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The State Of The World

A daily Commentary by Wayne Blank


"The State of The World" Number 18
Complete Index Of All Issues

What Really Happens In A Trade War?

No country has or produces everything that it needs or wants. Nations have been trading since the dawn of human history.

Some examples of famous land and sea trade routes were the "Silk Road" between the nations of the Roman Empire, the Middle East, India and China, and the "Spice Route" from the Far and Middle East to North Africa and Europe. Many others have existed right to the present day. Economically, free-market trade is "what makes the world go around."

Traders

World trade has also been the catalyst for political and military matters. It seems like no coincidence that the prime target for one of the greatest terrorist attacks to the present day was the World Trade Center towers in New York.

Some countries became empires as a direct result of their world trade and commerce. For example, the British Empire began with commercial transport routes around much of the world, thereby creating the need for the British Fleet as a police force to protect the merchant ships and their valuable cargoes from pirates and hostile nations.

So too, the continents of North and South America were settled primarily by Britain, the Netherlands, France and Spain for commercial reasons, but later, like the high seas, they established large military forces, and local political systems, wherever their financial interests needed to be protected.

Today, container ships, with their huge cargo capacity for a single voyage, make it possible to ship goods around the world - in some cases for less cost than shipping the same item to distant locations within the same country.

Container Ship

Sometimes, a nation will declare that it has been unfairly treated in the free market system, either as a fact, or as a convenient political excuse for not doing as well as competitors in a truly-free market system, so it will impose barriers or tariffs on goods from other nations. The result will usually temporarily benefit some segment of the economy e.g. blocking foreign-made automobiles will, theoretically, create or save jobs in the local auto industry. That's the easy part.

The problem happens when the nation whose goods have been blocked or made more expensive because of tariffs retaliates, usually in a specific and calculated way against industries that export their products to them - thereby starting a "trade war." The strategic result is that more jobs and financial profit will be lost than gained by the country that starts a trade war.

There have been many trade wars throughout history, but the response and the result have always been the same. Trade wars destroy more domestic jobs than they save, and more ominously, they very often escalate into major military conflicts.

Wayne Blank
pathfinder@keyway.ca





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