LONDON — Britain’s former business minister believes that the system of world trade is “under threat as never before” and says there are “terrific parallels” between today and the run-up to the second world war.
Sir Vince Cable, Business Secretary in the coalition government from 2010 to 2015, told Business Insider: “As somebody pointed out, economic war leads to other kinds of war [NB: Alibaba founder Jack Ma recently said: “If trade stops, war starts”]. There are some terrific parallels between what is happening today and what happened in 1933-34.
“I know history never repeats itself but you had the financial crisis in 1929, there was a time lag of about 4 or 5 years, then you got Smoot-Hawley tariff measures, the British responded with Imperial preference, Mussolini responded, and it just escalated. That was one of the things that fed into the conflict [World War Two].”
Smoot-Hawley tariffs, enacted in 1930, raised import taxes on over 900 goods in the United States and were the highest tariffs in over 100 years. The taxes were meant to stimulate American industry by discouraging cheap imports but the bill “added poison to the emptying well of global trade,” according to The Economist, and “did most harm by souring trade relations with other countries.” Some economists argue the measure exacerbated the US depression.
Trump appears committed to taking the US down a similar isolationist path, vowing to impose tariffs on Chinese and Mexican goods. Trump said in December that people should look at trade “almost as a war.” Sir Vince said the prospect of a trade war between the US and China is “enormously serious.”
Peter Navarro, the head of President Donald Trump’s new National Trade Council, last month also accused Germany of currency manipulation and Sir Vince said: “If the two major blocks of Western Countries — the US and the EU — are at economic war, then we are really in trouble.”
Sir Vince, who was deputy leader of the Liberal Democrat party from 2006 to 2010, is not the only person to draw comparisons between present day and the pre-second world war era. German investment bank Berenberg’s chief economist Holger Schmieding wrote last November: “Some aspects of Donald Trump’s successful election campaign evoke memories of the dreadful 1930s.”
‘The US is enormously important in holding the whole system together’
Sir Vince said the entire global system of trade could be at risk if action is not taken to defend it.
He told Business Insider: “We rely on the Americans to stand behind the big international institutions, like the World Trade Organisation, and if the most powerful country in the world decides to break ranks and declare economic war on countries, then the system itself must inevitably be put in peril.
He added: “The United States is enormously important in holding the whole system together.”
Sir Vince’s warnings echo those of former Chancellor George Osborne who said last November: “Some of the ideas we’ve taken for granted in this country and the United States, Europe, around thinking that it’s necessarily a good thing to organise yourself as a democracy, it’s necessarily a good thing that you have an open society, it’s necessarily a good thing to have free trade — those things have to be fought for.”
Sir Vince said he is not seeing the global leadership required to defend the current system of global trade, saying: “President Xi of China said all the right things at Davos, made a very good speech, but in a way it was a bit tongue in cheek because the Chinese don’t really operate an open trading system. I don’t think anyone realistically expects them to give global leadership but if they do that would be great. There’s very little sign of it happening.
“The European Union is under siege with the French elections coming up, the German elections, the refugee crisis, holding the euro together. These are massive problems. They’re not really in a position to offer leadership.”
Sir Vince was speaking to Business Insider after recently taking the position of strategic advisor to the World Trade Board, a private sector body founded by financial software provider Misys to promote global trade. He said: “I was delighted to see that at a time when the open trading system is under attack as never before, that there are people out there fighting for it, making a case for an open, free trading system.”
‘Economies are becoming globalised and politics is national’
The former MP for Twickenham, who lost his seat in the 2015 election, said he feels the root causes for the current backlash against globalisation and world trade has its roots in the 2008 financial crisis.
Sir Vince said: “If you look at the trade figures since 2008, world output has been growing faster than world trade, unlike all of the previous decades.
“We’ve also seen this build-up of political backlash against international integration, of which Brexit and now Trump are the most extreme and recent manifestations, but it’s been building up. I think the underlying cause is that economies are becoming globalised and politics is national. At some point, and we’ve probably reached that point, nationalistic politics overwhelms the wider interest in an open trading system.”
Deutsche Bank last November called “peak globalisation,” agreeing with Sir Vince that 2008 was the cause of its decline.
Trump’s victory in the US elections, and to a lesser extent last year’s Brexit vote, have been seen by some commentators are a rejection of globalisation and job losses that go with it.
Asked what he would say to a Trump supporter who rejected globalisation, Sir Vince said: “The argument I would make is that overall, we benefit enormously from having an open trading system. Living standards have risen since the second world war and a large part of that is the fact that we benefited from international exchange.
“There’s a vast amount of historical evidence to show that the two things tend to go together, whether you’re undeveloped or in a developed countries. And the arguments for trade are just very simple and common sense. It ultimately comes down to very simple, common sense arguments about specialisation. We’re much more efficient if we concentrate, as individuals and as countries, on the things we’re relatively good at.”
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