July 17, 2019 / 2:06 PM / 5 months ago

Breakingviews - Hadas: Peaceful trade theory ominously unravels

LONDON (Reuters Breakingviews) - “The spirit of conquest and the spirit of commerce are mutually exclusive in a nation”. So wrote the French intellectual Jean-François Melon in 1734. Over the subsequent centuries, his idea has been frequently repeated by commentators, and periodically undermined by history. U.S. President Donald Trump, for example, uses trade in a very aggressive spirit.

US President Donald J. Trump and Japanese Prime Minister Shinzo Abe (R) pose for photographers at the start of talks at the venue of the G20 Summit at the International Exhibition Center in Osaka prior to the opening of G20 Summit June 28, 2019. Kimimasa Mayama/Pool via REUTERS

The profit motive has been a powerful philosophical, and political, undercurrent for generations. As Albert Hirschman explained in his 1978 book “The Passions and the Interests”, “doux commerce”, or gentle trade, was obviously selfish and base, but also less destructive than the undoubtedly noble passions which lead to war.

Reputations of the bottom-line-focused industrialists gradually improved. In 1909, the British journalist Norman Angell argued that prosperity did not merely distract people from war, but actively promoted peace. His best-selling book “The Great Illusion” claimed that the threat of mutual damage “made armed conflict unprofitable” and that expanding free trade would help make countries more dependent on one another.

That description comes from none other than the website of the Nobel Peace Prize, which Angell received in 1934. He was awarded the distinction less than two decades after a massively destructive war fought largely by countries which had extensive trade links. It thus evokes Samuel Johnson’s witticism about second marriage being “the triumph of hope over experience.”

This hope was resurrected after World War Two. The founders of what would become the European Union were persuaded that links were essential for European peace, and the same conviction inspired the establishment of the General Agreement on Trade and Tariffs in 1947. GATT later became the World Trade Organization.

And Angell has at least one best-selling journalistic heir. In 1996, Thomas Friedman, the author and New York Times columnist, pointed out that “No two countries that both had McDonald’s had fought a war against each other since each got its McDonald’s”. Then there is Michael O’Leary, the ebullient discount airline boss, who in 2011 said, “There hasn’t been a war in Europe for 50 years because they’re all too busy flying Ryanair. I should get the Nobel Peace Prize”.

It’s hard to say whether international trade has promoted peace, even if it has clearly helped build prosperity. Per capita worldwide real GDP grew at a 1.9% annual rate between 1960 and 2017, thanks in part to the increased flow of goods and services across borders. The value of exports grew as a proportion of economic output from 8% to 23% between 1950 and 2010, according to the Our World in Data website. And globalisation was helped by lower tariffs, which fell from 22% of total value in 1947 to 2.6% in 2017, according to World Bank research.

Along with more prosperity, there has been less military destruction than in the first half of the 20th century. Correlation, however, does not indicate causation. There are many non-economic reasons to avoid war, starting with the memory of the horrors of past battles and the fear of what nuclear strategists call mutually assured destruction.

In any case, the link between prosperity and peace is looking frayed. Under Trump, the United States has treated the WTO with disdain, turning tariffs and trade rules into diplomatic weapons. He has acted against, or threatened, rival China, enemies such as Iran and allies including Canada, Mexico and Germany.

The average U.S. import tariff has more than doubled, although only to 4%, according to the World Bank. If all the currently proposed additions were enacted, the rate would double again. In recent days, the Trump administration has added threats against countries which it implausibly claims are manipulating their currencies.

Trade belligerence seems to be spreading, too. Japan is using export restrictions in a political dispute with South Korea, putting the global semiconductor industry at risk. Many more governments feel free to traverse borders with cyber-aggression, and inter-country sales of conventional weapons are booming. Economic nationalism is also on the rise in many countries, including the United States and the four largest developing economies – China, India, Russia and Brazil.

Commercial disputes have not yet led to actual bloodshed, as occurred in, say, the mid-19th century Opium Wars between Britain and China, but the latest stretch of globalisation is now badly wounded. Politicians such as Trump and Shinzo Abe, the Japanese prime minister, either do not accept that international dependencies are good for the economy or think there are goals more important than maximising GDP growth. Either way, the Melon-Friedman-O’Leary thesis is in trouble.

Perhaps there is a connection between interest in economics and the avoidance of war, but the optimists had the causality backwards. It seems more likely that prosperity does not support peace. Rather, the desire for peace is what underpins cross-border prosperity. In that case, the willingness of politicians to so easily flaunt national greatness and grievances is an increasingly ominous development.

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