A global trade war

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A global trade war

Michael Roberts writes:

Since 2008-09, the major capitalist economies have been in what we can call a Long Depression. This means weak economic growth (a slower recovery than even in the Great Depression of the 1930s), weak investment rates, and low profits for big business. To make things worse, President Trump and his new advisers are threatening policies to reduce the imports the US gets from other countries – especially China.

Most economists think that free trade is good for all. But history tells us the opposite. Over the past thirty years, world capitalist economies have moved closer to ‘free trade’ with big reductions in tariffs, quotas, other restrictions, and by signing many international trade deals. But average annual economic growth since the 1980s has been slower than in the ‘golden age’ of the 1960s.

Free trade ‘works’ when the profits are rising everywhere and everybody wins, even if with different shares. Then globalization seems attractive. The strongest capitalist economy will always be the strongest supporter of ‘free trade’, as Britain was between 1850 and 1870 and the US was between 1945 and 2000. ‘Globalization’ was the big idea of the US and its international agencies: the World Bank, the OECD, and the IMF in the period after1945.

But if profits start to fall, as now because of the Long Depression, then free trade loses its attraction – especially for the weaker capitalist economies as the share of the profits start to fall for them. ‘Populism’ and nationalism then become strong and we hear more from economists who are against ‘free trade’.

A trade war would lower export sales for most countries and increase prices of imports for households and companies. As a result, economic growth would slow, and also employment and investment. Real incomes would fall for the people Trump says his policies would help. ‘Free trade’ makes the weak weaker and the strong stronger; but a trade war will weaken all.

If this happens – at a time that the US Federal Reserve is thinking about raising the cost of borrowing to control growing inflation – it could be the final step to new economic recession. And this at a time when most countries are just recovering, 10 years after the last one.

Michael Roberts works as an economist in the City of London. His latest book is Marx 200 (Lulu) and he blogs at thenextrecession.wordpress.com

NOW READ THE ORIGINAL: https://newint.org/features/2018/07/01/the-next-financial-crisis

(This article has been simplified so the words, text structure and quotes may have been changed)