Globalists May Soon Become an Extinct Species. By Gary Shilling.
The coronavirus’s depressing effects on the global economy and disruptions of supply chains is no doubt driving the last nail into the coffin of the globalists.
They believe in the theory first articulated by Englishman David Ricardo (1773-1823) that free trade among nations benefits all of them. He argued for the comparative advantage of free trade and industrial specialization. Even if one country is more competitive in every area than its trading partners, that nation should only concentrate on the areas in which it has the greatest competitive advantage. He used the example of English-produced wool being traded for French wine — and not the reverse.
But Ricardo’s simple trade model requires economies in static equilibrium with full employment and neither trade surpluses nor deficits, and similar living standards. These aren’t true in the real world. Also, Ricardo didn’t consider countries at different stages of economic development and different degrees of economic and political freedom, or exchange rate manipulations and competitive devaluations since gold was universal money in his day.
Ricardo also didn’t factor in trading partners with huge wage differences such as the U.S. and China. As a result, China can produce almost any manufactured good cheaper than America. The result has been the huge and chronic U.S. trade deficit with China.
Trade wars are normal as countries with insufficient domestic demand to create full employment strive to unload their problems on trading partners. They promote weak currencies to make imports more expensive for residents in order to encourage local production and to make exports cheaper for foreign buyers. Subsidies for exporting companies, now widespread in China, are another tried and true technique. …
The world will diversify away from China, to avoid being too dependent on President Xi’s captives, but at a cost:
Even after the virus scare subsides, look for more pressure from Washington for more reliable sources of goods, among other protectionist measures. Domestic producers will benefit but so too will those in Mexico. The results will be lower global efficiency and slower economic growth.