Esteemed economist, Adam Posen, speaks out on trade wars and tariffs. This is one of his most important statements regarding the New World Order:
At the heart of that order, it put the liberal values of free trade and the rule of law. Over the next seven decades, the order, backed by U.S. power and bolstered by its growing legitimacy among other countries, prevented most economic disputes from escalating into mutually destructive trade wars, let alone military conflict. That allowed even the smallest and poorest countries to develop their social and economic potential without having to worry about predation by stronger neighbors. By taking much of the fear out of the global economy, the U.S.-led order allowed market decisions to be driven by business, not bullying.
The order is far from perfect and has applied clear and hurtful abuses to the masses, and Posen points out many abuses. But the alternative to US guidance likely will prove the be much worse.
Dr. Posen is the president of the Peterson Institute for International Economics. He is a member of the Trilateral Commission, and the CFR. He is an insider. That makes some people uncomfortable. This is likely because many have observed that there is a fine line between free trade and abuse of empire.
The US set up a system whereby free trade would thrive and nations would improve economically all over the globe. The theory behind that is that the more affluent the consumer, the more they will buy from our corporations.
But the system was seriously abused at times. Three major abuses can be singled out:
- American workers have been abused by jobs moving offshore without adequate compensation by the US government.
- And American consumers have been abused by liar loans and by financial products imported from globalist banking. The Federal Reserve Bank did not bail out the borrowers but rather bailed out the sources of the toxic loans! This has not been pleasantly received by the American public. All that abuse, corporate abuse of consumers included, must be acknowledged and owned. But it still is not fully owned.
- Nations claiming democracy have had their leaders murdered, sometimes at the hands of US forces. Latin America is a poster child for this past US behavior.
But Posen makes the case for free trade versus the ideas of tariff wars espoused increasingly by Donald Trump, and some of both political parties. Tariff wars are meant, in the long run, to either beat down a perceived adversary, or to set up something other than globalization.
It appears that with the new Nafta, USMCA, Donald Trump has determined to curb our regional partners from making trade deals with those outside the trade block, especially with any nations that have command economies. Trump aspires to regional trade blocks, which is becoming more apparent from his actions. Regional trade will be less efficient and cost American consumers more. And regional trade will exclude America from the huge Asian market.
But I believe that Adam Posen subscribes to the efforts to make the world a better place. His concerns have included ways to improve Japan's growth after the lost decade. Posen acknowledges USA abuse, maybe not forcefully enough, but says the alternatives are worse:
The U.S. doesn't always do the right thing. But on average, it both tries to do the right thing and professes to do the right thing more credibly than anybody else. A world where the enforcer of rules or the setting out of ideal behavior is Europe or China is just simply not going to be as trusted. The U.S. is the biggest country in the block, but it generally hasn't been the bully. It's been saying, "We should do commerce without bilateral pressure determining how that works," and it's worked out really well. The world's gotten much richer over the last 50 years, 60 years as a result of that.
Dr. Posen clearly states that the law structures established, primarily by the United States, should be preserved:
The system that the U.S. built with the buy-in from Europe, Japan and others is not just about trust. It is about a set of rules, it is about a set of institutions, so to some degree it can survive as long as the U.S. doesn't directly attack those, as long as the U.S. pays its membership dues and lets itself be adjudicated by them. It doesn't have to lead them. But I think there's a good historical analogy to the late '70s. There was a huge amount of distrust of the U.S. after the U.S. broke the gold standard, ran irresponsible fiscal policies, fought the war in Vietnam, and it took several years for the U.S. to come back into people's trust, but eventually they did.
Trump could be to our prosperity in the world like the Vietnam War was. Trust is eroding as it did while America bogged down in that no win war. The trade war appears to be spiraling out of control.
The threat to institutions like the World Trade Organization is on the Trump agenda. Donald Trump has sometimes telegraphed a disdain for the rule of law, both domestically and internationally. The USA was a key player in the establishment of the WTO.
We should be concerned here, and side with Posen on the general idea that free trade is the lesser of two evils and Donald Trump's tariff plan is the greater of two evils.
Trump has upped his America First game to uncomfortable levels. As Adolph Hitler told his followers to raise their right hands, so to did Donald Trump just tell his followers to raise their right hands as a pledge to go vote for him. Surely this should send a chill down the spines of historians everywhere.
Likewise, Donald Trump proclaimed he is a nationalist at a Houston rally on October 22, 2018. In Germany, nationalism was a strong thread in German politics, making the nation susceptible to a strong advocate of an aggressive nationalism. That strong man was Adolph Hitler.
We should be going from sanguine to alarmed. And we should be alarmed on multiple fronts. The base knows that Trump coming out as a nationalist makes a specific statement to them. It is impossible for them to take it any other way than that he wants to be extreme, and they want him to be extreme.
Even Jim Cramer has finally spoken of the the companies and deals that could be sacrificed as he finally acknowledges that Trump wants a cold war and Wall Street does not. Cramer listed Micron Technology and Rockwell Collins as being particularly vulnerable. Apple and others may have enough pull with the Chinese government to avoid being sacrificed, but it certainly is a dicey situation for retail investors.
Unfortunately, Wall Street has not enamored itself to the public or it would and could make a stronger argument for free trade. But I wonder if even Cramer understands just how darkly radical Donald Trump is.
Posen warns that once Trump ramps up the tariff war, and he almost predicted it back in 2015, that economic dislocation will increase quickly. In the Marketplace article cited above, here is one more warning quote from the economist.
But I do think, if the Trump administration does go more forcibly down the road that they've been threatening going down, of the U.S. alone, U.S. as just a business competitor, everyone's going to be surprised by the speed with which this turns. Europe and China in particular. They're showing forbearance for the time being. They're like, OK we want to see if the U.S. gets its act together, but once it becomes credible that the U.S. isn't doing that, things will happen very fast.
The US standard of living could be tested. The stability and peace in the world may very well be tested. This is getting serious. I can leave you with some wisdom from another source, because they have discerned that political isolationism can only really safely exist in an environment of free trade. Those who may hope for political isolationism (and in my opinion it would not hurt to stay out of the affairs of other nations as much as is possible), need to realize that tariff wars lead to real war, to mistrust in the world. Here is an excerpt concerning the America First Committee's flaws in hoping to stay out of WW2:
They were for keeping the nation neutral. For various reasons (particularly Pearl Harbor) their plan failed, even though at the beginning they gained the adherence of many Americans. One flaw in their program was a tendency toward protectionism; the anti-involvement became identified with “Buy American” slogans and with high tariffs; that is, with economic, rather than political, isolationism. Economic isolationism—tariffs, quotas, embargoes, and general governmental interference with international trade—is an irritant that can well lead to war, or political interventionism.
The author of the above quote, Frank Chodorov, was not far from Dwight Eisenhower's understanding that the military industrial complex had a vested interest in continual intervention, which makes for a more dangerous world. It only takes a leader who wants trade wars mixed with the inclination by the complex to intervene, that could result in a dangerous mix, a toxic and potentially world threatening mix, of doctrines best kept separated.
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