If goods don’t flow, soldiers will

William Briggs warns that history shows trade wars often lead to military conflict

PRESIDENT Donald Trump has taken a very dangerous step towards a full-scale trade war.

He has focused his attack on China which will prompt an inevitable Chinese reaction.

Such economic nationalist policies could have serious repercussions for the global economy, for political stability and for peace.

Australia, as a loyal friend of the US, may have been granted dispensation and exemption from trade war attacks from Trump but this is hardly cause for celebration.

Trade wars, economic nationalism and a retreat behind tariff barriers can only be seen as a dangerous signal to the world and Australia remains a part of that world.

China has been singled out as the chief enemy of American economic policy, and has reacted to the belligerent stance of the US. Australia inevitably becomes drawn into this quagmire.

Wars between competing economic empires have frequently begun from trade war policies. WWI is the most painful and obvious example. Economic structures have not changed. The economy was then, and is now, a globalising order. Globalised economic relations that increasingly bypass national governments and institutions, become problematic for nation states.

Industries move to where profit is maximised. Investments and capital flow to new more profitable manufacturing centres. There are winners and losers.

In reacting to the inevitable problems experienced by individual states, there has been what has been broadly described as a return to economic nationalism. This again echoes the pre-WWI scenario. Economic nationalism is the antithesis of capitalist globalisation and yet it is growing in direct proportion to capitalist globalisation.

It is an economic policy that places capitalist nation states and global capital on a collision course. Protectionist measures in national economies are being actively promoted.

The World Trade Organisation in 2016 describe a “relapse” in G20 economies’ efforts at containing protectionist pressures. Not only is the stockpile of traderestrictive measures continuing to increase, but also more new trade restrictions were recorded.

A decade earlier, former US Federal Reserve chairman Ben Bernanke cautioned against such an economic shift and the negative consequences it might have for the global economy.

There is a tendency in times of economic difficulty to consciously play on nationalist sentiments. Its most blunt expression being in the slogans of Let’s Make America or Russia or China — insert country of choice — great again. National leaders, and populists from the Left or Right react by promoting nationalism and quickly find enemies. This is in no way a new phenomenon.

Martin Wolf of the Financial Times has written extensively of the attempt to reverse the trend toward globalisation that occurred at the end of the 19th century with economic nationalism leading to a stifling of free trade, militarisation, imperialism, and ultimately to war.

Wolf is hardly alone in expressing these fears. Former US Treasury Secretary, Lawrence Summers, writing in 2016, spoke of an unease regarding perceptions that people have that “open” economic policies in recent years are producing a political backlash. The managing director of the IMF, Christine Legarde, remarked that “I hope it is not a 1914 moment and I hope that we can be informed by history to actually address the negative impact of globalisation … because it has historically delivered massive benefits and it can continue to do so”. She was referring specifically to Britain’s decision to leave the European Union, but equally significant in this context have been nationalist sentiments in relation to US-Russia relations, US-China relations and the rise of nationalist political groupings across the globe.

The global economy has struggled since 2008 and the global financial crisis. The level of global trade has fallen and concerns have been expressed that global security, both political and economic, is under real threat.

Peter Holmes, writing in the NATO Review repeats what he describes as an adage that “if goods don’t cross frontiers, soldiers will”. He sees a real possibility of a return to the conditions that dominated thinking in the 1930s and is concerned at a return to policies of protectionism. He lists a variety of threats, with China and Russia being prominent on his list. Holmes’s comments were made in 2009. Eight years on and things are no better.

Trump’s effective declaration of trade war is an echo of the infamous Smoot-Hawley Tariff of 1930. While the Democrats tried to unpick this massive imposition of protectionist policies a few years later, it played a significant role in the economic and eventual military conflicts that followed.

In refusing to learn from history, the world is being hurled into a regressive period of economic nationalism that pits country against country. The losers will be the majority of the world’s population.

While governments seem to be spiralling into resurgent economic nationalism and while tariffs and protectionist walls are being built, it is worth remembering that 1318 transnational corporations currently account for 60 per cent of global wealth. The most powerful 147 of these corporations control 40 per cent of the total global output and wealth. Fifty-one per cent of the biggest “economies” in the world are individual corporations and 41 per cent of these are based in the US.

The renewal of nationalism, politically and economically, has implications. In these moments of heightened tension and concern we need to consider why President Trump is choosing to travel this dangerous path. It is not just because his administration lacks balance or is irrational. The global economy is increasingly integrated. Nation states play a less fundamental role than in the past. National economies are suffering and shrinking. The welfare state is being unravelled. The global power of the US economy is being threatened. A contradiction is evident between a globalised capitalism and an increasingly constrained nation state system of governance.

The call to nationalist sentiments and to a power that is no more may have an immediate, if momentary, appeal, but it provides no answers for the people who inhabit those states and who suffer when economic crisis occurs. Other considerations and other options need to be considered. We simply cannot afford to build protectionist walls. The threat is not simply of trade war but of war.