Trade Wars

An early lesson I learned from my Introduction to Economics class is the importance of trade for countries. Countries have much more to gain when they trade than when they do not. That said, politics does not always agree with theory and science because you have to consider national pride in producing things in the country and being self-sufficient, and I think that is always what stands in the way of global trade.

It favors a politician to say that factories will be built in the country and jobs will be created than to consider the cheaper price that the citizens will enjoy when they get cheaper products from other countries.

The world is more complex now than it was in the 90's for example, the rise of China has tipped the balance of the world scale and it is just a fact that change is the only thing that is constant. The West still wants to be the world leader and that is not a bad thing, but that should not stop others from developing and doing well. 

What makes China unique is that they not only offer cheap production, but they are also a desirable market for companies. This gives them a vintage position in global trade. Let's take Apple, one of the most valuable American companies in the world. Apple is so dependent on China for the production of its products, but it also needs the Chinese market to sell its products.

There is no denying the role that labor costs play in the price of a product. Labor is very expensive in the West and that is why it is very attractive to produce mostly in Asia and you should not deny companies the opportunity by expecting them to have their production in the West and still be able to compete with their Asian counterparts. 

Has the field been leveled for countries on global trade? The answer is no, because the Chinese government has been accused of protectionism and also of providing subsidies to some key industries that give them an unfair advantage. And I think this is where most observers have problems with global trade. 

On April 2, Donald Trump announced reciprocal tariffs on almost every country that trades with the U.S., and this was viewed negatively by the markets. The problem is that you cannot always have a surplus with all your trading partners, although it would be nice for national pride, but it is not practical. In my opinion, Americans will bear the brunt of this move as the price of goods will increase.

Trump has paused some of the tariffs, although he has promised to still enforce them if the negotiations don't work out, but this has created a lot of uncertainty for businesses who don't know what to expect or what to work with. 

I would say the world is in uncertain times right now but one thing is that it will not last forever but the question is whether we will come out of it better or worse.

Thanks for stopping by.

JaySays