Tuesday, 17 January 2017

TRUMP AND TRADE

Trump’s isolationist policies could make America a broken banana republic

Donald Trump’s politically na├»ve blue-collar voters stand to be the biggest losers if the new president makes good on his promise to pull the US out of the Trans Pacific Partnership (TPP) and other free trade agreements.

From a political standpoint, Trump may have read the mood correctly. There is always votes to be gained by telling voters what they want to hear, a Trump trait that extends to other policies too. For Trump, getting the votes was more important than being able to deliver on the promises. Getting the votes, by any means, was more important than the damage America would suffer if he did keep his promises.
International trade has been bringing prosperity to
increasing numbers for thousands of years

To understand how leaving the TPP will damage America, and the Trump Administration, one needs to understand the history of trade and economics, as well as the history of the Trans Pacific Partnership itself.

As long ago as the Palaeolithic Era (500,000-10,000 years ago,) people were discovering the importance of trading with neighbouring bands, or communities, by offering tools, food, skins and other commodities in exchange for the things they lacked. The world population at that time has been variously estimated at between 1 and 15 million people, although 3 to 6 million is generally regarded as a more accurate figure. It was at the end of the last great ice age when average temperatures were several degrees colder than now, and food was in short supply. Some had food and some did not, so they traded what they had for what they needed, and more people survived. It has been estimated that from the Palaeolithic Era prior to the Industrial Revolution, the average world GDP (Adjusted to 2016 US dollar value) was about $160 per year.

From the ancient bands developed the city states and later the nation states, defined areas with borders and government structures, usually kingdoms, where the ruler needed revenue. The best source of revenue was customs duty and tribute or bribery. Wars were frequent with rulers invading neighbouring territory to acquire what they wanted.
Opponents of free trade are often more gifted
with slogans than with logical argument 

We like to think of Europe as an early leader in economic wealth, trade, discovery and enlightenment, but before Columbus sailed off to the Americas in 1492, Europe was a struggling backwater. The powerhouse economies were in India and China and between them they accounted for 50% of the world’s trade and economic activity. Both countries operated extensive trade routes connecting the Far East with Eastern Europe, known collectively as the Silk Road. Both countries operated large fleets of sailing ships that plied the routes of the Indian and Pacific oceans, and the archipelagos of the East Indies, at least 1,700 years before the famous European explorers came on the scene.

Another myth that should be dispelled is that Marco Polo discovered the Silk Road and opened the world’s first major trade route. Polo was simply the first to have his travels recorded, as told to a fellow prisoner while he was locked away.

The Industrial Revolution (1760-1840) was made possible, not so much by the inventors of the machines, but the trade conditions that existed at the time. Industrialised production, and later mass production, would have failed without mass markets.
While most of the developed world is embracing free trade,
Trump is saying, "Stop the world. America wants to get off."

Throughout history, trade has always been controversial. The local producers always want to protect their market from cheap imports, while the consumers want choice, and governments want revenue. But history also shows that trade barriers, in whatever form, stifle economic growth, prosperity and employment. Trade unions and socialists have generally been opposed to easing restrictions on trade because they see free trade as something that will destroy local jobs and make the rich richer. But in a classic case, British Prime Minister Sir Robert Peel, leader of the Conservative Party, used the support of the left-leaning Whigs to repeal the infamous Corn Laws during the Irish famine of 1845-1852. The repeal permitted grain to be imported at a price people could afford to pay.

More was to come in the United Kingdom. In 1859, John Bright, a tireless campaigner for free trade, asked in Parliament why, instead of spending money to prevent a French invasion, did the government not try to convince the French to enter a free trade agreement. The outcome was the Cobden-Chevalier Treaty which reduced tariffs substantially and increased the flow of goods between the two countries by 100%. The treaty quickly sparked other European trade agreements with corresponding increases in trade and jobs.

After World War Two, the 1946 Bretton Woods Agreement, an attempt to stop trade barriers being erected, was signed because many people believed that trade protection was a principal cause of war. Twelve years later, in 1958, the European Economic Community came into being with six member countries and grew rapidly to become the European Union with 28 countries sharing the benefits of free trade.
HIGHWAY AMERICA

In the United States, free trade has also been controversial, but historically has been proved to be a success. Right from the outset when the 13 original states formed the Union, trade between each of them and other nations was a driving force. As more territories joined the Union, trade expanded. By the time the 49th and 50th states joined in the 1950s, the USA was already the world’s largest free trade block with the world’s highest standard of living.
In the decades that followed, the United States has effectively pushed out its trade borders even further. It has free trade agreements with a host of countries including Australia, Canada, Chile, Bahrain, Israel, Jordan, Mexico, Singapore, Morocco, Peru, Dominican Republic, Panama, Colombia, most Central American countries and South Korea. Also in the negotiating pipeline are agreements with the European Union, Thailand, New Zealand, Ghana, Indonesia, Kenya, Kuwait, United Arab Emirates, Malaysia and several others, including the Trans Pacific Partnership.

The TPP had its origins in 2002 at the APEC Leaders Meeting in Los Cabos, Mexico, when New Zealand Prime Minister Helen Clark, Singapore PM Goh Chok Tong and President Ricardo Lagos of Chile floated the idea of a new free trade zone, known as the Pacific Three Closer Economic Partnership. The agreement came into force in 2006 and Brunei joined in 2009. Meanwhile, Pacific Rim countries were queueing up to be a part of the action. The old agreement was renegotiated and renamed the Trans Pacific Partnership with the USA, Australia, Peru, and Vietnam joining the negotiations in 2008. Malaysia, Canada, Mexico and Japan joined later to make 12 partners in all.

In recent years, governments and business leaders have generally been in favour of expanded free trade, while unions, workers and socialists are generally opposed to free trade, and all free trade negotiators have had to run the gauntlet of public opinion. In private sittings (the only way possible for the best outcome) negotiators must get the best possible deal they can on the greatest number of sticking points. In trade negotiations, horse trading is the name of the game; a point scored here, a point conceded there, is a step closer to a satisfactory result. There are always winners and losers in the detail, even though many on the side-lines want total victory on every piece of detail, or the entire agreement should be dumped.

Understanding the concept of expanded free trade can be daunting for many people without political and trade experience. But by reversing the concept, with an example of a diminishing trade block, even Donald Trump should be able to understand the perils of not being a part of the TPP. Let us use for an example the United States itself. Let us supposed that 37 states, including California, Texas, Illinois and Ohio, were to leave the Union and impose tariffs and quotas on imported goods from the remaining states. The 37 states would face a serious economic downturn, but the economic life blood would be squeezed out of the original 13 to the extent that they would probably require foreign aid to survive. Wall Street would face the worst downturn in its history. Factories would close and farmers would walk off their land. Tens of millions would be unemployed and unable to obtain government aid.

New Yorkers, if they could afford to buy a car from Detroit, would pay possibly double what they currently pay. Slower production in Detroit plus import duties would be crippling for both sides of the new border. What would be the point in adding 50 or 100% to the cost of New York doing business with Chicago, or for Miami trading with Atlanta? Tighten the trade noose even more and make it unprofitable for Fifth Avenue, New York, to trade with Seventh Avenue in the same city. Why would any politician in his right mind want that to happen?

The answer to that is Donald Trump. Trump believes in restricted trade. Trump will fail America more seriously than America has ever been failed before, because staying out of the TPP and other free trade deals will isolate America more than it has ever been isolated since 1776. If Trump turns his back on the other 11 countries of the TPP and the 28 members of the EU plus the other countries that already have free trade agreements with the USA, he will have unemployment lines standing shoulder to shoulder from the Atlantic to the Pacific.  
Trump’s policy from the mouth could be the ruination of a great country. Already, there are murmurs that California may want to go independent. Texas could follow. What will really happen to America if the man of the mouth shoots from the lip once too often? Could there be another civil war? I certainly hope not, but the pot is brewing. With this president, America is headed for banana republic status.