Final Thoughts

Leibowitz: Trade Trends for 2023

Written by Lewis Leibowitz

Now that the new year is one-twelfth over, the changes from last year are taking shape. In foreign policy and trade, a primary focus has changed from economics to geopolitics. Trade between the West and China, which has been the key metric for the last 20 years, has tapered off, although it remains strong. Trade with Russia has shrunk dramatically, a casualty of the war in Ukraine. To make up for shrinkages in trade, a few other bilateral and regional trends are apparent.

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First, trade between traditional allies has gone up. For example, energy trade between the United States and the European Union has increased dramatically, as liquefied natural gas (LNG) exports from the US are moving in strength to the EU to replace Russian gas that has nearly disappeared from European markets. 

Second, trade between the USMCA partners continues to increase. While there are disputes among Canada, Mexico, and the US, those are signs of growth. Think of all the sectors where there are not disputes. The numbers continue to rise.

So, globalization is changing, not dying. International interdependence is a key driver of growing prosperity and shrinking poverty worldwide. 

Yet the feeling that people have is that the bloom is off the rose when it comes to trade. I know that feeling—I feel it too. 

Part of the difference between the reality of trade and the public attitude toward trade is political. In our country, both major parties have mobilized trade as an issue—and have borrowed the other party’s ideas extensively. The Democrats have been in charge since 2021 and have kept a surprisingly large number of Trump initiatives despite the transfer of power. Trade is a primary example of this. The section 232 tariffs on steel and aluminum and the Section 301 tariffs on Chinese imports have been retained. This appears to be because of political considerations. Both parties have been fighting for primacy among working class voters: whether unionized or not, these voters feel threatened by growth in trade.

Trade volumes and values continue to grow. However, the rhetoric is that government policies try to mold trade to serve the target voters by making it sound as though government is trying to reverse the growth. Since 2021, the Biden administration has argued that trade policy needs to be “worker centric,” and to promote equality, narrowing the gap between rich and poor.

These are noble sentiments; but trade policy at the most nibbles at the edges of inequality. As Winston Churchill put it, “The inherent vice of capitalism is the unequal sharing of blessings….  Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy. The inherent virtue of socialism is the equal sharing of miseries.” To paraphrase, capitalism creates inequality and under socialism everybody is equally poor. 

At their extremes, both capitalism and socialism are destructive. The debate between them is (or should be) how much of each to tolerate. This debate, not about absolutes but about where to draw lines and how to adopt methods to draw the lines where we want them, is what we need to talk about. The current megaphones of the news cycle and social media don’t permit those nuanced debates.

Trade is a form of competition in which consumers benefit through increasing choice and lower prices. I see predictions based on our inherent dependence on trade for a tolerable living standard. This leads prognosticators to predict that complete disengagement from China will be impossible. But partial disengagement is already happening. I believe that it will be very hard to significantly reduce trade with China in the absence of a geopolitical “earthquake,” which clearly could happen.

The tariffs imposed by the US and others to foster such things as “reshoring” and “resiliency” form a part of this battle of philosophies. The steel and aluminum tariffs originally applied to most countries, but now have lots of holes, which tends to limit their impact on returning manufacturing to the United States. The China tariffs never really encouraged “reshoring” because they apply only to Chinese goods. And without bringing manufacturing back to the US, “resiliency” is not significantly improved by imposing trade restrictions. The only benefit of these tariffs in the grand scheme of things is political advantage. Now that the Democrats “own” them, they stand to benefit. 

The interesting feature of all this is where policy choices really fit in. In other words, what will government do and what should it do about smoothing the edges of these opposite philosophies? I read the newspapers and magazines, and I see these lines being drawn constantly. Of course, solutions require compromise and accepting that the other side may have a point. That recognition is unfortunately in short supply right now in Washington and around the world.

Lewis Leibowitz 

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Lewis Leibowitz, SMU Contributor

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