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Thursday, 8 December 2011

Let slip the dogs of war

Well, the penny has finally dropped – for me as well as others.
For me it happened when I recently interviewed Dr Thomas Renstrom, senior lecturer in economics at Durham University Business School.
In an analysis of the problems currently facing the West, Dr Renstrom pointed out that those problems began with the signing of free trade agreements with various developing nations.
Then we found we could not compete with the wage structures in developing countries which has destroyed much of our manufacturing base, so we now import more than we export and we fill the gap with debt. 
The classic market response would be for wage rates to fall in the West until we can compete again, and they have in real terms, but to nothing like the politically impossible degree required. Even to the modest extent they have fallen, has meant governments stepping in to provide subsidies to the low paid and unemployed and this has had added to public debt.
So the penny dropped with me, courtesy of Dr Renstrom and now it is has dropped with the admirable Jeremy Warner here in a typically well argued piece in the Telegraph: Globalisation Has Turned on its Western Creators.
He doesn’t come to the conclusion that Dr Renstrom reaches, that we must reintroduce tariffs and protect our manufacturing - a conclusion that flies in the face of current orthodoxy.
And it is shocking. After all, wasn’t it protectionism that turned the Wall Street Crash into the Great Depression?
Well, up to a point. In fact Britain did fine from 1933 onwards, with a growing  economy protected by Imperial tariffs. Also Dr Renstrom is at pains to point out that he believes there should be free trade with countries with similar wage structures where the normal trade advantages of specialisation and economies of scale can operate. He also points out that it would be in the interests of developing countries who, at the moment, are running up unsustainable surpluses with us.
This should perhaps give the ultra eurosceptic believer in total EU withdrawal (amongst whose numbers I often count myself) pause for thought. If we are to engage in global negotiations for the reintroduction of tariffs, would it not be better done as part of a larger trade bloc (just so long as trade bloc is all it is)? A trade war is best fought with allies.
The Chinese might kick up a fuss, but what can they really do? After all, we can always default on the debts we owe them.
They, in turn, could always declare conventional war on us, but they’d have to invade Russia to get at us.

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