From the vault, 17 November 2011 and 19 April 2012 (revised):
News reports from the hinterland in recent months described the impact the Donald Trump tariffs on Chinese exports have had upon American farmers. The “People’s Republic” retaliated in kind by targeting the most vulnerable segment of the American economy: Its agriculture. Sales of agricultural products, from soy beans to pork, dropped precipitously, and many farmers faced bankruptcy.
I have stated previously that tariffs serve three useful purposes: (1) to protect a fledgling business until it can compete in the market place on its own; (2) to raise revenue; and (3) to punish a trading partner who acts unethically, and perhaps criminally, in order to gain an economic advantage. The first no longer applies in our modern world, and the second hasn’t been significant for over a century. That leaves the third which is sorely needed in this dog-eat-dog world.
I have no doubt that China has played fast and loose with the rules of the game and thus deserves more than a slap on the hand. Unfortunately, our accidental president knows next to nothing about how economics work, and he imposed tariffs upon China’s most profitable exports, hence the retaliation. What Donald Trump should have done was to target products at the lowest level of value as a wake-up call to Beijing. I speak here of the mountains of cheap, shoddily-manufactured, plastic doo-dads cranked out daily by what amounts to slave labor in sweatshops, i.e. everything which is stamped “Made in China.”
The real villain in this melodrama is, of course, the capitalist imperative which all nations, large and small, adhere to slavishly. The imperative drives one and all to make money by any and all means available whether or not said means are ethical or licit. From the CEO of a large corporation to a simple farmer, the imperative whispers sweet nothings in the ear, day in and day out.
At the heart of the imperative is economic growth. Economic growth is a mantra uttered by countless numbers of entrepreneurs, economists, pundits, and politicians 24/7. It is touted as the solution to all of our social and economic woes. But it is a will o’ the wisp, an illusion, an impossible dream.
Capitalism has a fatal flaw: Saturated markets. Capitalism requires conspicuous consumption; people are urged through advertising to buy, buy, buy, throw away, and buy some more, or else the economy will collapse on the instant. New markets must be created constantly in order to absorb the overproduction of, mostly, useless doo-dads. When domestic markets become saturated, capitalism turns to foreign markets, and that is where the trade wars enter the picture.
Exports by Nation A to Nation B competes with Nation B’s domestic producers. To compensate, B slaps a tariff on A’s exports. A then retaliates with tariffs on B’s exports. The problem is compounded by A, B, C, and on down the alphabet as they generally produce the same goods, a consequence of global industrialization. At times, some nations will attempt to negotiate a trade agreement which establishes rules of the game. Trade agreements don’t work because they go against the grain of the capitalist imperative, and many capitalists seek to skirt the rules however they can.
The Chas long has advocated the idea of a no-growth economy, i.e. one in which supply equals demand. Production would occur when orders are received from retailers who, in turn, receive orders from potential customers. No inventories would be created, because unsold inventories represent a loss on the balance sheet; too many losses lead to recession. The problem of saturated markets would be eliminated as well, because supply-upon-demand means a thriving market place. Production would be limited to domestic markets, thus eliminating the problem of trade wars. The one exception to this latter would be when A must buy from B natural resources which are absent in its country.
Obviously, a no-growth economy would mean the end of capitalism as we know it. But, so what? Capitalism has created more problems than it has solved by its very nature. It is time for a new economic paradigm to take root, one which serves the needs of the many, rather than the bank accounts of the few. Our social and economic woes would dissipate like the dew before the Sun.
Just a thought.