Tariffs Are A Distraction & The End Of Globalization Is A Myth

---

Support CleanTechnica's work through a Substack subscription or on Stripe.

---

Trade between countries is like a river, one that has flowed for millennia. The quest for spices and silk inspired early traders like Marco Polo. The British Empire was based on a quest for tea from India, Valencia oranges from Spain, and tall trees for the masts of ships from North America. Christopher Columbus thought he was on the way to the Orient when he stumbled upon the islands of the Caribbean. Those things all happened in the days before tariffs.

In modern times, the invention of the shipping container revolutionized international trade. Those devices allowed for mechanized freight handling that was many times more efficient than loading and unloading cargo by hand. In recent times, the United States has imported far more goods than it exported, leading to a glut of empty containers on both coasts.

Globalization and free trade were the twin touchstones of international commerce economy. Presidents from both parties and Congress were robust supporters of globalization. Americans welcomed the flood of consumer goods on the shelves at Walmart even as local businesses disappeared from Main Street all across the nation.

Tariffs As Punishment

The current administration is convinced the world has been taking advantage of Uncle Sam and is determined to put an end to what it sees as economic exploitation. A punishing round of new tariffs is designed to force foreign producers to relocate to the US, even though no one inside the administration seems to understand that doing so will inevitably lead to higher prices for virtually all manufactured goods.

During the great economic expansion in America following World War II, US workers got accustomed to shorter work weeks, higher wages, health insurance, retirement programs, and a host of other benefits. The government may wish to “reshore” American manufacturing, but seems not to comprehend the economic consequences of doing so.

Many in the administration blithely assume slapping tariffs on everything will solve a host of economic problems, but according to Bloomberg’s Chris Bryant, something unexpected is happening. If the new US trade policies are like a rock in the middle of the great river of international commerce, that river is simply adjusting its flow to go around the rock.

Today, almost a third of the products in the global trade pipeline come from China. Those products are simply now going to markets other than the US, as the great river rolls on. Sure, there are some ripples around the new rock in the middle of the stream, but the flow of commerce continues unabated.

Bryant writes, “Although the US was the chief architect of the multilateral trading system and has become the world’s most lucrative consumer market, it can’t by itself turn back the clock on global economic interdependence. Prosperity gains from comparative advantage and low-cost container shipping are too great for the rest of the world to ignore. Even as the US embraces self-sufficiency and reveals itself to be an unreliable economic partner, others are keen to keep trading.”

What De-Globalizaton?

Vincent Clerc, the CEO of Maersk, the largest international shipping company in the world, told investors last week, “Despite all the talk of de-globalization, if you just look at the numbers, what we are seeing in the last two and a half years is an acceleration of globalization on the back of a huge commercial success from Chinese companies taking market share on the global stage.”

Maersk recently reported record shipping activity outside the US and forecast global container volumes could increase by as much as 4% this year. “There is a new driver in container demand that is adding a lot of upside potential,” Clerc said, and predicted stronger Chinese-led growth might last “a few years.”

We alluded to this phenomenon recently in an article about how clean energy products and electric vehicles exported by China are actually lowering global carbon emissions by a measurable amount, even taking into account the emissions associated with making them. If the geniuses in the current administration think US-made products are going to be able to compete on the world stage with those produced in China, they are delusional.

There are those who point out that workers in China may be subject to harsh working conditions, and that is undoubtedly true. In 1966, author Robert Heinlein wrote The Moon Is A Harsh Mistress about a penal colony on the Moon where forced labor is the order of the day. Throughout human history, commerce has brought out the worst in humans, whether it was the slaves forced to work in King Solomon’s mines or the cotton fields in America.

In her book No Logo, Naomi Klein described in brutal detail the working conditions in many places that manufacture the products that fill those containers so we in American can have low prices every day. If anybody thinks these new tariffs are going to lead to a workers paradise in America, we’ll have some of whatever it is you’re smoking.

Chinese Exports To The US Plummet

Chinese exports to the US have suffered a double-digit decline since the threat to impose new tariffs happened in April, but its exports to the rest of the world are up since then. Some of that may be affected for short term adjustments, but it may also be indicative of “a dramatic change in China’s trade orientation, away from reliance on the U.S. and toward a broader, more diversified global footprint,” according to a report dated Aug. 8 by German asset manager DWS Group. “The competitiveness of Chinese exports as well as intensifying economic links with regions like the Middle East and Africa is a structural trend that is likely to prevail.”

Germany’s DHL Group is seeing similar shifts in demand, with time-definite US express shipments with a guaranteed delivery date dropping 31% in the second quarter, while deliveries to Asia rose 2%.  Meanwhile, deliveries to the Middle East and Africa were up 8% in the second quarter. Global trade “finds its way to keep flowing” and there are “still growth opportunities and growing trade lanes,” DHL CFO Melanie Kreis, told analysts last week. Ken Lee, the head of DHL’s Asia-Pacific express business said recently that globalization is “too big to fail.”

Bloomberg’s Chris Bryant said, “I don’t wish to play down the impact of the world’s largest economy undermining the rules-based trading system and raising import taxes, which will impose unnecessary costs on consumers, blunt competition, dampen growth, delay investment and cause global trade to grow more slowly than it otherwise would.”

“High tariffs on southeast Asian countries may undo some of the advantages of Chinese and western companies tapping new sources of cheap labor and diversifying their manufacturing footprints, a strategy known as China+1. Furthermore, if China’s exports are diverted from the US to emerging markets, other countries may impose duties to protect domestic industries. (A reminder that China must do more to support demand by its own consumers.)

“But with China accounting for more than 30% of global goods manufacturing and dominating in key decarbonization technologies, it’s hard to see the world swiftly turning its back on this highly efficient production. Much of the Global South has continued to import Chinese vehicles, which are cheap and of high quality, even as the US and Europe (to a lesser degree) raise trade barriers and warn about China’s industrial overcapacity.”

Most Global Trade Does Not Involve The US

HSBC CEO Georges Elhedery told Bryant, “One also shouldn’t forget that the majority of global trade doesn’t involve the US. Intra-Asia and Asia-Middle East trade corridors are some of the fastest growing on the planet.” Currently about 20 percent of the value of all goods and services produced around the world end up in a different country, according a DHL study in March, meaning global trade potential isn’t close to being exhausted.”

“So far, global trade growth has been highly resilient, and we’ve also not seen all that much retaliation from countries hit by US tariffs. That’s partly because those countries recognize how much they benefit from trade,” Steven Altman, senior research scholar at the NYU Stern School of Business, told Bryant. “I don’t see the US leading a global movement away from trade, and so far it appears globalization can survive Trump 2.0.”

“Supply chains face upheaval while the US and China are pulling apart, but that doesn’t mean globalization is dead. Rather we may be entering a new era, characterized by US retrenchment, Chinese companies investing overseas — and other countries trading more with each other,” Bryant wrote. In other words, despite all the bile, bombast, and bluster emanating from the shores of the Potomac there days, the river of commerce is just flowing around the rock the US has placed in it.”

Empty threats are just so much background noise if those they are supposed to effect are able to shrug their shoulders and say, “So what?#8221; As America recedes in the world’s rearview mirror, China will continue to be the undisputed leader in clean technologies — a field the US invented, then stood on the sidelines as others exploited them. Soon, the world will be laughing at the weak-kneed policies of the United States and asking, “Donald who?#8221;