Some trade wars have been a win for the world

Today in The Australian

The platitude du jour, repeated at every turn by the Treasurer and the governor of the Reserve Bank, is that no one wins a trade war. Pleasing as that homily may be, it reflects neither theory nor experience.

About Henry Ergas

Henry Ergas AO is a columnist for The Australian. From 2009 to 2015 he was Senior Economic Adviser to Deloitte Australia and from 2009 to 2017 was Professor of Infrastructure Economics at the University of Wollongong’s SMART Infrastructure Facility. He joined SMART and Deloitte after working as a consultant economist at NECG, CRA International and Concept Economics. Prior to that, he was an economist at the OECD in Paris from the late 1970s until the early 1990s. At the OECD, he headed the Secretary-General’s Task Force on Structural Adjustment (1984-1987), which concentrated on improving the efficiency of government policies in a wide range of areas, and was subsequently Counsellor for Structural Policy in the Economics Department. He has taught at a range of universities, undertaken a number of government inquiries and served as a Lay Member of the New Zealand High Court. In 2016, he was made an Officer in the Order of Australia.
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40 Responses to Some trade wars have been a win for the world

  1. stackja

    By not having Red China dominating the world by unfair trade is a good thing.

  2. mh

    Stack, can you cut and paste the article?

  3. egg_

    Politicians are spinning?
    Colour me pink.

  4. Peter Greagg

    The platitude du jour, repeated at every turn by the Treasurer and the governor of the Reserve Bank, is that no one wins a trade war. Pleasing as that homily may be, it reflects neither theory nor experience.

    It was, after all, Adam Smith who argued in The Wealth of Nations that while free trade was eminently desirable, it was question­able whether “the free importation of certain foreign goods” should be permitted “when some foreign ­nation restrains the importation of our manufactures into their country”. In those cases, retaliating could force the protectionist country to reduce its trade barriers, yielding benefits for the world as a whole.

    And while it would have been preferable had negotiations sufficed to achieve that outcome, it was certain that there were many instances in which they would not.

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    Yes, a trade war would impose short-term costs; but those costs always needed to be weighed against the permanent gains from freer trade.

    However, it is not the authority of Smith that drives policymakers in Washington, DC: it is experience. And no experience weighs more heavily than that of the trade war Ronald Reagan unleashed against Japan.

    The US had, over a period of many years, sought to secure from Japan a comprehensive agreement to a phased opening of its domestic market, with those efforts culminating in the Market Oriented, Sector Selective negotiations of 1985.

    But after those negotiations failed to achieve meaningful outcomes, Reagan announced that his administration would no longer “stand by and watch American businesses fail because of unfair trading practices abroad”.

    Rather, it would “take all the action that is necessary to pursue our rights and interests in international commerce”, ensuring that “other nations live up to their obligations”.

    Nor was the administration slow to prove its determination. On the contrary, after pressure from industry led the Japanese government to continue dragging its feet, the US — in what was certainly one of the largest, if not the largest, retaliatory trade measures of the postwar era — stunned Japan by imposing 100 per cent tariffs on imports of Japanese computers, consumer electronics and home appliances.

    That move, which dramatically highlighted the seriousness of the situation, finally prompted Japan to comply with its commitments, allowing the tariffs to be partially lifted some months later.

    But the Reagan administration’s assertiveness did not end there. It also adopted a much harder line against the European Economic Community, slapping tariffs of 200 per cent on a broad range of European exports in retaliation for EEC restrictions affecting imports of citrus products. And in that case, too, the scale of the administration’s response, and the credibility of its threat to go even further, allowed the US to largely secure the concessions it was seeking.

    Moreover, the gains the US made stretched well beyond the individual disputes. Rather, demonstrated toughness helped the US achieve its key objectives in the Uruguay Round of multilateral trade negotiations, including through landmark agreements on intellectual property rights, foreign investment and trade in ser­vices.

    There is, in short, a pattern that has become increasingly clear since the so-called “chicken war” between the Kennedy administration and the EEC: when it resorts to the commercial battering ram, the US may not get what it wants but it gets what it needs.

    Of course, that hasn’t stopped the howls of protests from the pundits each time a dispute flares. But while literally every instance of US retaliation has led to claims that the international trading system is on the verge of collapse, the longer-term outcome has more often been to reduce trade barriers than to increase them.

    Given just how great the benefits of trade are, not least to the US, that ought to be unsurprising. But it would be foolish to assume that China will prove an easy nut to crack.

    The difficulties are not primarily economic. Rather, the opposite is true: there is a compelling case, put by many reform-oriented economists in China itself, that China would gain were its government to stop subsidising inefficient state-owned enterprises, eliminate its arbitrary interference in the affairs of foreign companies, properly enforce intellectual property rights and place the administration of commercial law on an honest, transparent and predictable basis.

    And it is also clear that the costs to China, which is still a relatively poor country, of being durably shut out of the American market substantially exceed those a prolonged dispute would impose on the US, all the more so as American importers would soon develop alternative sources of supply.

    Rather, the problem is that the trade distortions the US is targeting are at the heart of Xi Jinping’s regime, whose power rests on a coalition between the groups — in the Chinese Communist Party, the business community and the military — which benefit directly from their perpetuation. And far from phasing out those distortions, the regime has raised them to new heights as it expands China’s military-industrial complex and seeks to extend its global reach.

    There is, in that respect, an obvious parallel between the policies Xi has adopted and the infamous German tariff of 1879, which cemented the “marriage of iron and rye” between the Prussian Junkers and the emerging steel industry in the Ruhr.

    As Harvard’s Alexander Gerschenkron argued in his classic study of Germany’s authoritarian turn, that tariff set in motion forces that could sustain themselves only by an increasingly belligerent form of nationalism.

    Had Britain, instead of muted diplomatic protests, attacked that coalition at its economic core when it was still clearly powerful enough to do so, it would not only have secured economic benefits but improved the prospects for global stability.

    To say that is not to downplay the risks the present conflict ­creates. It may entrench the Chinese regime rather than weaken it, especially if Xi believes the Trump administration’s days are numbered and that the Democrats — despite their strident rhetoric — will ultimately focus on domestic income redistribution, shunning issues such as trade.

    And even if Xi does make concessions, Trump may, with 2020 looming, opt for massive and immediate Chinese purchases of American goods, instead of the profound structural reforms China needs and that its trading partners can legitimately demand.

    Australia, whose economic and political interests lie unambiguously with ensuring China returns to the reform trajectory that underpinned its emergence from poverty, should do whatever it can to avert those risks.

    That requires realism, not homilies: for as Clausewitz said, in war everything is simple but nothing is easy.

    With the US, whose enduring interests align with our own, engaged in the trade battle of the century, the homilies are best left for the children.

  5. I once believed that the argument for free trade was a good thing until I realised that, like with everything in the world, there’s no such thing as a level playing field and everyone is out to scam everyone else, one way or the other. Only the mugs try to play fair while the others rip you off blind using every tactic possible, and not just with tariffs.

  6. max

    Mercantilism was popular in the late 17th century. It justified import sales taxes and export subsidies. It justified constant interference by governments into the economy.

    When the Smoot-Hawley tariff was passed, almost no one foresaw the Great Depression. Yet today, we are talking about a trade war in the midst of a worldwide economy in which confidence has eroded, business profits have eroded, and capital value has disappeared into the void.

    So it went, tit for tat, sales tax by sales tax, until trade collapsed, taking the world economy with it.

    And than come WW2.
    Yes there are winners and losers.

  7. max

    the gold coin was “level playing field”

    Central bankers want restraints on other central bankers, but they do not want restraints on themselves. So, the world keeps looking for some kind of suitable alternative to the full gold coin standard. It has never found this. This is because central bankers cheat. Politicians ask central bankers to cheat.

  8. Elderly White Man From Skipton

    Ergas underplays the hazards IMO. The Chinese might well retreat on the issues of trade preferences and IP. They will not give an inch on domestic matters and the present regime is clearing bolstering SOEs. The Communist Party response to the power play element of US pressure is capable of must more discipline and persistence than the US can stand. Ergas also avoids the consequences of edging China towards a harder nationalism, which are severe and destructive.
    No one would dispute the need for firmness on the trade and IP issues. But the power game is bound to end in tears. Not least ours.

  9. Company boards and CEO’s haven’t had the courage to do the right thing by their shareholders by looking at production facilities beyond China. Get out of China before she devours you should have been the number one priority of many companies (not all not all not all, but most, especially tech sensitive companies).

    A top down command economy can never compete with an innovative nation like the USA.
    Chinese culture is not compatible with competitive innovation. Workers too afraid to speak their minds can’t innovate.
    China will lose this trade war and the World will be a better place for it. If only the vile Europeans get with the program, this whole saga would end very quickly.
    But as always (since the bronze age), Europe is ground zero for the ills of the World.

    By the way, Europe has been taking advantage of the Marshall plan since 1945. It’s about time those arseholes started carrying their own weight.

  10. mh

    For shits and giggles

    Liberty Quote
    Someone fighting back against China would be unilaterally removing all tariffs.

    — Iampeter

  11. Dr Fred Lenin

    I am sure Trumps putting the screws on China is getting results , the commisars wll be worried about the nsi trade surplus ,they have created an aspirational class which wll be displeased at declining standard of living . The commisars created this class to keep the lid on the peoples desire for a better life for their children .
    Trumps actions must be hurting Chinese workers and the blame will go to thecommisars , I am sure Trump knows this and is using ut as a weapon to curb the militarists in China the only way to get a cmm,uist to change is brute force its the only thing the respect . Remember Stalin grovelling to his fellow socialist Hitler dividing Poland , lefties are bullies and fear reprisal they dont like it up em do they .

  12. Fred

    The free world should have no trade with China.

    We are selling them iron ore that they are using to build warships and bombers that will be used against us.

    Isolate them and keep them poor. Even if it mean us being poorer too.

  13. Perth Trader

    The west had a opportunity to curb the rise of China till 1997. No one remember the ‘asian tigers’? Had the west stepped up to support Thai, Malay and Indon. banks and not sent in the IMF to sell off in a ‘fire sale’ there properties and institutions these countries and more could today be a leverage against China.

  14. Perth Trader

    re ‘Asian Fin. Crisis’…. Al Gore in Kuala Lumpur..”.Gore’s open support, while speaking at an Asia Pacific Economic Cooperation (APEC) Forum in Kuala Lumpur on Nov. 16, 1998, for anarchists who were rioting on the streets outside the conference to bring down the government, in support of deposed Deputy Prime Minister Anwar Ibrahim.” ..all because Dr Mahamar had told the IMF to bugga off.”Malaysia has recovered from the crisis, they argued, but the currency controls were not responsible, as shown by the fact that those nations which had accepted IMF conditions were also recovering. There are several fallacies in this argument, including the fact that once Malaysia had broken from IMF orthodoxy, the IMF and Washington quickly began relaxing the conditions they had imposed on the other Asian economies, afraid that they would follow Malaysia’s lead!”

  15. Perth Trader

    The ‘SWAMP IS DEEP’ and Trump has a big fight on his hands.

  16. Squirrel

    “The platitude du jour, repeated at every turn by the Treasurer and the governor of the Reserve Bank, is that no one wins a trade war. ”

    The Treasurer, the RBA and all the others are saying exactly what you would expect them to say, which translates as – “could the US please just go on pumping trillions through China to the rest of the world”.

    Australia’s self interest in the continuation of that arrangement is as obvious as it is naive for us to think that there wouldn’t eventually be serious pushback from the US.

  17. Chris M

    It’s not unlike the Opium wars, this time around China is flooding Western countries with fentanyl and worse. They hold grudges for centuries… never forget a harm, never remember a benefactor.

  18. Bad Samaritan

    This is a fantastic opportunity to ask….once again….what the problem is with China throwing their ill-gotten gains from dishonest trade practices away as loans to miscreant bludger nations throughout the world. Anyone care to enlighten me as to why these shysters are making such a monumental mistake….and why western nations should give a stuff?

  19. egg_

    The ‘SWAMP IS DEEP’ and Trump has a big fight on his hands.

    Especially with parasites like Gore still hanging around.

  20. Arky

    Fred
    #3144095, posted on August 30, 2019 at 12:49 pm
    The free world should have no trade with China.

    ..
    Disagree.
    There is a balance to be had here, just because it was out of whack one way for decades is no reason to go completely tother.
    Something should have changed immediately after Tian an men. That it didn’t is down to our not reigning in our free trade globalist autist loons earlier.

  21. Frank Walker from National Tiles

    Chris M
    #3144251, posted on August 30, 2019 at 5:30 pm

    It’s not unlike the Opium wars, this time around China is flooding Western countries with fentanyl and worse. They hold grudges for centuries… never forget a harm, never remember a benefactor.

    You’re angry at the Chinese for losing a war to the world champions of Imperialism. Hundreds of years ago.

    Yeah, it’s the Chinese who hold a grudge.

    LOL.

    PS

    Who do you think was actually selling the opium and where? Where was it being grown?

    Mmm yes, it’s definitely the Qing Emperor’s fault that President Xi and Trump are in a trade war now.

  22. Frank Walker from National Tiles

    Hang on.

    I was wrong, but this is still just crazy despite my lack of comprehension.

    White guilt is why Trump is putting sanctions on China? (This is being peddled by troglodyte conservatives).

    The golden triad is a new thing, pushed by China?

    Can anyone actually find any medicine, particularly S8 medicine, that is made in China? Becaue Queen Victoria made them her whipping boys?

    The idea that some toothless hick in Virginia is addicted to American or Swiss made OxyContin because the poms demanded to sell opium in China in the 1830s is just warped.

    Fuck.

    Why don’t we just say the Treaty of Paris (1259) caused the Reformation?

  23. JC

    Received a bunch of WA truffles by post today. I think they’re from WA. What a great dinner sprinkled over pasta and a little olive oil and pepper. Possibly the best taste ever conceived.

  24. Robber Baron

    Josh rates himself as PM material.

    No more morons in the lodge please!

  25. Pyrmonter

    @ bemused – it is because there is not a ‘level playing field’ that we have trade: differences in tastes and endowments create different price structures in different economies. Opening up to trade allows countries abundant in resources that produce goods they don’t like so much to sell those goods abroad and with the proceeds, import that which they prefer.

  26. Nob

    JC
    #3144327, posted on August 30, 2019 at 8:14 pm
    Received a bunch of WA truffles by post today. I think they’re from WA.

    Yeah they do grow them down around Mount Barker.

    Since I get to go to Italy so much I get my fill around October in Bologna.
    They add truffles to everything then. Probably ice cream too, I don’t check.
    A little goes a long way.

    It’s like spargelzeit in Germany and neighbouring countries in may-June-July, it’s in everything. Asparagus.

  27. Nob

    Anyway, I’m a free trader, perhaps a globalist – but I don’t know what people mean by that.

    I can see the point with China which Henry explains very well.

    Free trade but then demand a fair go. And only the powerful can demand. Whatever your power is. Use it.

    Bitterly amusing to see all the bureaucrats and socialists (I think there is a difference) handwringing over free trade which they were throwing bricks against five minutes ago.

    Call me cynical, but I question their sincerity.

  28. it is because there is not a ‘level playing field’ that we have trade:

    But that’s my point, being able to freely trade is a good thing. But being beholden to set trade rules, that one player can use and another cannot, is perhaps not so good. That’s why I see tariffs not being such a bad thing, as it’s simply a form of trade negotiating.

  29. Empire 5:5

    Perth Trader
    #3144134, posted on August 30, 2019 at 1:27 pm
    The west had a opportunity to curb the rise of China till 1997. No one remember the ‘asian tigers’? Had the west stepped up to support Thai, Malay and Indon. banks and not sent in the IMF to sell off in a ‘fire sale’ there properties and institutions these countries and more could today be a leverage against China.

    When Klinton was POTUS42 and György Schwartz was blitzscaling the Soros Open Society brand and his reflexivity psychobabble.

    It’s almost as if China was favoured by design.

  30. Empire 5:5

    U.S. President Donald Trump on Aug. 23 announced on Twitter a new round of raising tariffs on $550 billion worth of Chinese goods, and telling U.S. companies to move their operations out of China. China expert Frank Xie believes that when the trade war has escalated to this level, it will bring devastating consequences to China’s economy, but will not have a major impact on the United States.

    https://m.theepochtimes.com/china-faces-economic-collapse-and-decoupling-from-world-markets-expert-says_3060481.html

  31. Empire 5:5

    In an interview with the Chinese-language edition of The Epoch Times, Frank Xie, an associate professor at the University of South Carolina’s School of Business Administration, said that when this latest tariff increase is imposed, the United States and China will become completely decoupled economically.

    “The Chinese communist regime has been trying to drag [the trade talks] out to give itself more time, and the Trump administration is fully aware of that. In addition, Beijing has broken its promises several times. They promised to buy agricultural products, but later changed their mind. At a certain point, they even promised to buy large quantities of agricultural products, but they did not make any purchase thereafter. They have certainly irritated the American people,” Xie said.

    https://m.theepochtimes.com/china-faces-economic-collapse-and-decoupling-from-world-markets-expert-says_3060481.html

  32. Empire 5:5

    According to Xie, the trade war will have little impact on the U.S. economy. “This is because China’s retaliatory tariff increases are mostly imposed on automobiles, auto parts, petroleum and agricultural products. Actually, China won’t be able to restrict the imports of these products because it has a high reliance and demand for them,” he said.

    However, the United States can easily replace Chinese imports with products from other countries.

    ”The key issue is whether there are options,” Xie said. “China cannot produce most of the imports from the United States.”

  33. Empire 5:5

    Spaminator is eating links to epoch times. Search:

    China Faces Economic Collapse and Decoupling From World Markets, Expert Says

    and RTWT.

  34. max

    Neocon Litmus Test by Gary North

    Today, upper-middle-class American conservatives cheer when the United States government sends the sons and daughters of the lower classes to die in foreign adventures. Then they complain about high taxes. They sacrifice other people’s children to the Moloch State, but worry publicly about high marginal tax rates. Is it any wonder that their political opponents do not take them seriously, and their supposed political representatives regard them as permanent residents of their hip pockets: suitable for sitting on? All it takes to get conservatives to stop complaining about high taxes is another splendid little war, or better yet, a world war. This political strategy has worked every time since 1898: the Spanish-American War.

    https://www.garynorth.com/public/18515.cfm

  35. old bloke

    China will still need our coal and iron ore. They can manipulate our wool markets but they need our meat products. We don’t sell manufactured products to China (we don’t manufacturer anything these days) so the US/China trade war won’t impact us too much, apart from our pollies who will have to get used to the smaller paper bag stuffed with fivers instead of the larger Aldi plastic bag stuffed with fifties.

    Nob
    #3144521, posted on August 31, 2019 at 5:03 am

    JC
    #3144327, posted on August 30, 2019 at 8:14 pm
    Received a bunch of WA truffles by post today. I think they’re from WA.

    Yeah they do grow them down around Mount Barker.

    Manjimup is Truffle Central. Lots of money to be made, Gina recently bought a large property there and is planting hundreds of oak trees. Soon, truffles will be plentiful and priced like potatoes.

  36. Empire:
    Epoch Times.
    I’m trying to get a subscription to their interwbs edition, and despite having told them I was in Australia three times now, they are still unable to understand I have no zipcode or am from whatever 54 states/destinations etc are available.
    It’s been an interesting discussion with them so far, but now I’m bored.

  37. Diogenes

    yes, it’s definitely the Qing Emperor’s fault that President Xi and Trump are in a trade war now.

    I am prepared to be corrected, but as I remember it, was it not a lack of trade that led to the Opium Wars. China was the only place tea grew, the Poms started drinking lots of tea. The Chinese emporer insisted on being paid in silver and forbad imports of anything else that could be exchanged for tea. Poms were running seriously short of silver and found the one thing the Chinese would disobey their emporer for, Bengali Opium.

    Does this kind of sorta replicate a lot of what we see today between China & the rest of the world.

  38. Empire 5:5

    Winston Smith
    #3144755, posted on August 31, 2019 at 1:02 pm

    That’s a shame, Mr Smith. They are publishing something akin to journalism. So predictably, the media-entertainment complex is trying to obliterate them.

    Jim Watkins has been summoned to appear before Congress where he will have an opportunity to explain to the congresscritters that the shooters posted to other platforms before the content was reposted to 8chan (and reported to LE) and the media frenzy that precipitated his appearance (chans pose terrorist threat) is demonstrably #fakenews.

    @jack was allegedly hacked earlier today, at least that’s his excuse for deleting this:
    https://web.archive.org/web/20190830195259/https:/twitter.com/jack/status/1167525618872967168
    The mockingbird media, bereft of feathers and and liberally adorned in pustules, is on the verge of implosion.

    Maybe give ET another go when they’re done fighting Zuck.

  39. Frank Walker from National Tiles

    Does this kind of sorta replicate a lot of what we see today between China & the rest of the world.

    Like I said the idea than the CCP and CMC are plotting to get hicks in the Appalachians on American and Swiss manufactured OxyContin because what the British did in the early half of Queen Victoria’s reign is just batty.

  40. Empire 5:5

    After NBC News published a hit piece on news outlet the Epoch Times and its association with the Falun Gong, a spiritual movement persecuted by China’s government, the Wikipedia page for the outlet was vandalized and filled with attacks sourced to the piece. One editor involved has a history of attacking Falun Gong and defending Chinese communist figures such as Mao Zedong.

    https://www.breitbart.com/tech/2019/08/27/wikipedia-editors-attack-china-critic-epoch-times-after-nbc-hit-piece/

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