“Trade protectionism is obviously intensifying with some countries using self-innovation, government procurement and the yuan exchange rate to exert pressure on China.” — Mr Zhang Ping minister of the National Development. Yes, free trade is communism. Watch the video below
Everyone is talking about the economy lately (and no surprise there). We are all being reminded of lessons we may have forgotten from the 1930s. Thats great. But I think in our rush to save our economy I think weare forgetting the lessons we’ve learned only a decade or two ago.
That is, economics or not, does it make sense to create all that greenhouse gas just so I can have cheap apples from China? “Buying local” movements did not suddenly appear in response to our current global economic crisis. They came out of a concern that we are destroying ourselves (and our world) by focusing only on short-term economics. Do we really want to focus so blindly on the lessons we learned from the 1930s to only march right into the nightmares we created in the following decades (environmental destruction)?
Indeed, what does a country do in a liberalized trade environment when its only comparative advantage is in raw materials and the overriding goal of its citizens is not the production of goods or services, or of contributing to the general well-being, but the avoidance of physical labor at all costs, and the individual accumulation of the tokens of wealth by any means other than actually generating wealth or legitimately earning one’s share of the economic pie? I think we are about to find out.
Everyone has an opinion on protectionism. Some are for it. Some against. The thing is, back in the old days – the dirty thirties, almost everything made was done using manual labor; because of this, product output was much lower than today and one really did not need a big international market to sell his products. In today’s world, almost every mass produced item comes from an automated factory that requires fewer workers than in the past and production is much higher. They can produce more than their home market can consume so they ship to other markets throughout the world. Now let every nation put up their own form of protectionism. These overseas markets are now closed to producers whether they be Canadian, American, Chinese, Japanese, German or who knows from where. Now what happens. Manufacturers sell less goods, so they cut production, close more plants, layoff more workers and the cycle goes on.
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So Americans start to produce the good that once came from abroad. But with such a small market and the efficiency of computer automation today, how many jobs do you think this will create. Not enough to inspire confidence. To many people will still be without a job. We need a global market to sell what we can produce to create jobs. It seems to many that the thing that ended the Great Depression was a little skirmish called WWII. Will it take another war to end this one.
The last chance to avoid a global trade war By Michael Pettis
The world seems to be marching inexorably towards trade war. The US trade deficit is surging, for reasons that have nothing to do with domestic consumption and everything to do with policies and events abroad. In the months ahead, the US will be forced to choose either protection or soaring trade deficits with rising unemployment. It will almost certainly choose the former but if it overreacts, which is likely, it could unleash another round of global protectionism – which will especially hurt trade-surplus countries.
After jumping to $42bn in May, the US trade deficit rose to $50bn in June, a number not seen since the summer of 2008 and never before mid-2004. As it continues rising there will be renewed criticism about US consumers embarking on another ill-judged buying spree, but this time the finger-waggers will be wrong. The surge in the trade deficit is the automatic consequence of a shift in global trade imbalances.
Five countries or regions have largely driven these imbalances in the past decade. Three of them – China, Germany and Japan – run huge trade surpluses on which they are dependent for domestic employment growth.
Counterbalancing them have been the two trade-deficit champions – the US and trade-deficit Europe, dominated by Spain, Italy and Greece.
The financial crisis has undermined the precarious decade-long equilibrium between these blocs by forcing trade-deficit countries to reduce debt, especially household debt. As they do, the excess demand they provide to the rest of the world must decline. Trade-surplus countries, which depend heavily on this demand to absorb their excess capacity, have resisted this adjustment fiercely by trying to maintain or even increase their surpluses.