by Jim Rickards, Daily Reckoning:
Globalist elites like to talk about democracy. But in reality, they don’t believe in democracy.
When the U.K. voted for Brexit in June 2016, the globalists were stunned. They couldn’t believe it. They then did everything they could to delay and fight Brexit.
Then when Donald Trump won the election as president in November 2016, the globalists were even more stunned. They went into complete denial and put their heads in the sand.
They comforted themselves with the convenient myth that Russian interference lost them the election, not a popular rejection of their ideology.
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Yet it kept getting worse for globalists. Both China and Russia have become more nationalistic and completely turned their backs on globalism. The war in Ukraine has only intensified that trend.
The pandemic only strengthened the trend away from globalism, and the ongoing supply chain issues we’ve been seeing expose globalism’s fragile underbelly.
These chains may be efficient and economical, but when they break down, it has a rippling effect on the global economy. It’s like pulling on one strand on a carpet. The entire thing is affected.
“Tariffs Are as American as Apple Pie”
Globalists worship at the altar of free trade. But free trade is a myth. It doesn’t exist outside classrooms. France subsidizes agriculture. The U.S. subsidizes electric vehicles. China subsidizes a long list of national champions with government contracts, cheap loans and currency manipulation.
Every major economy subsidizes one or more sectors using fiscal and monetary tools and tariffs and nontariff barriers to trade.
America grew rich and powerful from 1787–1962, a period of 175 years, using tariffs, subsidies and other barriers to trade to nurture domestic industry and protect high-paying manufacturing jobs.
In fact, tariffs are as American as apple pie.
Beginning in 1962, the U.S. turned its back on a successful legacy of protecting its jobs and industry and embraced the free trade theory. This was done first through the General Agreement on Tariffs and Trade, or GATT, one of the original Bretton Woods institutions in addition to the World Bank and IMF.
Against the mercantilist system was a theory of free trade based on comparative advantage as advocated by British economist David Ricardo in the early 19th century. Ricardo’s theory said that trading nations are endowed with attributes that gave them a relative advantage in producing certain goods versus others.
These attributes could consist of natural resources, climate, population, river systems, education, ports, financial capacity or any other factor of production. Nations should produce those goods as to which they have a natural advantage and trade with other nations for goods where the advantage was not so great.
Countries should specialize in what they do best, and let others also specialize in what they do best. Then countries could simply trade the goods they make for the goods made by others. All sides would be better off because prices would be lower as a result of specialization in those goods where you have a natural advantage.
Works in Theory, Not in Fact
It’s a nice theory often summed up in the idea that Tom Brady should not mow his own lawn because it makes more sense to pay a landscaper while he practices football.
For example, if the U.K. had an advantage in textile production and Portugal had an advantage in wine production, then the U.K. and Portugal should trade wool for wine. But if the theory of comparative advantage were true, Japan would still be exporting tuna fish instead of cars, computers, TVs, steel and much more.
The problem with the theory of comparative advantage is that the factors of production are not permanent and they are not immobile.
If labor moves from the countryside to the city in China, then suddenly China has a comparative advantage in cheap labor. If finance capital moves from New York banks to direct foreign investment in Chinese factories, then China has the comparative advantage in capital also.
Before long, China has the advantage in labor and capital and is running huge trade surpluses with the U.S., putting Americans out of work and shutting down U.S. factories in the process.
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