You may recall a few weeks ago, before the Great Facebook Disaster, and before America started a trade war with China, that Donald Trump greeted record high share prices as tangible proof that his policies were working, and Making America (or at least corporate America) Great Again.
I’m not sure what he thinks now that so many stock markets globally have slumped to two-year lows. His “stable genius” intellect may not have processed the fact that much of this has been down to his own policies – attacking Jeff Bezos, because he’s the owner of the Washington Post, which Trump hates, but also the boss of Amazon, one of the tech giants going through some turbulence right now. Trump may not even realise what he’s doing: and certainly not when he says a trade war is good for America and that America can “win” one “easily”.
Well, never mind about Trump: what about the rest of us? All that value lost on shares means your pension will be that much meaner. More tariffs on imports mean dearer goods in the shops and fewer jobs for workers. Every industry in every country loses in a trade war eventually, by varying degrees. If a closed economy is a key to prosperity then the 1930s would have been the happiest of decades and North Korea the richest place on earth.
Now that China has implemented retaliatory tariffs on American nuts (appropriately), wine and pork, American profits, incomes and jobs in those industries will be affected, and will have a knock-on effect in other sectors. The vineyards and nut and pig farmers will have less to invest in new machinery, and less to spend on a new pickup truck, thereby hurting the US steel industry the trade war is supposed to help.
If Americans try to switch their exports of delicious Californian Sauvignon blanc to the EU, say, then the EU might claim they were dumping the stuff, stick tariffs on them and then on something symbolic such as Harley motorbikes, as they already have. So the tit for tat, “beggar my neighbour” war of tariffs and bans and currency manipulation spreads, and strangles economic growth.
The lesson of history is that international trade boosts growth and makes everyone richer in the long run, though there are shorter term and even permanent casualties in declining industries, a fact that governments have too long neglected.
Such precious net gains from trade are difficult to secure and take decades to negotiate, even within a unit such as the EU. But the opposite, the unravelling of trust and reciprocity on trade is easy to achieve, and that is now the biggest danger facing the world and the UK economy, something in fact for us as big as Brexit, with which it is intimately linked. Needless to say, in an increasingly protectionist world inheriting the EU’s old trade deals and winning new ones will be tougher than ever – witness Australia’s latest demand that the UK accept hormone-treated beef.
What’s more, America needs China to hang on to its vast stock of US government debt and not “cash them in”, triggering a steep fall in the dollar, universally held as a store of value. The two to three trillion dollars of US Treasury paper the Chinese are sitting on might have to be sold, at least in part, if China were to start losing its earnings from its exports to America. There could easily be a rout in the dollar. The Chinese might conceivably do it just to show their irritation. It is a powerful weapon.
A weak dollar is not what President Trump is supposed to be for, and, more importantly, it threatens a much wider spread of instability in the financial sector and the global banking system, which rests on faith in the dollar. Who knows where that would end?
As an open, indeed, global economy that depends for its living on trade, Britain would be a huge loser from an international trade war. It feels inevitable too, not least because free trade is being so viciously attacked from the Right but almost the Left. Remember that Jeremy Corbyn, for example, opposed the EU-US trade and investment deal, and wants the freedom to subsidise and nationalise British enterprises when they run into trouble – a form of unfair trade rightly outlawed by the EU (hence his closet Euroscepticism). Global trade deals are an arm of globalisation and, thus, virtually friendless. It is depressing to see the Labour Party conspire in keeping the world’s poor reliant on aid rather than trade to develop their economies, but there we are.
I am truly sorry to say the only thing that will stop big economic powers such as the EU, China, the US and Japan from descending into economic warfare is the World Trade Organisation. The WTO is appallingly weak. As an interview over the weekend with Roberto Azevedo, the WTO Director General, by Stephen Sackur of the BBC showed, it is totally terrified of Donald Trump. Trump disregards the WTO and won’t even nominate an American judge to its court of arbitration – the place where a trade war can be averted. No American judge means the WTO can’t even call a tariff illegal, let alone do anything about it. The WTO hasn’t a clue what to do next.
The world economy rests, then, on barmy Donald Trump, some autocratic Chinese Communist and peevish Eurocrats – but crucially on the flabby, nervous, unsteady hands of the deeply unimpressive Azevedo. His interview received minimum coverage, compared with the blanket “one year to Brexit” stuff, but it was much the most important economic news event this week, if not the year. Were it not so dispiriting I’d urge you to watch it.