The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
My latest column in Critical Quarterly is available here.
“An unambiguous commitment by all countries to a rules-based international trade regime, including a blanket prohibition of strategically-motivated export restraints, can contribute to making the world a safer place.”
But who will set the rules?
In trade there are winners and losers, and, as those winning and losing margins get bigger, the ‘losers’ can hardly be expected keep playing the game, playing themselves into penury and oblivion, particularly where the trade terms often rely on the artificially weakened currency, or sheer muscle, of the victors.
Maintaining societal cohesion in western societies, where the better off in those societies import cheaper consumable products from the so-called ‘less developed’ world, while leaving large sections of their own populations idle, will be a very difficult and formidable undertaking.
While it would be foolish to impede or threaten the security of strong trading nations by restricting their access to the basics of living (especially food and water and fuel), strong trading nations must recognise that trade imbalances threaten the basics of living in other societies.
Trade imbalances are not a zero sum game, no matter how much international financiers would make them appear so.
Thanks, Kevin for giving such a good historical perspective on trade. I really liked your quotes from Richard Glover: echoes of the dreaded Brexit “debate”.
Joseph Ryan: I take issue with you on some points: first you say “Trade imbalances are not a zero sum game, no matter how much international financiers would make them appear so”. By definition trade imbalances worldwide sum to zero if they are accurately and consistently measured. Did you mean to say that trade itself is not a zero-sum game in terms of global benefits? I don’t quite get the relevance of the reference to international financiers
While international trade is a positive-sum game and under certain conditions can bring benefits to all participating countries, the real problem is at a more micro level: not everyone within a given country is a gainer. Failure to help “losers” to adjust has lead to trade and foreigners being scapegoated. Failure to curb monopoly power, especially in the Tech sector hasn’t helped either.
Having a rules-based international trade regime is crucially important for smaller countries, who will always get trampled when rules are replaced by the likes of Trump. As to your question: “Who will set the rules?”, that requires a lot of careful and prolonged negotiation and rule-building. The huge danger is that we are in danger of throwing away the results of such rule-building and it may take a long time to rebuild what gets destroyed.
So fight for existing rules-based arrangements, even if they are imperfect. The alternative is much worse.
Yes, I did mean in terms of global benefits.
“By definition trade imbalances worldwide sum to zero..” The key here is in term ‘worldwide’. People (other than the super-rich) do not live worldwide. They live in individual countries, and their fortunes rise and fall, generally, as the fortunes of their countries and fall. The fact that, in theory, trade imbalances sum to zero on a spreadsheet, is a useless and deceitful concept in the lives of the people worst affected.
My reference to international financiers, is again the same point, but with further caveats. International financiers would have us believe that banking and finance is about moving capital efficiently etc. In reality a large percentage of moving money is speculative gambling, based on hunches etc. Ireland was still (I think) running trade surplus in the recent crisis years, but there was no capital of any kind to be found in the economy. The money had disappeared even though trade was still flowing well.
On the general question of who sets the rules, and what kind of rules are they, we can agree that this is very important.
Keynes, as I understand it, argued without success at the Breton Woods conference that surplus countries should be taxed / penalised. The EU has a deficit procedure (3%), which is forcefully monitored except in the case of France; but as for any sanction for trade surplus countries? I think there are, but who bothers with them?
In general free trade may be a good thing; but not if predicated on child labour in many parts of the world, or on people working like ‘battery hens’ in China.
Fundamentally there has be an ethical basis to economics, and if trade balances or imbalances are achieved by a rules system that allows unethical abuse of people, whether through gross inequality, child labour, women working as battery hens, or slaves, then I would see no reason to abide by those rules.
That was also part of the message I took from the presidents Australia speech (previous post), which I wholeheartedly agree with.
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