I stole a line from Gramsci, or at least a paraphrased version of it. Translations vary, and I don’t read Italian. “The old world is dying, and the new world struggles to be born: now is the time of monsters.”
Perhaps surprising for a market-oriented economist to be quoting from a 1930’s Marxist’s letters from an Italian fascist prison. But I worry that it applies. And I’m not sure that we’ve quite reckoned with it.
Over the past month, President Trump has been burning down the foundations of the post Second World War global order and of the integrated North American economy. Whether deliberate or not, the damage will be hard to undo. And it will matter.
Let’s start with the integrated North American economy – by thinking about the Trans-Tasman economy.
New Zealand and Australia’s 1983 Closer Economic Relations agreement means industries can make large investments, confident that trans-Tasman trade is secure.
Imagine if the Tasman Sea were only a kilometre wide – far narrower than Cook Strait. Plenty of bridges would connect New Zealand to Australia. For most Kiwis, trading with adjacent parts of Australia would be easier than crossing the Cook Strait. And our energy networks would obviously be interconnected.
Trade isn’t just in final goods. In our imagined scenario, factories on one side of the Tasman would truck parts across to the other side for finishing, and back again for assembly – multiple times before a finished product came to market.
Because of our close relationship and (imagined) proximity, Australia and New Zealand would become each other’s largest trading partners – despite the substantial difference in the size of the two countries. Just about every company’s supply chain would come to depend on the Trans-Tasman link.
But what if a mad Australian Prime Minister decided to start putting giant tariffs on New Zealand while threatening to force us into Australian statehood? The tariffs would be ruinous to us and damaging to Australia.
That’s what’s going on in North America right now.
The Auto-Pact between Canada and the US set the foundation for manufacturing integration in 1965. Trade broadened with the Free Trade Agreement, then expanded to include Mexico. For six decades, an industry has built on both sides of the border between Detroit and Windsor that depends on tight integration. Every investment in factories depended on the stability of the countries’ relationship.
Most Americans struggle to identify Canadian goods they regularly buy, let alone the Canadian component in nominally American goods. That makes it difficult to easily grasp the tariffs' effects.
Decades of investment in continent-wide supply chains are being upended, and no one can tell which tariffs will apply on what things and for how long. There will not be many important North American supply chains that do not cross borders.
Economists talk about the importance of stable institutions for encouraging investment. After this, what could any future American President do to rebuild confidence that it is safe to make investments that depend on a continent-wide market? Factories can last for decades. Presidents (hopefully) last for only four to eight years. And whether tariffs will be on or not seems to be decided on a month-by-month basis.
North America will have become substantially poorer and less productive over the longer term because of the shift.
Even in the unlikely case that New Zealand avoids tariffs beyond those on steel and aluminium, we will pay more for things we buy from North America, and North Americans will be able to afford fewer of the things we sell.
And that’s before we start reckoning with the implications for international trade as America retreats from its role in securing the seas.
Or for international security if the assistance provided by one American administration can lead to demands for repayment by the next.
Or for America’s traditional allies if America increasingly aligns with Russia. American weapon systems purchased and deployed by allies require American authorisation for use. Relying on U.S. weapons might soon carry similar risks to relying on Chinese components in telecom networks.
The old world was very good. Billions of people escaped poverty. The human lifespan increased dramatically and child mortality fell. Democracy expanded to encompass nearly half the world’s population.
Former Australian Prime Minister Tony Abbott last week wrote in Canada’s National Post urging far deeper relations between Canada, the UK, Australia and New Zealand – a CANZUK trade and security alliance. New Zealand is part of many trade agreements and is likely busily encouraging other free-traders to join.
I don’t know if either counts as a potential new world, or the dying struggles of the old one.
But I’m not enjoying the time of monsters – and I fear we’ll be dealing with them for some time yet.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
Over the past month, President Trump has been burning down the foundations of the post Second World War global order and of the integrated North American economy. Whether deliberate or not, the damage will be hard to undo. And it will matter.
Let’s start with the integrated North American economy – by thinking about the Trans-Tasman economy.
New Zealand and Australia’s 1983 Closer Economic Relations agreement means industries can make large investments, confident that trans-Tasman trade is secure.
Imagine if the Tasman Sea were only a kilometre wide – far narrower than Cook Strait. Plenty of bridges would connect New Zealand to Australia. For most Kiwis, trading with adjacent parts of Australia would be easier than crossing the Cook Strait. And our energy networks would obviously be interconnected.
Trade isn’t just in final goods. In our imagined scenario, factories on one side of the Tasman would truck parts across to the other side for finishing, and back again for assembly – multiple times before a finished product came to market.
Because of our close relationship and (imagined) proximity, Australia and New Zealand would become each other’s largest trading partners – despite the substantial difference in the size of the two countries. Just about every company’s supply chain would come to depend on the Trans-Tasman link.
But what if a mad Australian Prime Minister decided to start putting giant tariffs on New Zealand while threatening to force us into Australian statehood? The tariffs would be ruinous to us and damaging to Australia.
That’s what’s going on in North America right now.
The Auto-Pact between Canada and the US set the foundation for manufacturing integration in 1965. Trade broadened with the Free Trade Agreement, then expanded to include Mexico. For six decades, an industry has built on both sides of the border between Detroit and Windsor that depends on tight integration. Every investment in factories depended on the stability of the countries’ relationship.
Most Americans struggle to identify Canadian goods they regularly buy, let alone the Canadian component in nominally American goods. That makes it difficult to easily grasp the tariffs' effects.
Decades of investment in continent-wide supply chains are being upended, and no one can tell which tariffs will apply on what things and for how long. There will not be many important North American supply chains that do not cross borders.
Economists talk about the importance of stable institutions for encouraging investment. After this, what could any future American President do to rebuild confidence that it is safe to make investments that depend on a continent-wide market? Factories can last for decades. Presidents (hopefully) last for only four to eight years. And whether tariffs will be on or not seems to be decided on a month-by-month basis.
North America will have become substantially poorer and less productive over the longer term because of the shift.
Even in the unlikely case that New Zealand avoids tariffs beyond those on steel and aluminium, we will pay more for things we buy from North America, and North Americans will be able to afford fewer of the things we sell.
And that’s before we start reckoning with the implications for international trade as America retreats from its role in securing the seas.
Or for international security if the assistance provided by one American administration can lead to demands for repayment by the next.
Or for America’s traditional allies if America increasingly aligns with Russia. American weapon systems purchased and deployed by allies require American authorisation for use. Relying on U.S. weapons might soon carry similar risks to relying on Chinese components in telecom networks.
The old world was very good. Billions of people escaped poverty. The human lifespan increased dramatically and child mortality fell. Democracy expanded to encompass nearly half the world’s population.
Former Australian Prime Minister Tony Abbott last week wrote in Canada’s National Post urging far deeper relations between Canada, the UK, Australia and New Zealand – a CANZUK trade and security alliance. New Zealand is part of many trade agreements and is likely busily encouraging other free-traders to join.
I don’t know if either counts as a potential new world, or the dying struggles of the old one.
But I’m not enjoying the time of monsters – and I fear we’ll be dealing with them for some time yet.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
No comments:
Post a Comment