Why Viewing Global Trade in Zero Sum Terms is Shortsighted and Self Defeating

Trade Wars and Zero Sum Thinking

The ongoing trade wars between the United States, on one hand, and the rest of its trading partners, including China, Canada, and the EU or the European Union stem from a basic misinterpretation of global trade in Zero Sum terms or I win, You Lose kind of thinking.

As can be seen from the escalating rhetoric from President Trump and his hawkish advisors, the threats to levy tariffs on an estimated $100 - $150 Billion of goods from China and elsewhere, risk morphing into a frontal attack on the global trading system.

Indeed, in recent days, there has been much saber rattling between the United States and the European countries as well as with Canada over what Trump considers as “unfair” trade practices.

What surprised many was Trump’s attitude of picking fights even with the traditional allies and trading partners such as the ones mentioned above. While the relations between the US and China was always frosty despite they enjoying a healthy trading relationship, nobody expected that Trump would turn on the transatlantic partners as well.

Why Free Trade Confers Non Monetary Benefits as Well

While the intentions behind President Trump’s stance might be according to his campaign pledge of Make America Great Again and America First, nonetheless, the global trading order cannot be simplified to what his current thinking is.

For instance, trade does more than bring in revenues as the concomitant technology transfer and the people to people contact established between trading countries lead to what is known as Soft Power or the ability to persuade another country by means other than coercive action.

Indeed, this aspect is often overlooked by many policymakers who tend to view global trade in Zero Sum terms.

It would be useful to consider the work of the famous expert and author, Thomas Freidman, who is also a cheerleader for globalization. In his book, The World is Flat, Friedman proposes a Dell Theory of Conflict Resolution wherein no two countries that make or trade in the components used to manufacture a Dell Laptop have gone to war. In other words, global trade can be an equilibrating mechanism in these heated times when slight provocations are enough to set off wars and armed conflicts.

The Global Trading System in the Aftermath of the Second World War

What this means is that Trade imposes a set of regulations and rules that need to be followed between trading partners and hence, it is unlikely that they would provoke a military conflict with their partners since the stakes are too high.

Indeed, in the decades following the Second World War, what kept the cold peace between the superpowers of the day such as the US and the erstwhile USSR (Union of Soviet Socialist Republics) was the ongoing trade patterns in the global arena that were too interlinked and too interconnected to lead to outright wars.

Having said that, it is also the case that there were numerous conflicts around the world wherein even trading partners went to war with each other. This was mainly because they were proxy battles going on between the Superpowers that spilled over into the developing world.

At the same time, the reason why another World War did not break out was mainly due to the globalized international order which imposed an economic relationship where the economic benefits outweighed the gains from armed conflicts and wars of aggression.

Does Free Trade Benefit the Few and Not the Many?

On the other hand, there are legitimate concerns over the global trading system wherein some countries seem to have the upper hand in such arrangements mainly because they have “gamed” the system in ways that gives them an advantage.

These countries include China which is a very adroit player in the global trading order mainly because of its sheer volumes based trade given its size and huge population. This means that there are some real concerns in the United States due to this aspect which can be seen in the way successive Presidents of the United States tried to nudge China to show some reciprocity towards the United States in trading terms.

Moreover, globalization that was perceived as a phenomenon that “lifts all boats” has instead benefited a few at the expense of many.

Having said that, it is also the fact that globalization succeeded in lifting many developing country populations out of poverty and hence, there are arguments in its favor. However, the main grouse of President Trump and his supporters is that globalization for all its avowed benefits has left the average working class people in the United States worse off and hence, this is the reason for their anger against a system which they perceive as being unfair and loaded against them.

Conclusion

Thus, the tendency to wall oneself in might be irresistible, but, at the same time, thought must be given to how the rules based international system serves as a checkpoint to fissiparous and centripetal tendencies that can easily unmake the Post Second World War system of shared prosperity and free markets aligned to the principles of liberty and equality not to leave out democratizing movements across the world.

The way forward is to ensure that free trade works for everyone and this can be done by putting a place a mechanism to take care of the “left behinds” through measures such as Universal Basic Income.

In other words, free trade can mean free people and all people at that. As the Indian Independence leader, Gandhi, said, we must allow the winds from all over the world enter our homes and yet, we must refuse to be swept away by them.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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