Trade wars

The many different wars that are taking place in the world we live in, this year another one was undoubtedly added – the global trade war. Perhaps the name “war” for this type of policy led by countries in the world is a bit pretentious, but the consequences of it can be equal to a real war only without human casualties. Let me clarify. During the war, the economic goods and resources for their production are destroyed, and the population sacrifices its living standard. The trade wars can lead to the same thing – they can destroy many economic resources, ie close a large part of the existing production and leave people unemployed and, as well as reduced standard.

Policies that threaten a wider World Trade War have begun from the United States with the election of Donald Trump as president. The countries concerned, basically China, the member-states of the EU, Canada and Mexico, reacted defensively with countermeasures, which was not unexpected. There is no dilemma as to why these about 40 concerned, as opposed to about 200 existing countries in the world, with their trade relations tend to push for a global trade war, several important economic indicators for the global economy should be reported. One of them is that these countries, with approximately 2.4 billion inhabitants (of a total of about eight billion on the planet) create over three fifths of world GDP. Furthermore, they account for around 2/3 of the total world trade and approximately as much as the total foreign direct investment in the world. In fact, if the Japanese is added to these economies, they would present the world economy in a nutshell. Therefore, the trade war between them is very important and should be viewed as “global”.
In it, slowly but surely, all the activities of the material production in the world began to be drawn. It began with the additional security taxes on steel and aluminum in the United States, and continued to counteract China and the USA to American agricultural and food products, but also to the automotive industry. Subsequently, customs barriers have expanded even to technologically advanced products such as those from the ICT sector (the United States to China) with announcements of new additional measures from all those in the “war” involved parties.

Within these policies, some of the older policies and measures existing on the various sides in the world in the form of trade sanctions that are politically motivated should be added. Such are those of the US and EU trade sanctions on Russia, sanctions against Iran, North Korea and the like, which are, in essence, even sharper than the current newly promoted measures of high customs protection.

It is normal that this development of events causes great discomfort and leads to political disagreements at the highest level among yesterday’s major allies, such as, for example, the United States with Canada or Germany. Possible consequences are so great that they trigger special visits at the highest level, for example, the announcement of the visit of the President of the EU Commission to the United States.

The collateral damage to the newly emerging situation is the position of the World Trade Organization (WTO). This institution is one of the pillars of the world economic liberal order and the process of globalization. By marginalizing the essence of its principles, precisely by those who were designers for its existence, and those are the countries that have developed economies, primarily the United States and those of the EU, there is a possibility of decaying the current liberal trade relations in the world . This will benefit precisely those who are not ready for a liberal, fair trade based on competitiveness and non-discrimination. Unfortunately, there are still many such countries, governments and ideas in the world.

But let’s go back to the very causes of the new World Trade War. In short, the liberal trade in the world was built under pressure from the most developed economies that had comparative and competitive advantages over other economies and had an interest in trading barriers around the world. It is a story about 200 years old, but in its present form it was completed after World War II and especially after the breakup of socialism in the world. But part of the undeveloped and competitively more modest economies in the past two decades have successfully restructured and with their competitiveness began to globally threaten the developed economies in several serious industries, including the industry. The process went so far that they threatened their domestic markets as well, so the reaction may have been predictable. If you cannot beat them with more productivity, try to do it with protectionist measures.
Protectionism with high tariffs and impediment to free trade is always a story with a tragic ending. But at the beginning it always develops seemingly good. It increases the cost of foreign production and makes it domestic more competitive. At the beginning, more jobs and higher GDP are created. After all, it is now the case with the US economy and those are expectations. Such protection further in the second phase (temporally it can be determined from several to about ten years) generates more expensive domestic production of goods to consumers and producers and ends with reduced productivity, reduced competitiveness abroad and, finally, a reduced standard of population in the domestic economy. No one has escaped that trap, more or less, in economic history.
That’s why the current trade war and the new protectionism in the world is dangerous. It is even strange that it is introduced by governments with a liberal, right-wing orientation, and opposed by governments with left-wing orientation. Its end cannot be seen or predicted now, because it is in the initial phase and is still moving along an upward protection line. She reached so far that the president of the United States had to demand from the authorities in Saudi Arabia unilaterally, beyond the OPEC arrangement, to increase daily oil production to stop the growth of its price in the world. It is known that the United States is the world’s largest oil producer, but also the largest consumer and importer. The problem with a blow to the balance of payments will now be tried to resolve the pressure and interventionism on S. Arabia. But what is next in conditions when prices are not determined by productivity and market mechanism, but by arbitrary customs protection and government autocracy?
If this senseless “war” is quickly resolved, it is possible that the economic image of the world will gradually begin to change to worse. According to the demonstrated persistence and confidence in its policy by the United States and its administration, this scenario appears to be certain. In such circumstances it will not be surprising if the circle of countries in the world with the interventionist and protectionist defense of the domestic economies expands as necessary evil.

Nikola Popovski