it’s official now. We are at war. This particular war does not involve troops or storming the beaches on enemy territory. It does not mean the bombing of your cities either. That is good news since at least none should die directly from military action. However, rarely some of these wars devolve into the shooting kind, involving storming beaches and all that. We are officially in the midst of an economic war, with China. It is not that the president would not love to expand to other nations, and in the recent past, he has tried. But for the moment, the Chinese front is the one getting all the love and attention of both the president and the media.

It should not have come as a surprise. We knew that President Donald Trump has no love for China and considers them an enemy. He also has imposed a nativist, and some say dangerous, foreign and economic policy. The kind we have not seen since the 1920s. This matters because his views, it has been said, fit very well in a previous period of history.

On November Third, 2015 Trump told Good Morning America how he saw China. “Because it’s an economic enemy because they have taken advantage of us like nobody in history. They have; it’s the greatest theft in the history of the world what they’ve done to the United States. They’ve taken our jobs.”

Trump using the power of the presidency to strike back at a perceived enemy is not surprising. Especially since he is very impulsive, and does not think things through. However, this economic war with China will hurt many Americans. Some who are part of his hardcore base. It is already affecting farmers in the Midwest. They will lose billions, and relationships that in some cases have taken decades to build.

Granted, many of them are still standing behind Trump. They trust him and believe that short-term pain will be rewarded by long-term gains. This is particularly frustrating to Republican politicians who wanted the President to delay the worst of this trade war until after the November midterms since they fear a backlash from voters who are not as committed to the president’s ideology. This war may very well be a factor in the rapidly building blue wave. It might be one factor for the loss of the House, which at this time seems almost ordains. Let us be clear, Democrats can still snatch defeat from the jaws of victory, but this blue wave seems even Democratic leadership proof.

We have other issues as well. The markets are starting to get nervous. Until now they have hardly reacted with every parry and counter-parry. But this is getting long on the tooth with potentially disastrous effects. So investors are not precisely calm. They see this as storm clouds slowly building on the horizon.

One in four professional investors is bracing for global growth to slow over the next year, according to a Bank of America Merrill Lynch survey published on Tuesday. That’s the worst outlook in this monthly survey since December 2011 and up from August when just 7% of investors were pessimists.

And nearly half of investors surveyed by Bank of America believe the US economy will decelerate and rejoin the rest of the world.

Historically the markets were the last to understand how trade wars were bad for national economies. In fact, a market crash was usually followed by the tightening of markets and trade wars. We learned over the course of the Great Depression, and the New Deal, that opening markets is actually better for the economy and keeps recurrent deep depressions at bay. It also shortens economic shocks. The London Conference of 1933 was the beginning of the end of protectionist policies that deepened the depression. It was the beginning of the opening of the global economy that we have enjoyed for the last seventy years.

At the end of the Second World War, the United States emerged as the victor. It also came out of the war with a more-or-less intact economy. We also had a plan to rescue the global economy, and fight communist. Before the war ended the US allies signed the Breton Woods agreements. They established, among others, the world bank. It also put the US dollar as the world reserve currency, recognizing the role of the United State in the global economy.

Originally these institutions adopted progressive economic policies. They were a boom for rebuilding Europe, and a tool of the new Cold War. The mission was to stop communism. In time the world bank would turn away from those origins, and adopt market-based Neoliberal policies. This came from its economists were slowly replaced from Keynesian followers to Austrian economics adepts and Milton Friedman followers.

However, except for a few trade spots, like the US-Japanese trade war in the 1980s, the US has pressured other countries to open their markets. It has not gone too deep trade wars that lead to a tit for tat reactions. There are also significant differences between that trade war, and what is starting now. According to Forbes:

Beijing cannot fail to take note that America’s trade deficit with Japan did not disappear even though the Japanese government caved into all the demands of the U.S.

From Beijing’s perspective, the lessons learned from the U.S.-Japan trade war are clear: don’t yield to U.S. pressure as Japan did, and don’t become solely dependent on America as an export market as Japan was. And China today is in a much stronger position to put into practice these lessons learned. While Japan’s GDP was only at 40% of America’s in the mid-1980s, China’s GDP was close to 70% of America’s last year, according to the IMF. Japan’s total import has never been big enough for it to wield real international influence, whereas China today is the biggest market for a growing list of countries including Japan, Australia, Brazil, Russia, South Africa, and South Korea.

https://www.forbes.com/sites/yuwahedrickwong/2018/08/05/chinas-japanese-lesson-for-fighting-trumps-trade-war/#18f476db28d2

This is not Japan. China has a large economy. In fact, it is the second largest economy in the world. It is nipping on our heels. In some respects, according to Bloomberg, it has already overtaken ours.

In contrast, Japan depended on the US and it had a much smaller economy. They were hurt, and that war led to the Japanese lost decade. This is very different from China which has traded with other nations as well. One that is aggressively expanding around the world. What we are witnessing is a fight between two economic powerhouses. This could lead to real global effects and a global recession. It will also accelerate the Chinese expansion through policies like the Silk Road for the Twenty-First century, and building African infrastructure and military bases. This is a completion that could lead to a shooting war.

Quite simply put. This trade war has global risks to the global economy. It could trigger a crisis. However, this does not slow the President or the president’s men. They are hell-bent on putting as much pressure as they can to squeeze China. They are squeezing us as well. In time, sooner than later, you and I will see it at the checkout stand.

Written by

Historian by training. Former day to day reporter. Sometimes a geek who enjoys a good miniatures game.

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