In 1929 the global economic trading system collapsed, in 2008 the International banks collapsed bringing poverty to many people and in 2020 we may be seeing another global collapse. These global collapses make us poorer.
There is a globally popular theory that International Trade makes us richer, every trade deal is prefaced by how much faster the economy will grow thanks to "openness". This is a theory and we should check the actual data.
Global trading and bank collapses impact our economy:
The 1975, 1981, 1991 and 2008 recessions/downturns were all caused by sudden fluctuations in international trading. What did the UK gain in exchange for this exposure to international trade? Almost nothing. The sudden, almost 50% increase in international trade after Single Market membership in 1973 actually caused a recession as UK manufacturers failed after an irresponsible, sudden exposure to tariff free imports from the EEC. Older readers might remember the derelict factories of the mid-late 1970s.
When global trading suddenly collapses as in 1929, 2008 and, probably, 2020 our economy has a recession or even a slump, when global trading grows it has almost no effect on the growth of GDP. UK GDP was growing more strongly when International Trade was 40% of GDP than when it became over 60%.
The graph above shows the effect of international trade with confounding factors such as inflation, population growth and exchange rates removed. (Data sources: see Note 1).
The conventional wisdom, pumped out by political and economics commentators is that strong International Trade is a prerequisite of wealth despite the fact that the data contradicts this viewpoint. It now looks like we are going to experience another global economic shock due to the sudden interruption of global trade as a result of coronavirus. What do the commentators say? They say we must complete free trade deals around the world to guarantee the growth of global trade. All this will do is guarantee our exposure to the next crash in global trading.
No-one would maintain that all global trading should be stopped but wise economists would limit the exposure to global trading to about 45% of GDP. All that intensive global trading (over 45% of GDP) achieves is the manufacture of biscuits for export to the USA or Germany in return for biscuits imported from the USA or Germany plus a whole lot of CO2 produced and our exposure to periodic collapses in the economy. Once countries have a GDP per head of over $16000 pa they can buy any foreign resources they need, make their own biscuits and forget about expanding global trade, all that intensive global trade achieves is the diversion of resources from domestic to international markets.
Why are we signing up to a global trading system that has catastrophic downsides and almost no upside? Who does intensive global trade benefit? Multinational Corporations that manage global trade. Will our economics and political commentators learn from the next global collapse? We must resist the pressure from Multinationals for excessive International Trading, a pressure that has been so intense that many economists and pundits actually believe that our wealth derives from growing global trading despite the obvious data.
See Coronavirus a wake up call which discusses how the 1929 slump was caused by the instability of global trading and strong recovery resulted from halving global trade. The slump is always taught as the heinous effect of "protectionism" but global trade caused it and halving global trade fixed it. Even the use of the terms "openness" and "protectionism" is a testament to a political agenda rather than sober economic analysis.
Also see Globalization - Global Trade - Internationalism!
Note 1: World Bank for GDP per Capita, GDP, Trade %, 1970 pound values calculated from World Bank inflation rate and mid year USD to GBP from forex sites. Enrico Berkes and Samuel H. Williamson, "Annual and Quarterly GDP Series as published from 1953 to the Present." 2020 URL: http://www.measuringworth.com/ukgdp/datasets) to cross check data.
10/3/2020
There is a globally popular theory that International Trade makes us richer, every trade deal is prefaced by how much faster the economy will grow thanks to "openness". This is a theory and we should check the actual data.
Global trading and bank collapses impact our economy:
 |
| (Trade growth above is yr on yr growth of exports+imports in current US $) |
When global trading suddenly collapses as in 1929, 2008 and, probably, 2020 our economy has a recession or even a slump, when global trading grows it has almost no effect on the growth of GDP. UK GDP was growing more strongly when International Trade was 40% of GDP than when it became over 60%.
The conventional wisdom, pumped out by political and economics commentators is that strong International Trade is a prerequisite of wealth despite the fact that the data contradicts this viewpoint. It now looks like we are going to experience another global economic shock due to the sudden interruption of global trade as a result of coronavirus. What do the commentators say? They say we must complete free trade deals around the world to guarantee the growth of global trade. All this will do is guarantee our exposure to the next crash in global trading.
 |
| The wealth of wealthy countries is not correlated with international trade intensity. See Global Trade & Internationalism |
No-one would maintain that all global trading should be stopped but wise economists would limit the exposure to global trading to about 45% of GDP. All that intensive global trading (over 45% of GDP) achieves is the manufacture of biscuits for export to the USA or Germany in return for biscuits imported from the USA or Germany plus a whole lot of CO2 produced and our exposure to periodic collapses in the economy. Once countries have a GDP per head of over $16000 pa they can buy any foreign resources they need, make their own biscuits and forget about expanding global trade, all that intensive global trade achieves is the diversion of resources from domestic to international markets.
Why are we signing up to a global trading system that has catastrophic downsides and almost no upside? Who does intensive global trade benefit? Multinational Corporations that manage global trade. Will our economics and political commentators learn from the next global collapse? We must resist the pressure from Multinationals for excessive International Trading, a pressure that has been so intense that many economists and pundits actually believe that our wealth derives from growing global trading despite the obvious data.
See Coronavirus a wake up call which discusses how the 1929 slump was caused by the instability of global trading and strong recovery resulted from halving global trade. The slump is always taught as the heinous effect of "protectionism" but global trade caused it and halving global trade fixed it. Even the use of the terms "openness" and "protectionism" is a testament to a political agenda rather than sober economic analysis.
Also see Globalization - Global Trade - Internationalism!
Note 1: World Bank for GDP per Capita, GDP, Trade %, 1970 pound values calculated from World Bank inflation rate and mid year USD to GBP from forex sites. Enrico Berkes and Samuel H. Williamson, "Annual and Quarterly GDP Series as published from 1953 to the Present." 2020 URL: http://www.measuringworth.com/ukgdp/datasets) to cross check data.
10/3/2020
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