Liberalize domestic trade to compete in international trade...
In early 2018, the gloves finally came off: The United States started to punish China for its unfair trade practices and threatened allies, like Europe and Canada, for their uneven trade policies. Since then, trade has been dominating the headlines, with threats and counterthreats from the opposing sides.
But the bluster is distracting the world from the fact that we’re in an outdated paradigm, and a major solution could be fairly simple.
For the current trade paradigm, when viewed from inside the complex, rigid, and bureaucratic international trade system that is the World Trade Organization (WTO) and the different domestic institutions tasked with managing trade, the Trump administration’s move to escalate the trade war is entirely understandable and justified.
According to the - severely flawed - rules of the game, China is exploiting the United States’ and Europe’s relatively free-trade policies to officially pursue its policy of complete domination of all industries. Europe and the rest of Asia are trying to gain an edge over the United States, although they are more interested in fair trade in principle than China.
For the United States, the tolerance of such trade practices resulted in persistent trade deficits with the rest of the world worth hundreds of billions of dollars, the loss of millions of manufacturing jobs, and trillions in international debt obligations. On the flip side, it also increased profit margins for multinational American corporations who produce abroad to sell in the United States, and it lowered prices of gadgets (some productive, many useless) for consumers.
So the Trump administration’s plan is to level the playing field by more or less getting even with tariffs on inbound goods, which are, on average, 10 percent in China, 4.8 percent in the European Union, and 3.5 percent in the United States. Those tariffs may be a simplified proxy of the complex trade barriers every country manages, but they do provide a good estimate of how much a country is really interested in free trade.
Whether the increase of tariffs will ultimately work remains to be seen. China has more to lose but can also suppress discontent much more easily than the United States, where some states and industries will mobilize politically to defend the status quo once they suffer from retaliatory measures.
Liberalize Domestic Trade
A cursory glance at the WTO proceedings for applying tariffs and counter-tariffs as well as the many unintended consequences of managed trade, even if they are pro-American, show that this problem needs to be solved at a higher level, outside the paradigm of government-managed trade.
The solution is to radically liberalize trade, but not only internationally—the liberalization of domestic trade is more important.
Domestic trade? Mainstream economics and the mainstream media have indoctrinated us to believe that only nations trade. However, as...