Op-Ed: Global trade wars, protectionism, and it’s all gonna cost you big time

China’s Commerce Minister Wang Wentao raised ‘serious concerns’ with his US counterpart Gina Raimondo on Washington’s curbs on its trade – Copyright AFP Pedro Pardo

Superficiality with a total lack of expertise may be great in politics, but it’s a particularly bad call in economics. Projections of a global trade war with tariffs and massive protectionism are looking grim.

Tariffs are paid by importers. That means you’re paying those extra costs as a consumer. Nor do they help international relations. Adding costs to anything doesn’t endear you to anybody.

Better still, price rises inevitably cause more price rises. The more you charge, the less your money will be worth later. The big money for the purchase still goes offshore. The tariffs are taxes on you, not the manufacturers. You lose both ways.

Protectionism was one of the factors in the 1929 Great Depression. Global trade choked. Again, adding costs doesn’t generate more business. Now, the volume of trade that can be affected by tariffs is much higher. Protectionism was also famous for protecting uncompetitive sectors largely for the sake of a bit of cheap meaningless nationalism.

America’s actual position in this totally unnecessary catfight isn’t what it was. Years of constant price rises have had an impact. The American consumer market may or may not be actually broke, but it’s much more watchful about how it spends.

If you look at the broad numbers, it looks sort of OK-ish. The US economy grew by 2.8% according to most stats. The big mistake, as usual, is assuming that this figure is across the board. Some incomes went up. Most didn’t.

It’s like saying 2 people have a combined income of $1 million annually. So the average income is $500,000. Looks good until you realize that one guy made a million and the other made nothing.

The huge economic polarization in the US is hardly a secret. The rich 1 to 10% are far wealthier than the rest of the country, literally over many horizons. This isn’t “inflation”. It’s the relative ability to just have money to spend.  

Now apply this incredibly unsophisticated total lack of logic to a national market. If 90% of the domestic market is still dirt-poor, making them pay more for imports isn’t going to help, is it?

The constant increase in domestic costs of living has basically flattened Main Street. In this environment, if you have to pay $1 extra for every single expense, you’re going backward. That’s exactly what tariffs will do.

On the other side of this very unimpressive situation is how America’s suppliers will respond to tariffs. China won’t like them, because the extra cost reduces demand for its products. The EU won’t like them. Japan and South Korea have no reason to rejoice if US tariffs affect their trade. They may raise their prices in self-defense to offset reduced volumes, if necessary.

That’s a bigger problem because the US started to outsource manufacturing in the early 90s. If you have a look at a random sprinkle of news about outsourcing as it is now, you can see how far the rot has spread.

It’s absurd to pretend you’re protecting American production on any level, or even that you can protect it. American products made in China or anywhere else will have to pay tariffs. Depending on how the tariffs are structured, you’re looking at nothing but more price rises.

Nor are American products automatically top tier as they used to be in the 1950s. Global trade has long since moved on. Back then, new American products were a revelation. There was always something new. The last time that happened was when personal computing and later by extension smartphones took off in the 1990s and 2010s.

Artificial intelligence can’t do that yet. It’s nowhere near mass consumer market-ready. For doing homework and plagiarizing IP, it’s fine, but it’s also the lowest common denominator for consumers. The value is to put it mildly highly debatable, totally depending on demand.

You may be interested to hear that the solution to protectionism was the exact opposite of the original policy. The New Deal created the modern US. Protectionism nearly destroyed it.

So maybe President Musk or whoever inherits the approaching cluster will rethink? Maybe not.

Are we all stupid enough yet?

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Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.