rules. That may be great for Europhiles and especially Euro-Federalists but not so good for those for whom their own nation state is also important.

My support for Scottish independence has always been based on decentralisation rather than nationalism. Personally, I’d quite happily live in a globally federal world (with a strong sense of subsidiarity, of course) but I think I’d be fine with that compromise between nation states too so long as we can avoid those trade wars and democracy is maintained throughout. Democracy is the lynchpin of the trilemma for me.

But Trump’s “America First” and May’s “Take Back Control” politics are balancing on a fine line. By emphasising their nationalism above all else there is a risk that they end up losing their democratic control over their economies. Go too far down that road and the multinational corporations will be making all of the rules and we may be forgiven for asking just for whom control was taken back or just who, precisely, was put first.

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