A Few Thoughts On Trade And Globalism

by | Mar 29, 2017 | Economy, Keith, Politics | 0 comments

A few thoughts on trade and ‘globalism’ and all that –

Reality is that worldwide trade growth has been in decline. Why is this? That the world is awash in overproduction of commodities is the primary culprit. There is also talk of having reached peak oil consumption and such – but that is a different topic. Governments worldwide goosed their economies for eight years to enhance production and employment and tax revenue and on and on. This has created a surplus of almost everything. That supply and demand dynamic is attempting to return to equilibrium.

People around the world seem not to be cognizant that trade growth is declining globally and have acquired a belief that it is only ‘their’ trade that is declining – and the tangential belief that ‘someone’ has stolen their fair share of trade. Hence the popular remedy has become very nationalistic – not just in the United States but nearly everywhere.

Basic problem – trade is in decline because individual nations collectively produced more than there is a demand for which has resulted in prices dropping and some countries trying to ‘dump’ commodities and manufactured products  on other countries. This has also caused all kinds of other issues in the attempt to dispose of products, i.e. subprime auto loans in the United States and so forth. Reality is that production has exceeded demand due to governments having distorted markets.

Most economist would diagnose the solution as needing to increase demand – and they would historically do that by lowering interest rates and loosening credit requirements. However we are already at ZIRP and NIRP and awash in subprime loans so it is difficult to see how doing more of that will increase demand or even arrest the slide in demand.

I would guess that these markets will rediscover equilibrium. That is unlikely to lead to peace and happiness. Remember, if goods do not cross borders then armies will. We already see Brazil and Russia and such being savaged by the markets attempt to return to equilibrium. Saudi Arabia is bleeding and Australia is wounded.

In many of these nations a return to equilibrium is likely to lead to social and political crisis. That is likely to lead to significant change in the world order. One leads to the other which leads to the other.

The ‘globalist’ are really interested in global political stability but their neo-Keynesian policies have created growing instability. Not only do they not know how to escape the problem they created, the people who populate these countries are growing increasingly – and sometimes violently – impatient with their inability to escape the problem.

Into this walks Donald Trump.

What will Trump do? I have not a clue. A lot of protectionist talk but how much of that is just staking out a negotiating position? He certainly understands that global trade is declining – and why. He also certainly understands that tariffs as a negotiating position is useless as an idle threat, you have to follow through for it to have any teeth or for other countries to take it seriously.

I also cannot but help think that he understands that tariffs will exacerbate the problem of declining world trade.

Hence I have not a clue where this all leads.

Buckle up, it is likely to be bumpy ride for a while.