The last time there was a trade war it coincided with an economic depression in the US, and didn’t end until World War 2 broke out. Now there is a war of words between the UK and US over a trade dispute involving Bombardier and Boeing. But this could be the first sign of a very worrying trend.
Trade does not only promote wealth, it is a bringer of peace. Make an economy closely intertwined within the global economy, and it is less likely to go all renegade, and start upsetting the international community.
Back in 1930, the US passed the Smoot Hawley Act, entailing a tariff on 20,000 imported goods The US was already in recession at that time, and the seeds of what was to become World War 2 had already largely been sown. But Smooth Hawley certainly did not help, and may have robbed the world of its one chance to get out of economic crisis, and even avoid a world war.
In times of trouble, we look to cast blame, and invariably we find scapegoats who were rarely the cause of the problem. Today, such scapegoats are immigrants, multiculturalism, and globalisation. Others blame neo-liberalism, but some mix this philosophy with liberalism.
President Trump was elected on an anti-globalisation ticket. Maybe an anti-liberal ticket, but not necessarily an anti neo-liberal ticket. It is unfair to say that the Brexit vote was entirely down to an anti-globalisation sentiment – indeed many Brexit voters argued that the EU itself was protectionist and anti-trade beyond its borders. But it is clear that at least some anti-globalisation feeling laid behind Brexit.
Now the US is slapping a 220 per cent tariff on Canadian aircraft maker Bombardier. The UK provides an important part of the Bombardier manufacturing business, and it is thought that the US tariff may cost the UK as many as 4,000 jobs.
Theresa May is not so happy – not “the sort of behaviour we expect from a long-term partner,” she said.
US justification relates to subsidies on the Bombardier business by the Canadian government. But the airline manufacturing business is one that invariably benefits from state subsidies – the costs of entering this business are huge, a profit from investment can take decades, ruling out bank finance. And back in the 1950s, the UK airline manufacturing business was forced into irrelevance by a US industry that was largely state subsidised. US dominance did not change until the development of Airbus, which itself enjoyed massive state subsidies. The EU does not, as a rule, approve of subsidies – that is why Jeremy Corbyn seems so keen on Brexit – but it does allow subsidies of infant industries/businesses – it is called Launch Aid. Airbus benefited from such a scheme, and profits from the business have paid government subsidies.
The US throws its money at its firms, especially in the aerospace area, where defence spending is focused on US industry.
But then frankly, the US always has taken a protectionist stance, in the latter years of the 19th century, when it was still a developing nation, it ignored European IP. But look at the treatment of foreign companies in the US – BP, Toyota, Volkswagen and several European banks. Truth is, non-US firms seem to be punished more severely for their wrongdoing than US firms.
But in this era of anti-globalisation, expect rows such as what we are seeing between the US and Canada, and indirectly the UK, to get worse.
See this in the context of China – the worse thing the West can do is try to shut China out of the global economy – such a move would be guaranteed to cause disagreements that threaten to bring global conflict in the future.
Mrs May said: “I think there is a real challenge for us globally today, because I think that there are aspects of protectionism creeping in around the world.” She then added a rather odd suggestion, “the UK should be a global champion of free trade”. Well, so it should and in fairness often has been, but what percentage of the 52 per cent of the electorate who voted Brexit agree with that?