Who Wins Trade Wars? A Brief Incursion into History Economy Near Us (XVII)
Intended to restore the greatness of America (how can we forget Make America great again?), the trade war triggered by the United States against uncomfortable partners such as China on the basis of secular trade deficits and other grievances is causing a wave of global concern. It has resulted, at the very least, in a slowdown in the increase of the international trade volumes, 2.6% in 2019 compared to 3% in 2018, according to a World Trade Organization Press Release.
There are many theories, particularly populist and nationalist, which argue that the liberalization of world trade has led to increased inequality between rich and poor states and within rich states, and it is obvious that world trade does not have only positive consequences. However, it is our opinion that the existence of stronger trade links significantly contributes to stabilization and to the development of all actors involved. Also, the attempts to restrict trade have as consequences, among other things, wars and poverty.
In this article, we will try to give some examples from history that can support our thesis.
Trade: in old epochs…
The first successful attempt to create auspicious conditions for the development of free trade took place during the Roman Empire, which needed grain, livestock, and other foodstuffs from the Middle East and North Africa to support its growth and conquests.
Thus, over a period of about 200 years, between the reigns of Julius Caesar and Marcus Aurelius, the Romans managed to transform the Mediterranean Sea into an inner sea ("our sea"), ensuring the freedom of movement and creating the premises of an economic flourishing not yet seen in the world, and to which countries in the Middle East and North Africa still aspire today[1]. According to Abulafia (2011), "traders of the second century might well have wondered what could possibly shatter the unity of the Mediterranean. It was a political unity, under Rome; it was an economic unity, allowing traders to crisscross the Mediterranean without interference; it was a cultural unity, dominated by Hellenistic culture, whether expressed in Greek or in Latin; it was even in many respects a religious unity, or unity in diversity, as the peoples of the Mediterranean shared their gods with one another, unless they were Jews or Christians."
A second case relates to the triggers of the Dark Ages, which, according to the Pirenne thesis, released by Belgian historian Henri Pirenne and backed by the Italian historian Robert Lopez[2], would not have really begun until after the middle of the 7th century when the Arab Caliphate took control of the Mediterranean Sea from the Byzantines, separating the East and West of the former Roman Empire. The approximately 130 years that have passed until Charles Martel’s death may be the longest stagnation in Europe's history.
According to Pirenne, after the conversion to Roman Catholicism, the new rulers of the Roman Empire, the Frankish Merovingian kings, maintained the essential characteristics of the Roman administration and even the gold coins issued by them, thus continuing the socio-economic system of the classical world, the most important change being the structure of state leadership. The deterioration until the cessation of trade and other overseas links that prompted Western Europe to return to a primitive and autarchic economy was the result of the Arab conquests. In fact, Robert Lopez confirms that, during this period, the "four disappearances" were recorded: papyrus, luxury products, spices and gold coins, and commodities produced in Byzantium that could no longer reach the West. In Europe, both the state and the church used papyrus in various economic and administrative activities; silks and brocades were customary at the royal courtyards and in the wardrobe of church prelates, being replaced by Flemish wool clothing after the ceasing of trade relations.
…and in recent times
In the twentieth century, the most important events that led to an unprecedented reversal of globalization in international economic relations and which may have constituted the most important factors for the outbreak of World War II were World War I and the Great Depression.
World War I led to an immediate disintegration of international commodity markets, a change in domestic and international economic policy, and a reallocation and inner reorientation of global economic activity that made it almost impossible the return to the status quo present before its outbreak, even in the prosperous conditions of the 1920s[3].
When the second major shock, the Great Depression, hit the economic system, the result was an escalation of protectionism and a renewed disintegration of international commodity markets. It began in 1930 with the promulgation of the Smoot-Hawley Act[4] regarding the introduction of tariffs on some agricultural and industrial products in order to protect the agricultural sector and the US stock market, despite a petition signed by more than 1,000 economists by which they asked President Hoover to exercise his veto against it (in 2018, more than 1,100 US economists made similar unsuccessful appeals to President Trump and Congress[5] asking them not to make the same mistakes as in the 1930s).
Unfortunately, President Hoover extended the scope of the law to include about 20,000 products from different sectors. Even though the US successfully reduced its import dependence over the next few years, the retaliation from other countries (including Canada) led to a decline of 61% in US exports by 1933, widening the economic crisis. Therefore, Hoover lost the next election to Franklin D. Roosevelt (neither Smoot nor Hawley were re-elected in the next congressional elections).
Conclusion
Our opinion is that protectionism inspired by fear, ignorance, choosing the easiest way by satisfying short-term needs instead of implementing long-term strategies, the belief that the past is always better than the present and the future, can only lead to the increase of distrust, to the sharp decline of trade relations, and to the achievement of a turning point: the inability of states to resolve the disputes between them in a peaceful manner.
Notes:
[1] David Abulafia, The great sea: a human history of the Mediterranean, Oxford University Press, 2011, pp. 191-211.
[2] Ronald Findlay; Kevin H. O’Rourke, Power and plenty. Trade, war, and the world economy in the second millennium, Princeton University Press, 2007, pp. 71-73.
[3] Ronald Findlay; Kevin H. O’Rourke, Power and plenty. Trade, war, and the world economy in the second millennium, Princeton University Press, 2007, pp. 121-171.
[4] https://www.britannica.com/topic/Smoot-Hawley-Tariff-Act.
[5] http://www.hurriyetdailynews.com/us-economists-urge-trump-to-avoid-protectionist-mistakes-of- the-1930s-131327.
