Trade and World Peace -- Economic Nationalism Leads to War

President Trump is a strong economic nationalist.  He believes that this country should source everything domestically - its products and its labor - and any labor or resources that are coming from other countries should either be stopped by a wall or heavily taxed.

Economists and I will spend a lot of time over the next four years trying to explain to our economically-ignorant administration why global trade and the global division of labor increase domestic incomes and production rather than decreasing them.  But I do not want to lose sight of another important benefit of open trade in the global economy - peace.

We often miss the fact because our news is dominated by stories of violence and terror, but we live in times of unprecedented peace around the world.  It is no coincidence that this is occurring at the same time that global trade is at a historic peak.  People and governments can obtain just about anything they want, inexpensively, through voluntary trade.  This has seldom been the case through history -- and when people could not get what they wanted through free trade, they tried to take it by force.

Think about the corollary of Trump's economic nationalism, particularly if everyone followed this same approach.  If one skews all the rules and taxes and prohibitions so everything must be sourced domestically, then if a country does not have some particular resource or skill domestically, it is out of luck.  No domestic rare earth metals?  Sorry.

But governments and powerful people seldom calmly accept that something they critically need is not available.  They will be tempted to go and take it.  The worst, most violent empire building of the last 100-150 years has occurred when countries have pursued economic nationalism.  Think of the colonialism of the late 19th century.  Today we happily trade with South Africa and other countries for valuable resources, but in that time of economic nationalism, if a country wanted access to these resources, it felt it had to control the land and the people.  Hitler in the 1930's wanted to make Germany self-sufficient in agricultural goods and certain other resources, and the only way to do that was to go and grab other people's land and resources.

The best example of all of this phenomenon is, I think, Japan in the 1930's.  Japan felt that it was resource poor and under Trump's theory of economic nationalism, it felt it had to control oil and other resources it did not have domestically.  So it plotted to go take it.  When the US instituted a trade embargo in these very goods to punish Japan's aggressiveness in China, it just accelerated Japan's thinking in this area, convincing it for good it had to control these resources, and it was soon invading the oil-rich islands of what is now Indonesia.  This example is all the more telling because Japan actually found true prosperity after the war when it traded peacefully for these resources.  Unfortunately, it adopted economic nationalism, via MITI, of another form and helped manage themselves into a 20-year recession, but that is another trade-related story for another day.

Postscript:  I have more to say on this when I get my thoughts better organized.  Right now I am hurrying to a plane, for Regina, Canada, where I am speaking on global warming tomorrow.  There is a related issue of what happens when strong protectionism on our part pushes China over into the crash they have been putting off for years -- suddenly a crash largely of their making becomes the fault of the US, with implications for a formation of a new cold war, but that again is another topic for another day.

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Regina? In January?

yr.no says you'll survive. But for how long?

Well thanks for the "history" lesson. It's marginally factual but it glosses over so many factors that it quickly becomes absurd. Suffice it to say that the causes of Germany's militarization and subsequent aggression were not primarily motivated by German desire for agricultural self sufficiency (Lebensraum is much more than this anyway). Nor was Japan's warlike Bushido culture a product of the need to control resources. All in all, your historical comparisons to the current topic are irrelevant.

This isn't a Trump thing. Just look at all the steel tariffs added by previous presidents under the guise of anti dumping laws.

For example,
http://www.washingtontimes.com/news/2016/sep/19/feds-should-end-protectionist-steel-tariffs/

The fundamental flaw with this idea is that nationalism is a relatively new force in politics.

If you set aside that, WWI and occurred despite "record levels of trade". Economics does not trump politics when it comes to war.

"
ransfer the taxable profits earned in the United States to off-shore shell companies that means they do not pay their share of the taxes.
"
If they are earning the money here and moving it offshore, that's one thing. The problem is that the money you're referring to is earned overseas, not in the US.

American companies are sitting record amounts of cash. They have it. So why again aren't they investing it?

"
We all shop for the best deal we can get for any good or service. Don't you?
"

I don't buy pirelli tires now that the Chinese and Russian own them.

"
For tariffs, Trump has emphasized a tariff on products that are imported into U.S. WHEN those same goods were previously made in the U.S. but companies shut down that production, shifted production overseas, AND will import the same product back to the U.S.
"

How one implements this is open for quite the interpretation because this is hard to prove. Worse, it's easy to game. If you don't officially shut the factory down, no tariff.

Worstestestest, it makes future investors think thrice before setting up shop in the US. And that at a time when all other forces combined are making producing near the source of sale a good move.

No, it isn't. U.S. corporations transfer trillions of dollars of profits earned in the United States to shell corporations located outside the United States.

Here is an example

http://www.seattletimes.com/business/microsoft/how-microsoft-parks-profits-offshore-to-pare-its-tax-bill/

I think you're referring to mercantilism and not specifically economic nationalism, though they look very alike!

Also, economic nationalism specifically isn't a cause of war; it's just power politics. I've read enough about the roman empire, china, etc. and I've come to the conclusion it's all just about power and prestige. As Clausewitz said, "war is politics by other means," if the ruling class of a powerful country can get what it wants without using war, they'll go with that option, otherwise, they will try to use something as a casus belli to declare war and use war to get what they want. Mercantilism was used in the past as a casus belli (in fact it was a very effective one as its economic model was inherently violent) as was things like honor, the mandate of heaven, etc.

The US doesn't use war (mostly) because it can just establish free trade with countries and use its status as an economic powerhouse to dominate them.

Many said the economic ties between the european countries in the early 20th century would prevent war and then they got WW1 anyway. The assassination of the arch duke just set off what everyone wanted to happen anyway (the austro-hungarian empire was planning to take out serbia years before the assassination).

Warren, assume that Trump is not stupid, just because it's an inherent part of the media's take on him.

That take is as valid as "Chimpy McBushitler" was.

Assume that he Gets what you and every other economist worth his collegiate study time seems to grasp, that protectionism is flawed and stupid.

Trump is ALL ABOUT dealing -- Suppose what he's out to do is to force other nations to come to the table READY to deal, and to do so WITH bargaining chips he can give up which he has no real interest in retaining.

Now reconsider your take on what he is doing in light of this.

[And of course, I did want to elucidate how non-viable you (and the libertarian party) are. You can't win. Even if you are right on all points, you can't win. Nobody wants to be lectured to on things that are completely beside the point.]

Nice lecture.

/sarc

Coyote, I think you might be suffering from early onset Trump Derangement Syndrome. Where did Trump say he wanted to make everything in the USA? Where has he said he coverts other countries resources? And then, and before you know it, he is annexing the Sudetenland. Calm down, get some perspective, wait and see etc. Jeez...

Actually, people did say otherwise- before you showed up. They stopped saying otherwise when I explained it to them. Then you came in. I didn't know you understood that foreign investors don't need dollars to invest in America. You did not state that at the outset. In fact, every time I point to a fact- like the irrelevancy of this whole flipping topic, because they already have dollars- instead of paying attention to what I am saying, you go make another irrelevant point.

This is the same situation. Money is a medium of exchange. Yes, but why would you think I don't know that? You didn't pay attention, or you can't comprehend.

I agree that such a move would be a bad idea, and I have little idea on how it could be implemented. However, there are two points that are key: (1) this is a very small portion of trade. (2) Doubtfully, such a measure likely would never be necessary; it is negotiating positon that will not be actually done

I didn't know you understood that foreign investors don't need dollars to invest in America.

Foreign investors need a medium of exchange in order to invest in America. If they buy treasuries, (debt) they will need dollars. If they buy land and build a factory, they will need to spend dollars. few landowners in the US will exchange land for an equivalent value in Rolex watches or diamonds. If you sell those things to someone in the US they will give you dollars. That means you are exporting those things and someone in the US is importing them. That's where you, and all those other eager foreign investors you mention got their dollars: by selling (exporting) goods to the US. That's the answer to the question I asked you, and which you didn't answer, about where those foreign investment dollars came from.

, because they already have dollars- instead of paying attention to what I am saying, you go make another irrelevant point.

And where did they get those dollars? Can you answer that question? I've given you the answer. can you now recite it correctly?

Money is a medium of exchange. Yes, but why would you think I don't know that?

Because you persist in casting doubt on your understanding of that concept by making up imaginative stories about exchanges that you claim don't involve dollars. What's other conclusion could a person reach?

People who own capital assets in the US will want dollars in exchange. I challenge you do find and link to an example of any real estate in the US being sold to a foreign investor for Yuan or Baht or Guilders. Those foreign investors who already hold USD most likely got them in exchange for some good or service that was exported to the US.

I don't know why this is so hard for you. And I can understand why other commenters who tried to explain money to you just gave up and quit responding.

And that is your choice. Choice is good. You may buy or not buy anything available to you for any reason you wish.

If everyone followed you example there would be no Pirelli tires sold in the US, but apparently most people don't care as much as you do about who owns something. They are more interested in getting the best deal they can get.

You should probably check your facts before repeating simplistic protectionist talking points.

I suggest that you cannot make the case for free trade by simply
ignoring the negative consequences.

And no one is doing that. The argument, based on overwhelming historical evidence, is that free trade creates more prosperity and has lifted more people out abject poverty world wide, than any other system ever tried.

You are the lone idiot trying to explain money to me. This is an interesting sort of lunacy. But not one I am going to humor any longer.

Others have long ago given up on you. If you have a question, please ask it, otherwise I can't help you.

You do not deserve questions. You deserve mockery.

"when people could not get what they wanted through free trade, they tried to take it by force."

I don't think this is right. I can't think of a war in the last couple of hundred years that was driven by anyone trying to take something (other than land) by force. We have had wars over who got to govern in some country. We have had wars when one power protected an ally who was perceived under threat. We have had wars to establish geopolitical spheres of influence.

What war would have been prevented by more and freer trade? The only argument that I can see that any war would have been prevented by greater trade is that trade arrangements, and the risk of their destruction, make wars more costly for all parties. This is one of the primary justifications for the European Union - that free trade throughout Europe makes another European war inconceivable, because everyone's prosperity would be in immediate jeopardy. Likewise, trade ties between Taiwan and China make war much more costly for both sides, but not because either Taiwan or China gets critical resources through trade; rather, both sides rely on supplier-customer relationships (often to produce goods to sell to other countries) that would be disrupted by trade.

"Hitler in the 1930's wanted to make Germany self-sufficient in agricultural goods and certain other resources,"

This is a gross misreading of Hitler's agenda. He certainly wanted resources, but more fundamentally he wanted lebensraum, space to build a great German empire. He had decided that overseas empires, like the British and French had built, were not viable for Germany, which could lose access due to its vulnerable naval position. He therefore decided to take it from the subhuman slavs to his east. He actually had pretty free trade with the Soviet Union, which provided him with minerals, oil, food, and other essential materials. He attacked anyway because he wanted the land for Germans.

Likewise with Japan. Certainly, their strategy in World War 2 was based on securing access to resources, particularly in the Dutch East Indies. But they were driven to this by economic blockades over their aggressive and expansionist policies in China. And their aggression in China was driven by their desire to be a great world power, and great world powers expanded their spheres of influence by pushing weaker countries around. Their initial aggression was not about resources, but about status.

The most obvious example in recent history of a war to secure resources would be Saddam Hussein's invasion of Kuwait. But the resource here was oil, which Iraq had in abundance. It wanted more, in order to increase state revenues, but this is a whole different phenomenon than "people taking by force what they could not get through free trade."

I agree that free (or freer) trade is good, and economic nationalism ala Trump is bad for Americans. I think it can even help secure peace. But not because anyone will embark on a war of conquest to take resources.

Totally agreed. Automation is the "labor killer", so to speak. We can stay ahead if we innovate and train people for high-skill jobs. The kind that require reasoning, abstract thought, and education (not training; learning new ways to think).

Once people understand this, we will have either a renaissance or a movement of angry Luddites. I want to be optimistic...