Inequality in the U.S. is at the Root of the Trade Wars ~ Financial Times

Originally Published by Financial Times
By Garvin Jabusch

Inequality is not caused by trade, but by disproportionate hoarding of the benefits by a few
© Getty

The US is the biggest beneficiary of global free trade, having thereby earned trillions since the postwar period. But the American free-trade windfall has not been fairly distributed, with outsized proportions accruing to the top 0.1 per cent, and with little to none for working people providing goods and services that make the US competitive. These disenfranchised can be understood in their support of something politically different. For once, it seems to them, the status quo that has oppressed them is fragile; something could change. That that change could be worse than the status quo seems a risk worth taking.

These folks are angry, want someone to blame, and are easy marks when a populist comes along and tells them they are being fleeced by foreign countries. In the present US situation, that’s China and Mexico. China helps this narrative by being protectionist, not letting America’s internet companies, banks and so on play on a level playing field, if at all, within their borders. China has its own reasons for this, perhaps viewing it as restitution for centuries of both literal and economic colonial exploitation. So trade’s economic benefits of are now held hostage on all sides by nationalism, spurred by unequal distribution.

Yet inequality is not caused by trade, but by disproportionate hoarding of the benefits by a few. The solution then is to point our patriotism inward and do something about inequity. Until we do, some will use the fear and anxiety that come with inequality as a bludgeon to keep America’s have-nots whipped into a nationalist frenzy and voting them into power.

Rather than erect barriers to prevent Chinese technology and Mexican goods from proliferating, we should prioritise better competing with those things. On the government side, focus less on tax cuts, and plough more into research and infrastructure. On the corporate side, fewer share buybacks and more reinvestment into innovation. These will have the effects of advancing tech productivity to a degree that Chinese encroachment won’t seem so threatening, creating jobs, and being stimulative. The latter effects also slow the widening of inequality, making us less vulnerable to populist rhetoric: a virtuous cycle.


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