Why trade wars have no winners.

 
FREE EXCERPT

Byline: Anahita Thoms

Public support for free trade is shrinking and the long-standing political consensus that trade liberalization is beneficial is under attack. The US in particular has recently shifted towards protectionism by imposing tariffs and continuously threatening its largest trading partners, in particular the EU and China. Brexit, too, is partly driven by a protectionist attitude: although the UK intends to enter into Free Trade Agreements (FTAs) with other countries, the move away from the single market is itself a rejection of free trade within the EU.

The US strategy

Despite the potential of the Trump Administration's trade strategy to attract voters in poor, deindustrialized regions who feel left behind by globalization, it puts the enormous achievements of the last decades - both in the US and globally - at risk. Expanded trade between 1950 and 2016 has increased US gross domestic product (GDP) by $7,014 per capita and $18,131 per household. The increased costs of imports as a consequence of the 2018 trade dispute, on the other hand, have resulted in annual consumer and producer losses of 0.37% of GDP and an aggregate welfare loss of 0.04% of GDP.

Have the benefits of globalization been sufficiently equitably distributed in the US? There is a question about whether successive administrations have done enough to mitigate or slow the disruption caused by globalization in local communities, for example, when a traditional industry such as steel-making declines because it can be done more efficiently in another country.

To date, the US government's own domestic fiscal and industrial policies - not free trade or globalization - have determined whether the economic benefits of globalization have been shared widely throughout society or whether they have increased inequality. They have determined whether a rust belt town dependent on a declining industry receives funding, retrains workers or offers tax breaks to attract new investment to diversify and evolve its economy. Public anger is backed by data showing America's low and middle-income households have seen little of the huge economic growth unleashed by free trade in recent decades. It may be politically expedient to suggest China has somehow forced Americans to buy too many of their goods rather than look at policy at home, but this directs public perception and anger in the wrong direction, deliberately or otherwise.

American businesses, workers and consumers do not...

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