Economic Compass A primer on protectionism
Comment of the Day

August 12 2019

Commentary by Eoin Treacy

Economic Compass A primer on protectionism

Thanks to a subscriber for this report from RBC Asset Management which may be of interest. Here is a section:

Second, production costs between countries are converging, in part due to all of the globalization that has already happened. Demonstrating this, U.S. wages have managed only limited growth in recent decades at the same time that Chinese wages have surged. The result is greater competitive parity: the savings from producing something in China and selling it to the U.S. have shrunk. A more homogenous world simply doesn’t need to trade as much.

Third, prior trade tailwinds have faded. All of the grand trade achievements of the past several decades – NAFTA, the EU, the opening of ex-Soviet bloc countries and China – have now been mostly absorbed into the global economy. Few major countries remain outside the global economic system, waiting to jolt the world forward with their entry. In turn, there is no reason for trade growth to continue substantially outpacing economic growth. To be sure, there are still a smattering of new free trade agreements being struck, but they are fewer in number, and by definition smaller in achievement given that tariff rates had already been whittled down by prior efforts (Exhibit 3).

Fourth, and finally, there are new trade headwinds now blowing from the spate of populist governments recently installed around the world.

Eoin Treacy's view

Here is a link to the full report.

The magnanimous ideal of giving up antiquated industries in service to building a global economy which could lift millions of people out of poverty is something the whole world got behind.

Not much attention seems to have been paid to what was going to replace the millions of manufacturing jobs that were exported. The low-end services jobs that sprung up pay less, served to hollow out the middle class and depressed living standards. That’s the reason for a populist revolt and also suggests the solutions are unlikely to be found easily.

Right now, the world is experimenting with combined fiscal and monetary stimulus to try and contain this trend of unrest because officials are terrified of the repercussions a recession would have on public sentiment.

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