There seems to be no end to the tit-for-tat tariff retaliations between the world’s two largest economies. A war of words in a public forum has for ever been a tactic of diplomacy but the current bellicose stance of both parties is worrying. It’s all the more annoying when one realises that trade tariffs do not work! Or more correctly, they have unintended consequences that make the hither-and-thither scampering futile and nonsensical.

For example, China was a major importer of US soya beans – not any more. As a result, the US federal government is now subsidising mid-west farmers for their losses. The bobbing and weaving will impose additional costs of $831 per year on the typical American household, according to the New York Federal Reserve.

MMPI prefers not to make overt political statements because it realises the extreme public profile that politicians must endure. Everything they say and do is scrutinised in minute detail. Like the rest of us they are liable to make mistakes. But MMPI is concerned that the unscripted nature of the regulatory retaliations displays a lack of strategic intent. Making decisions of this nature on the hoof is not normally good practice.

Over time, a very long time, economies survive the imposition of trade tariffs – companies adapt and consumers adjust. But, of course, the upfront impacts are a real shock and many businesses suffer in the short run. The initial fall out can be politically painted as successful, particularly if import substitution promotes local jobs. However, over time consumer choice demands better and cheaper products, which invariably cannot be satisfied without resorting to imports.

International commerce does not operate in a vacuum. Consumers are savvy about the very latest products that they see displayed on their mobile devices. In general, consumer behaviour is difficult to gauge and consumer reactions to a set of given circumstances can be wholly out of line with expectations. For example, could the imposition of trade tariffs generate a surge in nationalism? Could new trading partnerships emerge, Brazil/China? Could the traditional supply chains alarmingly disintegrate? Could world trade grind to a halt? Could the notion of globalisation be confined to the scrapheap? Or will the process result in a fresh approach and a successful, albeit disruptive, outcome.

MMPI believes it will all depend on consumer behaviours. If global consumers accept local import substitutes and forgo the smart foreign gear then the result will be a dislocation in trading patterns – but ultimately no worse than, say, computerisation or technological innovation.

The General Agreement of Tariffs and Trade (GATT) is an international accord involving over 150 countries with the deliberate intention of reducing and eliminating all trade barriers. It has been in existence in one form or another since WWII. It was not perfect. But eventually it was accepted by most nations of the earth as a worthwhile effort.

The current changes to the dynamic are likely to have completely undesired consequences. GATT produced guarantees; non-GATT produces posturing and little else!

error: Content is protected !!