Peace and trade--a new perspective

[Celerity]

The Ukraine crisis has shown not only that unlimited trade is impossible but also that it needs to be regulated by values.

https://socialeurope.eu/peace-and-trade-a-new-perspective



Globalisation as we know it is dead. Most recently with the outbreak of war in Ukraine, it has become clear that the idea of globally unlimited trade has failed. Particularly painful is the realisation that trade and peace are not siblings. Autocrats place their potentially belligerent claims to power above the free exchange of goods and commodities. Free trade is only acceptable to them as long as it serves to maintain their own power. What does this mean for the future? The recent blows to world trade have not invalidated its mutually beneficial nature. David Ricardo’s theory of the comparative advantages of trade still applies, even where they are no longer exploited. The mutual advantages of trade with Russia are being lost. This particularly applies to trade involving the European Union, including Germany. As rising inflation shows, these trade restrictions make people poorer.

High vulnerability

The Russian aggression and the pandemic have shown the high vulnerability of closely interconnected global economies. If trade security is to be enhanced, the challenge is to redefine trade relations globally. The result should be a new order of preferences for trading partners, which is no longer based solely on the short-term profitability of the exchange. The state and social constitution of the trading partners should play a decisive role. In future, trade policy should be value-based and the underlying values should be those of liberal and social democracies in their quite different forms. Instead of unlimited offshoring, the United States treasury secretary, Janet Yellen, speaks of ‘friend-shoring’—relocation of sourcing to economies with similar values. The goal is ultimately to make trade safer and, measured by shared values, fairer.

Desired linkages

This view of trade relations results in a ranking of desired trade linkages for the EU, which can be roughly divided into three categories. First, there are ‘preferred’ trading partners, which should form a close community of values in geographical proximity. All members of the EU and the wider European Economic Area fall into this category. There should be no trade barriers among them and they should agree a division of labour on how mutually to strengthen their resilience in times of crisis, taking advantage of their proximity. The gas-supply crisis highlights this need, as have the supply-chain problems thrown up by the pandemic. Second come ‘close’ trading partners. With them, too, a set of political values should be shared and trade should encounter as few obstacles as possible. This group could include the US and Japan. These economies would not however be part of a resilience network, at least not systematically. This might be due to objective obstacles, such as lack of proximity, or doubts about the common value base (for example, if Turkey were to be considered).

Greater caution

Third are ‘functional’ trading partners. Trade would take place with these—as before—solely on Ricardian grounds. Given that no commonality of values is presumed, these trade flows should be treated with much greater caution in the future. If the political systems in these countries were to degenerate into nationalistic aggression, trade would eventually risk becoming a weapon against our values. Foresight then becomes essential: there must be no trade relationships which are indispensable. It should be insisted that each of the functional partners could be replaced by another at any time, with as little economic damage as possible. Scenarios would then have to be prepared in advance to make a rapid switch possible, with the companies concerned also readied for such a potential change. This could be done, for example, by means of insurance contracts through which offers by other suppliers could be guaranteed in the event of a crisis. In case of doubt, production would have to be demanded from a preferred or close trading partner in such a situation, even if this were more expensive.

Enormous challenges.................

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