Since 2008-09, the major capitalist economies have been locked in what we could call a Long Depression, characterized by weak economic growth (a slower recovery from a slump than even in the Great Depression of the 1930s), weak investment rates and low profitability for big business.
To make things worse, President Trump and his new ‘protectionist’ advisers are threatening a series of measures to reduce the quantity of imports the US gets from other countries – particularly China.
The mainstream economics view is that free trade is good for all. And yet the historical evidence contradicts this. Over the past three decades, world capitalist economies have moved closer to ‘free trade’ with sharp reductions in tariffs, quotas, other restrictions, and by signing many international trade deals. But average annual economic growth since the 1980s has been slower than in the ‘golden age’ of the 1960s.
Free trade ‘works’ when the profitability of capital is rising everywhere and everybody gains from a larger slice of the cake of value, even if in differing proportions. Then globalization appears attractive. The strongest capitalist economy will always be the strongest advocate of ‘free trade’, as Britain was between 1850 and 1870 and the US was between 1945 and 2000. ‘Globalization’ was the mantra of the US and its international agencies: the World Bank, the OECD and the IMF in the post-1945 period.
But if profitability starts to fall consistently, as is happening now thanks to the Long Depression, then free trade loses its glamour – especially for the weaker capitalist economies as the profit cake starts to shrink for them. ‘Populism’ and nationalism then rear their heads and mainstream economists opposed to ‘free trade’ become more prominent.
A trade war would lower export sales for most countries and drive up prices of imports for households and companies. As a result, economic growth would slow, along with employment and investment. Real incomes would fall for the very people Trump claims his protectionism would benefit. ‘Free trade’ weakens the weak and strengthens the strong; but a trade war will weaken all.
If this happens – just at a time that the US Federal Reserve is thinking about raising the cost of borrowing to control budding inflation – it could be the final ingredient in a recipe for new economic recession, at a time when most countries are just recovering, 10 years after the last one.
Article originally written by Michael Roberts for The New Internationalist
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Even if we have had a slowing economic growth, It think we have been really picking up the pace in the recent years. Stock markets are going fantastic and the interest rates are starting to get hiked up
Stock markets have been artificially propped up by the central bank. Federal Reserve System is taking a page from the Central Bank of Japan playbook. Stock may go up from here, but the higher the go via this route the harder the fall for those that buy into this nonsense.
I'm stacking while this crackalackin....