Contributed by Joe Montero
As the world moves towards trade war, International Monetary Fund (IMF) officials are ringing that warning bell.
Last Monday in Berlin, its Managing Director Christine Legarde, warned that “the clouds on the horizon are getting darker by the day.”
“The biggest and darkest cloud that we see is the deterioration in confidence that is prompted by [the] attempt to challenge the way in which trade has been conducted, in which relationships have been handled and the way in which multilateral organisations have been operating.”
Legarde’s comments were prompted by the mess at the end of the G7 gathering in Quebec (Canada), which resulted in U.S. President Donald Trump attacking the Canadian leader and imposing tariffs on steel and aluminium on Canada, Mexico and the European Union. All three have announced retaliatory measures.
China has been threatened with tariffs on exported goods to the tune of $50 billion and has responded with a similar threat of US goods.
World Trade Organisation (WTO) Director Roberto Azvedo has weighed in, to say that rising tensions “risk a major economic impact, undermining the strongest sustainable period of trade growth since the financial crisis.”
Of course, both officials represent key global organisations that played important roles in building the global regime that preceded more recent developments. The call was to institute what was referred to as free trade, but what it was mostly about was the complete deregulation and liberalisation of investment.
The result was a massive rise in the monopolisation of the global and many national economies, as the big global banks and other financial institutions became undisputed masters of everything.
We have to go back to the 1960’s, when the post-war boom had started to run out of steam. The rate of return on investments was falling, especially in the United States. A global debt crisis had become obvious. The gold standard went in 1968, to be replaced by the American dollar and soon joined with a flexible exchange rate regime.
These things are mentioned, because they are the backdrop to the regime that was subsequently put in place. The liberalisation of finance was a response to a developing crisis, through providing new opportunities for investment, and therefore, new avenues for profit. There was much talk about creating a level playing field, but the truth was that the regime favoured the biggest players, at the expense of everyone else.
Like water seeking the point of least resistance to move along, investment seeks the route to the highest return. The problem had been that the return on existing investments was falling.
Everything was justified under the banner of neoliberalism, and its promoters began to call themselves libertarians. The new regime was said to be the road to freedom.
Unchecked, investment form the big players flowed into the creation of debt, speculation and the raiding of public assets. The rise of the computer era accelerated all of this.
Industrialised countries began to lose their manufacturing bases. Currency and property bubbles emerged and grew. Everything was paid for by ever growing debt and the imposition of austerity measures on most of the world’s population. Given that the American dollar had become the currency of exchange, its quantity blew out, and because this increase in the quantity of money was not matched by the creation of new value, it began to lose its worth and the financial crisis of 2008 came to be.
The human cost has been terrible. Public opinion has turned and demands an end to the neoliberalism era. It hasn’t fixed the underlying problems. Only made them worse.
Here we return to Christine Lagarde’s lament over the “deterioration of confidence.” There is a basis for it. Returning to the regime that she and her organisation contributed towards putting into place is no answer.
As far as the pressures towards trade war that both Lagarde and Azvedo referred to, they too are ultimately a product of the liberalisation of investment manifesting themselves in the present political climate.
The principal fracture line is between the United States and the European Union. Both are under significant economic trouble. Each seeks the other’s territory as a source for profit. They compete globally.
Then there is the rise of China and the China-Russia alliance, which threatens the supremacy of the United States and Europe, not in terms of the interests of the populations of these countries, but the interests of the global banks based in them. The China-Russia alliance threatens to close off avenues for investment.
This tension rising from economic interests, manifests itself in political forms and marks the world of international diplomacy. The failure of neoliberalism, the fallout from the beginning of the era of burst speculative bubbles and excess credit, and the drive for new sources of profit in an increasingly hostile environment have brought about a rise in gunboat diplomacy and is threatening an escalating global trade war. The future has been mad even more precarious, because the same forces have damaged the standing of traditional leaderships and provided an opening for mavericks like Donald Trump.
Lagarde and Azvedo should ponder over this for a while.
The shift to trade war is not good. It risks further harmful economic fallout. The old maxim that trade war is the prelude to a shooting war also applies, and the world is approaching a precipice.
What the world needs is a lessening of tension. This can only come about by nations learning to treat each other with respect and deal with each other as equals, working cooperatively for mutual advantage. This cannot happen when one or two powers seek to dominate over others. The power of finance to distort economic relationships must be broken, through sufficient regulation and turned towards the needs of the whole of humanity.
If the world begins to move in this direction, an even worse crisis may be avoided.