8. Limits needed in international trade
To prevent the rising imbalances in international trade and their destructive consequences in the form of extreme indebtedness and massive unemployment in affected countries we need certain regulating mechanisms, which on one side will allow for free trade but on another will take care about dangers of creating the permanent critical imbalances.
International trade as is, if realized wisely is beneficial for both sides. With increase of volume there are economies of scale achieved often impossible to achieve in local economies alone. So the resulting productivity should be benefiting the whole society, because of lower global prices (of course based on assumption that at least part of productivity gains is passed to the end consumer).
That applies only in case, when participating countries have more or less balanced trade balances. Meaning that each country is getting from international trade the same financial consideration. I am not saying benefit, as that can be viewed differently due to differently perceived values of traded goods and necessity of their purchases. For example country importing oil has to import it and pay for it through export of goods and services which it considers more valuable then consideration they are getting for them. But as they really have to buy that oil, it has to participate at international trade in order to gain foreign currency needed to pay for it. The result is a subjective dissatisfaction of this country but what matters is whether this trade relationship, even considered as not an ideal one is sustainable. And it is sustainable only if the whole trade balance of that country is at least balanced not negative). If the country would be making trade deficit and this would be growing, it would inevitably lead to collapse. This is what is happening in Europe between North and South where this problem is already too serious and between USA and China, where it is only a question of time when it becomes so.
If trade balances are not balanced, we cannot speak about mutually beneficial and sustainable international trade but about colonialism. Country which is only exporting and is not willing to import equal financial value is indeed using a colonial economical policy which will lead its business partner to ruins sooner or later.
If you cut your finger you will start bleeding ......but you will not bleed to death.
Your body has mechanisms which will stop the bleeding and make the wound whole again and in short period of time will replenish amount of blood loss.
At the same time the body has warning systems which will tell you that you cut yourself and something needs to be done – pain.
In economy it is the same.
If country is losing money in international trade it very quickly discovers that it is bleeding – it is missing money in internal circulation and comes the pain in the form of growing unemployment ( so clearly visible in Europe as well as in USA)
First automatic defense mechanism of body of State is exchange rate – and it functions automatically, without any needed starters. Country importing too much must buy more and more foreign currency and so its domestic currency is losing its value and imports age getting more expensive which causes their reduction.
Other corrective mechanisms are at the hands of the government and are tested by time and are working – introducing of import tariffs, taxes up to the level which bring balance to trade.
But if we get rid of these defense mechanisms ( introduction of common currency – Euro in Europe or total ban on all tariffs through various agreements and trade zones) if an imbalance occurs there is the danger that certain countries literally bleed out of money without any means to defend itself.
Therefore, it is inevitable to enable countries which are suffering from longer lasting trade deficits to implement tariffs, taxes on imported goods up to the level which restores balance.
It is important not to consider such tariffs as going against international trade.
After all, international trade has to be sustainable at the first place.
Another option lies in introduction of fully digital currency ( chapter 16), which would prevent exporting capital abroad. Income from exports would stay at the accounts in banks of importer. Their owners, exporters could use them freely to buy goods or services at their will or sell them to third party or to their domestic state in exchange for domestic currency. But, as part of united, fully digitalized financial system they would be subject of periodic capital tax which would be enabling their gradual reduction.
That way we would prevent hoarding excessive of exported capital through its gradual taxation.
The obvious hurdle in introduction of such or similar system is willingness of other party to accept it.
However, I am afraid that if no such mechanism will be introduced, countries will learn the hard way the point of having one in place. The trade deficits of today will ultimately lead to crash of finances of some affected countries and only after that there will be a serious thinking how to proceed in the future. People usually choose the correct path of action only after they exhausted all the wrong approaches – that is what Murphy’s laws are saying. In the past, such imbalances and subsequent inability to pay lead to wars, after which the nations started over. Repeating the same mistakes, only more cautiously, more slowly but in essence it was always all the same again. And the results were all the same as well. It is so tempting to use neocolonial policies and to make money at other nations expanses. After all, they are the stupid ones that are buying from us, we are not forcing them at all, do we? But the price of such thinking was always so high and today may be simply unimaginable.
We are living in 21st century. Should we not start at least pretending that these 2000 years left some knowledge on us? We should be running our international trade relationships in a way which is not leading to conflict, but making sure we are avoiding it. Free trade is not an answer to that. Through free trade we say that you can export as much as you like and we can do the same. But in reality it does not mean that all countries will be ABLE to do well at the same scale. Some countries are not able to compete as efficiently as others. That should not let them defenseless at the mercy of more competitive ones. There must be a mechanism at state level which allows for some correction to prevent serious imbalances building up. Otherwise there will be tensions, which we will not have tools to fix and as history teaches us it is not the best position to be.