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Richmans' Trade and Taxes Blog
Global Trade down 9% since 2014
Robert Romano, writing on Net Right Daily, Americans for Limited Government's website, reports that global trade is down about 9% since 2014. He begins:
Most economists think that global trade collapses during global economic recessions due to the fact that countries often raise their tariff rates during those recessions. But the causation is different. First trade becomes imbalanced. Then the trade deficit countries get into financial problems and can no longer buy as many imports from the trade surplus countries. Then trade collapses and world growth stagnates. Finally, trade deficit countries impose balancing-trade tariffs upon the products of the trade surplus countries which allows them to get out of the recession. So the economic recession itself causes both the decline in world trade and the rising tariffs.
We are not the first economists to understand that imbalanced trade leads to global economic slowdowns. We attributed that understanding to John Maynard Keynes in our journal article about our Scaled Tariff when we wrote:
There is a similar phenomena apparent in the climate change research. When the global climate warms, carbon dioxide increases. The first scientists who observed this correlation thought that the increase in carbon dioxide caused the global warming. But then climate scientists discovered that the global warming occurs first, which causes the oceans to give off carbon dioxide.
In order to tease out causes and effects, it is necessary to tease out the order in which the events occur. In the case of global depressions, first comes the collapse in world trade and the depression. Then countries raise their tariff rates. Those trade deficit countries that raise their tariffs the highest, grow the fastest. In fact, that is the story of the Great Depression. The trade deficit countries of Europe, including Britain and Germany, raised their tariff rates in 1934 and quickly exited the depression. The United States was the China (the chief trade surplus country) of that day.
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