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Are trade wars yesterday's battles?

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • Media reports suggest that the US administration is looking for ways to impose trade sanctions outside the framework of the World Trade Organisation (WTO). Historically the US has been a considerable user of the WTO (the US has brought more complaints than any other country). In seeking to evade WTO jurisdiction the US may be contemplating a trade war.
  • If a trade war does erupt from US policies the US will be sending in the cavalry in a world of nuclear weapons. This trade protection is fighting long dead battles. The US administration's obsession is with manufacturing jobs and trade. Technological change means that physical product is being replaced by virtual product (think compact discs versus downloads). Robotics means that local production is more efficient than outsourcing – US-based capital substitutes for foreign-based labour. US clothing will be made by German robots in Chicago not Chinese workers in Guangdong. Market forces will bring this about, without trade wars.  
  • Struggling to protect domestic production is increasingly irrelevant in this world climate. However, putting up barriers and undermining the WTO may damage trade in services and intellectual property in the future. That is where the real damage is likely to be done.