Could the USA's three year experiment in trade isolationism be coming to an end?

Why it matters and why we should care.

The world is slowly starting to gather it's collective forces in the effort to subdue the coronavirus. It will be a long effort and there will be setbacks and heroism along the way followed by an awful lot of analysis and debate then months and years of recrimination and blame apportionment.

However, some people, and not just political commentators and those in the public eye, but regular people who have been horribly affected on so many levels by this whole situation are starting to look beyond this and try and define how we get to that 'better place' that the whirlpool of global sentiment is telling us exists beyond the horizon.

But let's be frank here, a lot of the outcomes of what we are seeing have been fermenting for a while so whilst trying to retain focus, I want to look specifically at how one aspect of the recent past has impacted events and how it needs to change.

Simple laws of economics dictate! We all want things as cheaply as we can get them. Business people want to produce with the lowest cost base available. There are provisos on quality and legality but that is the way things are. So countries that offer lower wage levels for comparable (or better) outputs will naturally be more attractive to manufacturers.

So herein lies one of the first troubling but inherent contradictions of what I refer to as the current highly personalized brand of economic 'management'...that of 'pinball wizardry'.

Donald J. Trump claims he is a business man, so presumably he gets it? Well, we know that he does since he has been manufacturing goods and doing business overseas for decades.

Enter 'America first!'...this is not a strategy, it is a slogan And a very effective one. Tell people that their jobs are being exported through rigged trade deals and that it can all be reversed by ripping them up and erecting walls, physical and economic.

The issue with this approach is that it is based on a flawed premise, there is little to no evidence that any of it works!

One of the major concerns about outsourced or overseas manufacturing is that low labour costs are based on worker exploitation with no legal protections, benefits, health care provision and inadequate health & safety within a poor working environment.

This has been true but look to the experience of the clothing industry and see how self regulation, albeit on the back of unfavourable public opinion, has allowed them to significantly improve working conditions.

On a higher level, this is exactly how you ensure change through trade deals. Talk of 'leveling the playing field' is absolutely correct in so much as ensuring that the same terms, conditions, health & safety standards and environmental protections are in place as in home market manufacturing will in turn lead to cost base increases, improvements for local workers conditions (thereby reducing the pressure to emigrate) and less environmental degradation.

President Trump loves his slogans, but he does also tend to suffer from SBT syndrome, 'Shiny Bright Things'. He bounces from point to point, from poll to poll with no apparent cohesive policy in place to string things together. It's the pinball machine in full blast.    

As an example, look at his pronouncements on the price of oil. At the real onset of the pandemic, OPEC fell into turmoil after the Kingdom of Saudi Arabia (KSA) decided to launch a unilateral price war aimed principally against (non OPEC member) Russia.

President Trump's initial reaction was to celebrate the fact that 'gas prices' in the US would fall as a result so great news for US consumers. However, the price movement also threatened the viability of the nascent Shale Oil sector in North America, the principal source by which the US had achieved 'energy independence' during the previous 5 years.

One commentator even remarked that if the price of crude fell any further than Exxon-Mobil would have to start laying off members of Congress. The point here isn't lost that the whole Trumpian notion of 'draining the swamp' which was supposedly aimed at lobbyists and those subverting power in DC has actually morphed into a war on career administrators, divergent personalities and those considered dis-loyal to the current regime, regardless of political affiliation.

Fast forward a few weeks and after much pain, and presumably some serious cajoling from the lobbyists at home and abroad, President Trump has come out and welcomed the deal between the Saudis and Russians to cut production by 10 millions barrels a day...which will result in huge price hikes...and increased 'gas prices' at home! Confused? You would be excused if you were!

But don't be fooled, some of this is deliberate....the Trump White House often, usually utilizing the President's Twitter account as the first line of attack, open fire on multiple fronts and targets simultaneously or in close sequence, in order to 'muddy the waters' and confuse the casual onlooker. A classic disinformation playbook move.

Enactment of the war on foreign trade leads us to the next of the inherent contradictions within the current economic construct.

Tariffs are medieval at best, basically blockades used in centuries gone by to starve the defenders of a city to death or into submission. But the central issue here is who pays in the modern variation? Because they aren't paid by the government being targeted but by the importer. Sure, the exporter may lower their prices to address some of the increase, sure the importer may raise prices to make up some of the lost margin but at the end of the day, the consumer pays.

When tariffs were raised on aluminium importers into the USA the net result was an increase in the profitability of American manufacturers as they took the reduction in competition as an opportunity to raise domestic prices.

Tariffs also risk retaliation, as happened after the US chose to move against the PRC (prior to the current situation). The reaction was two-fold. Firstly, the Chinese government imposed its own tariffs and then secondly sought alternative suppliers for the goods that it could no longer get from the US...so now they buy soybeans from the Russians!

The net result of the above is that farmers across the US are failing, even destroying crops now due to the lockdown, and the US government is resorting to bailout payments...socialist type subsidies from an administration that daily refers to the Democratic Party opposition as the 'Do nothing Dems' and the 'Far Left'.

Tariffs are also still used in the 'Gunboat diplomacy' role that they assumed in the 19th century...look at Iran and Cuba...both scenarios where sanctions have been used for political purposes which have then had disastrous impacts on the local populace from a government that proclaims itself to be a champion of human rights.

And once again, we see a classic self inflicted pinball pivot when the President launches his China Virus line of messaging only to have the PRC chose to embargo supplies of PPE to the USA until he desists...which he does!

Issue is that there are plenty of international conventions, organizations, laws, treaties and protocols to address these supposed deficiencies or inequalities in the 'system'. It is better to work from within then strike out on your own. The inherent contradiction goes beyond simply 'cutting off your nose to spite your face'...it extends to America First, enforced isolationism when you still require engagement and commerce to flow between you and your trading partners.

Finally, we have to look (briefly) at immigration and people.

A central plank of Trumpian populist doctrine is the need to not just expel illegal immigrants (an imperfect system requiring reform - a topic for another day)  but to reduce the inflow of migrants to the educated and the wealthy.

As many parts of the world are discovering, countries rely on migrants to fill many of what were previously considered to be low skill positions - delivery drivers, hospital support staff, cleaners, garbage collectors, farm hands, homehelps and the like - but all now shown to be absolutely essential.

The contradiction....who does the jobs that no-one else wants once you deny migrants access and block them from the entry level positions that are now deemed so important. And beyond that, how do you replace the flow of skilled workers that emerges from the migrant population as they study and become qualified. What will you need to do in terms of soft power or direct foreign aid to replace the remittance income that is lost to the home country when migrants are dissuaded from seeking employment abroad.

Returning to the central theme here, the pinball pendulum, one seriously destabilizing impact of the way President Trump conducts the business of his administration is that for every action there is a reaction and if you have no plan and you shoot from the hip then the reactions become more extreme and result in bigger and bigger swings in the way the world operates...just take a look at US stock market volatility in recent weeks and tell me that that is the result of a steady hand on the national helm!

In the last 48 hours, I have had contact with people in innumerable countries (I genuinely don't know and don't need to know where they are) but they include a software engineer in Nigeria, a technical writer in Lithuania, an online ad sales executive in Australia, a construction company owner in the Philippines, a clothing designer in NYC, the list goes on...my point here is that we are the lucky ones, we've seen a future and we work from home or remotely, without barriers, in jobs and industries that didn't exist 10, 20, 30 years ago and it is up to us to move things forward and make the world a better place for everyone.

"May you live in interesting times"

This oft-quoted incantation is usually mis-inferred as some kind of mystical wish from the Orient, it's not...it's actually a veiled threat...let us not miss this opportunity to learn from the past.