The average tariff levied by America on imported goods is now 18 per cent. That is eight times higher than it was last year. The last time tariffs reached these levels was during the 1930s.
The European Union is now pursuing trade agreements with other countries. China and India are now working to deepen trading links.
These are all indicators that global trade has entered a period of historic change. The free movement of goods and services is a hallmark of a globalised economy, as trade deepens integration between countries.
This framework is now challenged.
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It is a personal matter for the economics editor of BBC Newsnight, Ben Chu. In the final chapter of his book, Exile Economics, he writes of the transformation of the lives of his family due to their movement from China to Britain. His conclusion is: “I likely wouldn’t exist without globalisation.”
He describes the policies that aim to reduce economic interdependence as “exile economics”. It is “a programme that holds that many of the modern connections between nations, mainly in trade but also in investment and certainly in the migration of people, ought to be reduced, if not severed”.
Advocates for national self-sufficiency argue that the pursuit of higher profits through the sharing of manufacturing across national borders weakens the security of countries. Access to critical resources and vital goods, like medicines, has become more complex and less certain.
Chu warns of a dangerous policy spiral. Nations reduce their reliance on international trade. This heightens a “perception of risk as it looks like the old economic order is crumbling. And the ratchet tightens. Such is the logic of exile economics”.
Trade policy is technical, but it makes a decisive difference to living standards and jobs. The author rises to the challenge of describing this vital issue with balance and accessibility.
[ Why global trade imbalances do matterOpens in new window ]
The benefits of global trade are at risk. This is considered by each chapter examining different features of commerce – for example, transactions in energy and steel. The most sensitive movement of all, that of people, is also analysed.
Complexity is a recurring feature. The soybean is a good example of this. It is a globalised crop with nearly half of its harvest traded across national boundaries.
Many uses create high demand for it. The oil from the soybean is used in inks, paints and biodiesel. It is also the largest source of protein for the livestock and poultry of the world.
Chu warns of the dangers of unravelling such complex supply chains. He points to the benefits for jobs and explains how growing sophistication is available to consumers at lower prices.
The political case against this trade is delivered with certainty, harnessing the discontent of workers about their living standards and job security.
Exile Economics identifies the economic ingredients in these charges. It points to research estimating that around 40 per cent of global trade value relies on three or fewer supplier states. The supply of important goods depends on a few countries.
This work will help the reader better understand why the global economy stands at such a critical juncture – how we got here and what is at risk
This was evident in the Covid-19 pandemic, with countries desperate to source vaccines, ventilators and face-masks.
The rise of trade imbalances is a key factor. Countries enhance the competitiveness of their exports through use of subsidies, state-provided investment or the weakening of their currency. This harms jobs in the countries to which they sell.
Chu worries that China, by supporting their exports, “seems likely to bring on a protectionist backlash from the West and indeed other developing countries”.
This work will help the reader better understand why the global economy stands at such a critical juncture – how we got here and what is at risk.
It advocates for a better managed approach to trade. Countries should map out their supply chains with better precision to allow a more accurate understanding of their vulnerabilities. Governments should co-operate to stockpile important goods or ingredients to build their economic resilience.
Countries should cultivate a broader array of suppliers. No single company or nation should become indispensable.
[ Ireland uniquely exposed to reversal of globalisation, IMF warnsOpens in new window ]
Exile Economics underestimates the attractiveness of a retreat from free trade. Companies can become reliant on protection from their governments. Tariffs can provide helpful revenue to strained exchequers. The initial impact on prices by the application of levies might be muted.
A slightly deeper acknowledgment of how a combination of increased automation and global competition has reshaped many industries would also add to the balance of this work.
However, history is rich with warnings. Trade disagreements can exacerbate tension between countries. Innovation can be stifled. Developing countries can lose crucial markets. Households become poorer.
That is why a balanced case for trade must be made. Legitimate difficulties need to be acknowledged, not wished away. Simple claims need to be reconciled with the complexity of modern economies. Exile Economics is a valuable contribution to that debate.
Paschal Donohoe is Minister for Finance
