The Missing Elements

In his op-ed at the New York Times in defense of international trade, history prof Adam Tooze observes:

To think, as Mr. Trump appears to do, of nations locked in mortal economic rivalry shows a grave misunderstanding of how competition actually works in the global economy. Competition is, of course, an ordering principle. If neoliberalism is about anything, it has been about creating the largest possible economic space for competition. But the protagonists aren’t supposed to be states (or at least not members of the Atlantic club) but businesses, investors and workers.

It is the job of trade and investment treaties to regulate what preference can be shown to national firms, what rights will be extended to foreign investors. The European Union boasts of particularly tough internal regulations in this regard. National preference is outlawed as far as possible.

Over recent decades, these principles of international organization have come to be entrenched in transnational production systems that make nonsense of economic nationalism. Owning a Ford truck is an instantly recognizable statement of Americanism, but barely half of its components are sourced in North America. Buy an icon of Americana, and your money ends up all over the world.

This interconnection cuts both ways. We hang together in sickness as well as in health. It is not just manufacturing but finance too that is integrated across borders. When the real estate bubble burst in 2008, European as well as American banks imploded. To keep them alive, the U.S. Federal Reserve provided liquidity running into the trillions of dollars both to their branches on Wall Street and by way of the liquidity swap lines extended to the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank. The Fed took this extraordinary step because previous decades had built a system of integration so close that it would have been lethal for the United States not to act. Saving the American financial system meant saving Europe’s banks, too.

But that is too superficial a consideration of what’s happened. What has actually happened is that the United States has decreased its share of manufacturing, offshoring a considerable proportion of its heavy and light manufacturing to Japan, China, and South Korea, and increased its share of the financial services business. The former reduced the number of relatively high-paying manufacturing jobs by the millions, replacing them with low-wage service jobs or nothing at all, while the latter increased the wealth and income of a relatively small number of already-rich financiers.

Additionally, he shows little understanding or recognition of the role that a fiat currency plays in our present model of international trade. Consider that China, Japan, South Korea, and Germany all hold dollar reserves far in excess of World Bank guidelines.

He also fails to take into account smaller stakeholders in international trade, the scores of smaller, developing countries whose economies are gravely injured by large American and European agricultural subsidies and Chinese manufacturing and export subsidies alike.

I agree with Dr. Tooze’s basic premises—that there’s far too much talk of international trade as a zero-sum game, particularly by the Trump Administration, that free and fair trade could be beneficial to all parties, and that Europe is actually a pretty good trading partner. But reality must intrude somewhere and that’s where I think that Dr. Tooze’s op-ed falls short.