The Economist magazine published its April 12 issue with the cover The Age of Chaos. The main emphasis of the editorial lead of the magazine was that Trump had deeply shaken the fundamental assumptions on which the balance of the world economy was based, and that it would take a very long time for the extraordinary chaos and volatility that emerged to disappear.
A ceasefire seems to have been reached in the part of the global trade wars that has been ongoing on tariffs since last week. The war continues on other fronts, such as China's restrictions on trade in rare earth elements. Let's take this opportunity to take a look at the social and political structure behind trade policies.
Trump thinks that if the US has a foreign trade deficit, the reason for this is entirely foreign trade policies, and he increases customs tariffs as a solution. However, the US's foreign trade deficit is not the result of foreign trade policy, but of the social policy, economic and political preferences it has adopted. The US had established the global system of the post-World War II era with its own hands. This system has successfully overcome a series of troubles until recently. Like Nixon ending the gold equivalent of the dollar in 1971 and then the Keynesian consensus giving way to neoliberalism in the 1980s.
In the Keynesian consensus, as long as there was no threat to the global economic system, each country determined its economic policy by considering the political and economic balances within its own borders. Neoliberalism, on the other hand, is a global system. It is based on the convergence of rules regulating foreign trade, capital movements and investment environment in all countries. This convergence, in the preferred terminology of recent years, has led to fierce competition among the ‘global south’ countries to grab a share of the global economy.
The technological transformation in the field of communication and transportation with computers, the internet, mobile phones, etc. has made it possible to plan production and trade on a global scale. Thus, multinational companies from developed countries such as the USA, Europe and Japan have moved their production to developing countries where wages are very low and there are no union rights. As a result, the profit rates that were falling in the global north have started to rise again. In addition, by importing cheaply produced goods back from the global south, access to consumer goods for the lower and middle classes was made cheaper. The global south also received its share of prosperity from the increase in production and trade. In other words, the reason for the increase in the US foreign trade deficit is that US companies turned to other countries to reduce labor costs after 1980.
Manufacturing industry wages in China are 20 percent of those in the US. Moreover, the US is abandoning the immigration policies that keep wages low. Therefore, as long as these parameters do not change, it is not possible for Trump to reduce the foreign trade deficit with tariffs. So the question is, are these parameters changing now? If so, why? It is a multidimensional question that requires a long answer. Let's underline the technological dimension of the matter in this article.
Just as there was a change in technology that made globalization possible in the 1980s, a similar process is taking place now. The change in robotics and artificial intelligence technologies is removing production based on cheap labor from being the main determinant of companies' production decisions. The share of material goods in the economy as a whole is decreasing. The share of services is increasing. The share of digital services is also increasing. This trend will continue.
Perhaps in the coming years, no one will care about the place of shoe factories in the economy. Who writes the algorithms that tell whom to sell which shoes will become more important. Therefore, the change in US foreign trade policies should be considered together with radical changes that cannot be reduced to Trump’s personality, but go deeper and affect the entire economic and social structure.
