The Coming Trade War : Part 1

[mom cat]

Jun 16, 2005



The coming trade war and global depression
By Henry C K Liu

Many historians have suggested that the 1929 stock market crash was not the cause of the Great Depression. If anything, the 1929 crash was the technical reflection of the inevitable fate of an overblown bubble economy. Yet stock market crashes can recover within a relatively short time with the help of effective government monetary measures, as demonstrated by the crashes of 1987 (23% drop, recovered in nine months), 1998 (36% drop, recovered in three months) and 2002 (37% drop, recovered in two months).

There was no quick recovery after the 1929 crash. Structurally, what made the Great Depression last for more than a decade from 1929 until the US entry into World War II in 1941 were the 1930 Smoot-Hawley tariffs, which put world trade into a tailspin from which it did not recover until the war began. While the US economy finally recovered through war mobilization after the Japanese attack on Pearl Harbor, Hawaii, on December 7, 1941, most of the world's market economies sank deeper into war-torn distress and did not fully recover until the Korean War boom in 1951.

Barely five years into the 21st century, with a globalized neo-liberal trade regime firmly in place in a world where market economy has become the norm, trade protectionism appears to be fast re-emerging and developing into a new global trade war of complex dimensions. The irony is that this new trade war is being launched not by the poor economies that have been receiving the short end of the trade stick, but by the US, which has been winning more than it has been losing on all counts from globalized neo-liberal trade, with the European Union following suit in lockstep. Japan, of course, has never let up on protectionism and never taken competition policy seriously. The rich nations need to recognize that their efforts to squeeze every last drop of advantage out of already unfair trade will only plunge the world into deep depression. History has shown that while the poor suffer more in economic depressions, the rich, even as they are financially cushioned by their wealth, are hurt by political repercussions in the form of either war or revolution, or both.

Cold War and moral imperative
During the Cold War, there was no international free trade. The economies of the two contending ideology blocs were completely disconnected. Within each bloc, economies interacted through foreign aid and memorandum trade from their respective superpowers. The competition was not for profit but for the hearts and minds of the people in the two opposing blocs, as well as those in the non-aligned nations in the Third World. The competition between the two superpowers was to give rather than to take from their separate fraternal economies.

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[Pharaoh]

1. right on again mom cat

you find great articles, thanks........

[mom cat]

4. Start looking at the Asia Times..They have some great stuff!

[eridani]

2. Whatchu mean "we" benefitted from "free" trade?

Our glorious overlords surely did, but not the rest of us. Come to think of it, poor countries have that exact same problem.

[mom cat]

5. They are doing the same thing to us...just more gently, for now!

[Dirk39]

3. Hello from Germany,

I just started to read it all.


http://www.atimes.com/atimes/others/trade-war.html

Dirk

[mom cat]

6. I haven't finished the series yet, but it is helping me understand more

about what is happening on a global scale economically than anything I have read before.

[proud patriot]

9. Thanks for the link Dirk

:hi:

[idlisambar]

7. not a good sense of history

There was no quick recovery after the 1929 crash. Structurally what made the Great Depression last for more than a decade from 1929 until the US entry into World War II in 1941 were the 1930 Smoot-Hawley tariffs, which put world trade into a tailspin from which it did not recover until the war began.

This is a highly disputed notion, not to be suggested without qualification. There are two interested parties who have pushed this idea: One, obviously, are free-trade advocates who hope to demonize the notion of tariffs; Two, are those who want to bring back 1920's era economic and regulatory policies (pre-New deal) -- these folks welcome a scapegoat outside of the speculative bubble. An alternative analysis is here...

http://www.huppi.com/kangaroo/SmootHawley.htm

Japan, of course, has never let up on protectionism and never taken competition policy seriously.

To be more precise, Japan protects its home market when needed, but it also competes vigourously abroad, and usually wins.

Liu is right to be worried about the global trade environment, but he doesn't understand that we are already in the midst of a trade war, and the threat is not rising protectionism -- that is only a symptom. The roots of this trade war is the US's tacit decision to deindustrialize.

[mom cat]

8. Thanks for your comments. I was wondering about the stance on

tarriffs in the article, and your discussion of the backets of his theory help me put it into perspective. This is why I appreciats DU.