Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Last G-20 Meeting Marks the End of Free Trade

Economics / Global Economy Mar 29, 2017 - 01:47 PM GMT

By: John_Mauldin

Economics

BY GEORGE FRIEDMAN : In the last G-20 meeting, its members agreed to drop the forum’s commitment to free trade at the insistence of the United States. That agreement was reached at one meeting and was contained in a single document—such agreements and documents are far from written in stone.

In spite of that, it must be regarded as a historical moment. Excluding the free trade commitment from the agreement marks a fundamental shift in a concept that has been central to global economics for more than a generation.


Free Trade as a Tool, Not a Principle

Trump has argued that free trade is not a principle, but rather a tool for improving the economic conditions of nations. If free trade failed to do so, it should be discarded.

Trump also argued that many nations, such as China, had not practiced free trade, although they had benefited from it. In any event, the US would examine trade relations and tariffs against a simple criterion: Does it benefit the US?

In the end, each nation pursues its own interests. For the most part, free trade has appeared advantageous to all of them. But the problem is that we are in an export crisis, as we have previously discussed (read more in our free report Germany’s Invisible Crisis and How the World Should See It).

As long as the global economy remains sluggish—growing at less than 2 percent—those export numbers will not rise. Exporters are hostages to importers, and importers are not buying.

The problem is figuring out how to pump up economies so they can afford more imports. Exporters are depending on importers to improve their own economies so that they can buy more exports. But increasing demand based on domestic consumption alone is difficult.

Low exporters can do it, but increasing consumption in order to buy more goods from other countries can only undercut recovery. Politically, in the post-2008 world, recoveries must be based on domestic consumption buying domestic production.

Free Trade Is Powerful Only in Theory

We’ve written about this before, but free trade theory is powerful. It dictates that if all nations focus on selling what they are most efficient at producing, everyone will benefit. The theory of comparative advantage that Ricardo laid out makes a lot of sense abstractly, and the international system has since been in awe of the principle.

But this principle has two problems.

The first is distribution. Ricardo wrote at a time when labor was fungible. A farm laborer could adjust to working in a factory in 1800, for instance. Thus, as product profitability shifted, new products would be produced, and laborers would shift jobs.

But steel workers are not computer coders, and they probably won’t learn the skill. Labor is no longer fungible. The outcome of this is that when you close steel mills to take advantage of software product, GDP may increase, but so will the worst kind of unemployment: non-cyclical unemployment that leaves workers without an equivalent salaried job for the rest of their lives.

The second problem is timing. A favorite phrase of economists is “in the long run.” The problem is that that human clock and the economic clock run at different rates.

Over the next 50 years, abandoning an industry to focus on another makes sense. But to a 45-year-old worker, this means his life will be ruined. Put enough lives at risk, and the political system will intervene.

2008 Triggered a Political Shift

The 2008 crisis was not a normal cyclical event. It changed the entire economic dynamic of most of the world. That has triggered a massive political shift.

Free trade was easy to absorb prior to 2008. The situation for many was deteriorating, but cushioned by growth, and not progressing that quickly. After 2008, deterioration accelerated and the cushion kept getting thinner.

The law of comparative advantages meant that the production of many things would shift overseas, either by building factories in low-wage areas or importing products. The focus was on those things at which the US excelled, such as technology, financial services, and the rest.

This created the social distinction that dominated the last US election. The law of comparative advantages benefitted coastal areas and parts of the interior, while much of the interior lost ground at a rapidly increasing rate.

The US West Coast and the Northeast—home to technology, financial services, and such things—emphatically supported Hillary Clinton. Depending on the circumstances, the rest of the country (a vast generalization) saw free trade as a threat to their current incomes and future hopes.

They voted for Trump.

The US then told the G-20 that free trade is off the table, and the G-20 agreed. Because regardless of who is president, the US is the 800-pound gorilla.

And so we come to the upcoming visit of China’s President Xi Jinping to Trump’s Mar-a-Lago Florida estate to meet with a president who can’t budge on free trade and still maintain his constituency.

Xi can’t give up on free trade without increasing pain in China, a country he is struggling to manage. Ricardo is wincing. Machiavelli is grinning ear to ear.

Watch George Friedman's Ground-breaking Documentary, Crisis & Chaos: Are We Moving Toward World War III?

Russian adventurism. An ailing EU. Devastation in the Middle East. These are just three symptoms of a systemic instability engulfing a region that’s home to 5 billion of the planet’s 7 billion people.

In this provocative documentary from Mauldin Economics and Geopolitical Futures, George Friedman uncovers the crises convulsing Europe, the Middle East, and Asia… and reveals the geopolitical chess moves that could trigger global conflict. Register to watch the documentary now.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules