Julian Wood

By Julian Wood - 15/03/2018

Julian Wood

By Julian Wood -

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Back to the Trade Wars?

It seems the Trade Wars are back on. Battle-lines are being draw up like the musket wars of old, with countries facing each other, wielding threats of trade tariffs like weapons. One yells out, “we are going to put a 25 percent tariff on steel, and 10 percent on aluminium!” The other side loads up and yells back, “well we are going to put tariffs on Levis jeans and Kentucky bourbon!”

Even in a small, isolated country like New Zealand it’s increasingly hard not to feel like we are going to be hit in the crossfire.

Only, it’s not really just two countries standing opposite each other, it is multiple countries, all mixed across the field because of the complicated way we now make and trade things. Even in a small, isolated country like New Zealand it’s increasingly hard not to feel like we are going to be hit in the crossfire.

Isolating and shooting at allies like Canada with friendly “tariff fire” doesn’t make America great again.

President Trump has threatened a tariff on imported items like steel, in order to bring manufacturing jobs back to the suffering Rust Belt states like Ohio and Pennsylvania. In the digital age, one has to question equating steel manufacturing with greatness, but the bigger issue at hand is that Trump seems to be ignoring the geopolitical price of resurrecting globally uncompetitive domestic jobs. By choosing to protect steel manufacturing, he is chipping away at the long term strategic political interests of America. Isolating and shooting at allies like Canada with friendly “tariff fire” doesn’t make America great again.

The price of gaining power and influence has historically been to open up your domestic market to outside competition.

The reality of international trade strategy is that for the big players it can be more about international power and influence than jobs or economics. The price of gaining power and influence has historically been to open up your domestic market to outside competition. The Cobden-Chavelier treaty of 1860, the first modern international trade treaty illustrates this. England gained market access to France, in exchange for peace. France decided that bolstering its position in Europe by not having to go to war with England was strategically worth the price of increased domestic competition and the effects on domestic jobs. During the Cold War America took a similar strategy, allowing market access to its allies, not because it made domestic American jobs safer or better, but because it strengthened America’s geopolitical power.

China has recently been using trade as a cornerstone of its geopolitical powerbase. Providing smaller nations with development loans and access to China’s huge domestic market creates a “soft power” dependency, guaranteeing international support in the future for the Chinese Yuan as a global trading currency, or potentially in disputes over issues like the South China Sea.

President Trump and New Zealand would do well to remember the 1500-year-old Chinese proverb that John F Kennedy quoted in his inauguration speech. It warns that “those who foolishly sought power by riding the back of the tiger ended up inside of it.” The domestic economic price for geopolitical stability may be high, but trying to shore up domestic power by riding on the back of the protectionist tiger-whether to protect steel workers or local house buyers-might just mean you end up consumed by the unintended economic and geopolitical consequences.

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Julian Wood

By Julian Wood -

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