Since 2007, an escalation of protectionism has been hidden behind a pseudo-globalist rhetoric. Our so-called free trade treaties are actually treaties where trade is heavily regulated both politically and bureaucratically.
When it comes to politicians, we have to measure them by what they do and not by what they say. This is critical to our analysis of how close we were to a global trade war – which would have reversed the sustained global reduction of poverty – and what Trump’s protectionist rhetoric means in our current political environment. The reports of the Geopolitical Intelligence Service, founded by Prince Miguel of Liechtenstein, make this clear with their detailed analyses of policies, legislation, and regulations.
Speeches and rhetoric appear to point to a struggle between globalist revolutionaries and protectionist reactionaries. That supposed champions of globalization are politicians, and high-level bureaucrats, socialists or social democrats incorporating their ideological agenda in trade agreements, gives much food for thought. Reviewing what they have done more than what they have said, helps to clarify the issues.
Under the Obama administration – the supposed presidential champion of globalization – the United States was the country that applied the most protectionist policies among the main economies of the world.
And that silent, low-intensity trade war waged from the White House between 2008 and 2016 – all the Obama Administration – managed to stall world trade. When global trade slows down, politicians assume it is a zero-sum game. This is what they know. And what their careers depend on.
Although protectionism makes products, local and imported, more expensive for all consumers, the loss of many can profit the few. Unlike free trade, in which everyone wins – some more and others less, the profits of the beneficiaries of protectionism do come out of the losses of each and every one of those forced to pay higher prices for products.
The losses of each individual are dispersed amongst a crowd that is not organized politically. The gains are concentrated in few, who are organized to invest in political influence to win without competing. Instead of investing in better goods and services, they profit by eliminating competition.
These are matters of fact, independent of political rhetoric:
- Trade liberalization has stopped and even reversed since 2008.
- The Obama administration led the introduction of protectionist measures under the cloak of its “globalist” rhetoric.
- The global economic crisis gave political validity to populist and interventionist discourses running contrary to free trade.
- The Trump administration risks the successes of its policies of tax reduction and deregulation, under which investments grow, flirting with a trade policy that would continue, and further, the hypocritical protectionist trade policy with which Obama left the world on the verge of a trade war; which is something we haven’t seen since the 1930s.
It is the worst moment imaginable for protectionism to evolve from being the poorly hidden shame of Obama. Trump is jeopardizing the greatest reduction of taxes and regulations seen in the United States since the Reagan administration.
The world has enjoyed a great expansion of trade over the last 35 years. The estimated contribution of trade flows to global GDP rose from 39% in 1989 to 56% in 2010. In 1986, the average tariff for international trade was just over 25%.
As of 2010, it had dropped to just over 8%. This was a change that required a lot of political negotiation: it required major efficiency improvements for incompetent protected companies, and it required major battles with special interests. Ultimately, it achieved more productivity and higher income worldwide.
In fact, the current decline in global poverty depends on keeping the flow of international trade competitive. The trend towards forcing higher marginal tax rates driven by the EU clashed with the iceberg of Trump’s tax reform. And most of the regulatory initiatives implemented by Obama have been blocked or rescinded.
There are two areas in which international competition must be promoted so that globalization continues to improve the world economy: greater competitiveness and higher wages. These are effects that would be reversed if the Trump administration furthers, instead of reverses, Obama’s trade policy.
Trump’s statements about trade wars would be barely credible if Obama had not thrust the US and the rest of the world into the midst of a surreptitious trade war in which we all lose. As in stands now, the Trump administration manages to stick mostly to protectionist rhetoric. But if Trump does not dismantle the massive protectionist bomb that Obama left behind, it will explode, destroying his tax and regulatory policies.
The Republican majority in the House and Senate failed to integrate a necessary reduction in government spending in order to implement a coherent fiscal reform. They therefore depend on indebtedness in the short term; and on the subsequent effects of tax reduction and deregulation on investment and growth to neutralize, at least partially, this indebtedness.
To continue openly with Obama’s disastrous trade policy would be bad in any scenario.