Global trade: Without true cost-pricing the weak and the environment are losers. Production locations are shifting to the wrong places. © World Bank
World trade is perverted by billions in socialized costs and subsidies at the expense of the general public.
Just a few years ago, critics of globalization were ostracized. They were mainly advocates of deregulated free trade, which supposedly helped all countries to achieve greater prosperity. But globalization and free trade were perverted from the start. That is why it may be to everyone’s benefit if (punitive) tariffs and reciprocal restrictions on imports and exports are once again in vogue.Einen «Schlussstrich unter eine von Freihandel und Globalisierung getragene Zeit» habe US President Biden’s security advisor Jake Sullivan proclaimed the “end of an era of free trade and globalization” in April, writes the Neue Zürcher Zeitung (NZZ). The motive, however, is not the perversion of globalization, but the concern that China’s economy could overtake America’s in some areas of cutting-edge technology and that China, with a quasi-monopoly on rare raw materials, could become a sanctioning power like the United States.
Not in the spirit of sensible, not perverted, global trade, of course, is the fact that the U.S. has unleashed a subsidy war by subsidizing key industries to the tune of billions of dollars. In Europe, some would speak of a “declaration of war,” writes the NZZ: “The EU counters with the Green Deal industrial plan.”
But it is still true that the deregulated free trade without tariffs envisaged by globalization was and is fatal.
Sensible division of labor with a catch
The finding that duty-free and deregulated free trade would be fatal may be surprising at first glance. After all, anyone who has studied the history and theory of international trade relations knows that trade that is as free as possible helps all countries involved to achieve greater prosperity. In a division of labor, each country concentrates on products that it can produce relatively cheaply thanks to its climate, geographical location, available raw materials, energy, etc. (including David Ricardo’s theory of comparative cost advantages).
The theory, however, assumes that the prices of the traded products correspond to the real, full costs. The catch: in practice, this is not the case at all.
“Market prices” and cost-justified prices diverge widely
The so-called “market prices” on which world trade is based in no way reflect the relative locational advantages of individual countries:
1. Massive subsidies distort today’s world market prices. Air, sea and road transport alone benefit from direct subsidies worth trillions of dollars. And corporations trading in the fossil fuels oil, natural gas and coal have long been subsidized to the tune of around $500 million every year (source: International Energy Agency, IEA).
2. The “market prices” do not include the high costs of the ecological and social damage caused by the production, transport and consumption of the products. The share of these costs that is generously passed on to the general public, i.e. socialized, is constantly increasing.
● Producers and consumers contribute to the emission of CO2 and methane without paying for the consequential costs of the climate crisis.
●Companies and consumers in industrialized countries “dump” their most toxic and dangerous waste into the oceans or into Africa and Asia without paying for the follow-up costs.
●When mining raw materials in Africa or in the clothing factories of Mianmar and Bangladesh, corporations let modern slaves and slave women toil. Fair and cost-justified prices would have to include the costs for better working conditions.
●The irreversible loss of finite, non-renewable raw materials is not taken into account in the costs and prices. For these reasons, “world market prices” are no good as a reference for a sensible division of labor and a sensible shift of jobs for the benefit of all.
3. The increase in production, consumption and world trade over the past 25 years is largely based on additional financial debt. Worldwide, private and public debt is rising faster than consumption and investment.
The huge mountain of debt artificially inflates consumption and thus world trade and poses dangerous risks to the stability of the international financial system. These risks are not factored into the borrowing costs of the big banks, nor are they factored into the costs of large corporations. Both can exclude these risks because – “too big to fail” – they can count on the state’s help if the worst comes to the worst.
For these three reasons
1. Trillion-dollar subsidies;
2. socialized environmental and social costs;
3. Production and consumption on credit
the prices of goods shifted back and forth around the world are far too low. This has serious consequences. The unrestricted and distorted world trade distributes the production sites and the jobs to economically wrong, mostly far away locations.
Tariff surcharges would cover a portion of these socialized costs
As long as the major economic blocs do not agree to consistently reduce the existing subsidies to the economy in the trillions and to charge at least a large part of the socialized costs in the trillions to the polluters, economically desirable, cost-just product prices will remain a utopia.
General tariffs on all products could avoid the worst consequences of distorted, subsidized world trade – consequences that are caused by import and export prices that are far too low. The highest tariffs would have to be imposed on particularly transport-, energy- and waste-intensive goods.
High tariffs can at least partially compensate for the subsidies on trade in goods and the at least partially compensate for socialized costs. The consequence:
For many products, importing from distant countries and exporting to
other continents would no longer be worthwhile. The volume of world trade would be reduced, and the share of supply would be increased with products that are produced nearby or the wider environment. Jobs would increasingly move to less distant areas and in the own country, where they are economically, most productive, taking into account all costs.
Investments and money could also be saved: Airports would not have to be expanded for a longer period of time, the number of ocean-going freighters on the seas and the number of trucks in long-distance traffic would no longer have to be increased.
This would increase the quality of life for many people.
At the same time, the plundering of resources and the ecological burden on our of our planet would be somewhat reduced. The human contribution to global warming would decrease.
International transport mania to increase prosperity
Conventional economists and some economic editors disagree. They decry general tariffs as a setback. They close their eyes to the trillions in subsidies and trillions more in socialized costs. And to their consequences.
They boldly claim that the so-called “liberalization” of world trade has helped both the industrialized and the developing countries to achieve significantly greater prosperity. They measure this prosperity in particular by the growth of the gross domestic product (GDP) of the individual countries.
But this is a false yardstick for measuring the well-being and quality of life of people in different countries. Open-minded economists have been pointing out for some time that the disadvantages of GDP growth for most people in the industrialized countries and for the global ecological and financial system have been greater than the advantages for many years.
Moreover, the industrialized countries can benefit only in the short term from a largely tariff-free and deregulated world trade. This is because the lifestyle of their inhabitants is physically not transferable to all fellow inhabitants on earth. It is simply impossible for all four billion Africans, Indians and Chinese to live and plunder nature and finite resources in the same way as the people in the industrialized countries. It would take at least four planets.
In the developing countries, further material growth is still necessary. But under adapted conditions. Because under today’s conditions, unbridled economic growth is causing them
● gigantic environmental damage;
● dependencies on corporations;
● risks of monocultures;
● urbanization and
● financial debts.
Gigantic socialized costs
Let’s summarize: Global GDP growth, at which many stare unflinchingly and which serves as proof of prosperity, is rising not least,
● because slave-like working conditions prevail in many countries;
● because finite raw materials are being exploited;
● because mankind is accumulating mountains of waste on land and in the sea – with major cost consequences for future generations;
● because so much CO2 and methane is emitted that temperatures are rising faster than nature intended;
● because the monetary debt bubble is growing dangerously.
Nevertheless, economists and some economic editors are spreading the word that GDP growth is still desirable. Rising GDP figures are spread as welcome news. This is because they obviously continue to assume that economic growth – despite the huge distortions described – sustainably increases prosperity and the quality of life around the world.
▪ ▪ ▪This article was first published in German language by the independent internet newspaper Infosperber.