Warning signs as states revive Depression-era trade tactics: Don Pittis
Food security fears and protectionist subsidies could make economies less efficient for everyone
Following a week filled with threats and counter-threats, there are ominous signs that a long era of free trade may be coming to an abrupt end.
In a transition that would have seemed astonishing only a few years ago, national strategies based on the advantages of open borders are being replaced by tactics not seen for decades.
Suddenly, countries are looking inward instead of outward. And it's contagious.
Rather than seeking global or regional efficiency, countries such as Canada are imposing protectionist measures to save their own domestic industries from the damaging effects of foreign protectionism, particularly from the Trump administration in the U.S.
For example, instead of trying to find the cheapest possible food for their people on global markets, countries are conceding that their citizens will have to pay more, leading to worries about food security not seen in decades.
For those schooled in the logic of free trade, including internationally respected trade economist Daniel Trefler, the whole process is nothing but self-destructive.
"Everything that we're talking about with the Trump initiative is things that reduce our competitiveness vis-a-vis the rest of the world," says Trefler, a professor at the University of Toronto's Rotman School of Management who advises the Canadian government on investment and trade policy.
"All of this is not only going to make Canada and Mexico worse off, it's going to make the United States worse off as well."
Striking back where it hurts
And while he understands the damaging effect of escalating trade barriers, Trefler says if the U.S. were to seriously hurt the Canadian economy with, say, a 25 per cent duty on cars and car parts, Canada would have to strike back in a way that hurts the U.S.
And he says that should include ending U.S. patent protection in this country on things such as pharmaceuticals.
When some of our strongest free trade advocates start taking positions like that it reminds you how far we have come from a few years ago when everyone, including Canada, the U.S. and China, were looking to benefit from the advantages of more open borders.
Now, those countries are taking punitive actions against each other that seem to fly in the face of their own self-interest. And one of the most important areas is food. And one of the most seriously affected could be China.
"Food security is a major issue for the Chinese," says Trefler, "so anything that destroys food security, they are going to make it a priority to find a solution, and as you know, when the Chinese have a priority to find a solution, they are pretty good at finding it."
Jennifer Clapp, a specialist in global economics and agriculture, and author of Speculative Harvests, says a return to fears about food security harks back to the Great Depression.
The fact is, before the World Trade Organization era began in 1995, many countries, including China, rejected free trade in food for national security reasons.
"But since the mid-1990s, we've seen a liberalization of agricultural trade that's almost become like a religion," says Clapp, Canada Research Chair in global food security and sustainability at the University of Waterloo.
The theory was free trade in food and agriculture was more efficient, allowing the world to produce more food and feed more people. And food-producing countries, including the U.S., benefited from that change.
"But what is often not said is that the economic rationale for free trade in food and agriculture is based on an implicit assumption of political stability and predictability in terms of the actions of one's trading partners," she says. In the Trump era, she says, predictability is no longer assured.
As some U.S. trade partners buy less food, the U.S. has revived the Commodity Credit Corporation, created in 1933 to protect U.S. farmers from global competition and the Depression's collapse of market prices.
As China cuts back on U.S. soybeans — used mostly as feed for livestock to produce meat — it, too, must adjust to a new reality. Even increasing purchases from the world's biggest producer, Brazil, cannot replace the huge volumes China purchased from the U.S.
One solution would be to buy more meat from places like Canada instead of growing it at home. But Clapp says China has also begun a campaign to encourage people to eat 50 per cent less meat, ostensibly for health and environmental reasons.
Closer to home, the newly elected president of Mexico, Andres Manuel Lopez Obrador, has advocated food self-sufficiency for his country.
Altering supply chains to avoid tariffs adds to costs, and the longer trade barriers stay in place, the more unlikely trade patterns will go back to the way they were before. Wounds inflicted on trade partners could take years to heal.
But the current global trade chaos may not be about efficiency in its traditional form. Instead, it may be about a realignment of world power, a perhaps not-fully-rational loathing for the way things are now.
And Clapp says the results may not be all bad, in agriculture at least. Large U.S. agro-industry may suffer from the changes, but smaller, local agriculture can find other kinds of efficiencies, supporting communities and providing healthier, more environmentally friendly food, she says.
"The broader benefits are not just about money."
Follow Don on Twitter @don_pittis