Trade

Trade, such a political object, agent of peace and weapon of war

The month of February 2022 will have started with the announcement of a record trade deficit in goods for the French economy for the year 2021 of -85 billion euros. It ends with trade sanctions against Russia following the invasion of Ukraine. A vector of peace as a weapon of war, trade is an eminently political object. In times of conflict, it is the economic weapon par excellence. Normally outside the discretionary control of States, it creates economic interdependencies conducive to more political benevolence.

The founding fathers of the EEC, ancestor of the EU, bet on trade to consolidate peace on the European continent. The objective has been achieved, and beyond; EU member countries carry out more than two-thirds of their trade with each other and the EU is the leading trading power after China. Consistent with the gravity theory of international trade, Europe acts as a magnet and its intense peaceful trade, as well as its military protection, arouses the interest of peripheral powers.

But make no mistake about it, even in times of peace, the state of trade between allies always remains under close political scrutiny. This is the case with trade in strategic goods, but it is also quite simply the case with France’s trade deficit vis-à-vis the rest of Europe or vis-à-vis Germany.

David Hume and the jealousy of commerce

We owe David Hume, in 1774, for being the first to point out the jealousy of trade that inhabits our governments, jealousy of the technical mastery of others, jealousy of market shares or jealousy of the accumulations of gold and currencies. The tension is palpable in this feeling of jealousy which can lead to isolationism or the identification of unfair competition. It must be remembered that a country’s trade balance is always the mirror of that of its partners. If the state of foreign trade is seen as an attribute of power, then a deficit mirrors the power of others and one’s own weakness.

This is how Donald Trump’s administration saw its trade deficit, especially vis-à-vis China, but also Germany. This is often how the French trade deficit causes concern and leads to comments on the decline of France and the superpower of Germany. The trade surplus of the latter (6% of its GDP) is interpreted as a sign of its supremacy and its economic intransigence.

The trade balance, reflection of a growth model

And yet, the state of the trade balance does not always reflect productive dependence or a lack of industrial base, it also reflects a growth model. The same level of trade deficit can have totally different causes. Conversely, a trade surplus is not always the sign of a competitive economy, which is the case of Italy, which is not very productive. In France, the explanations diverge between a lack of competitiveness and a growth model driven by demand, unless it is the lack of demand from its partners who are not investing enough.

As for the cost competitiveness of the French economy, it has converged towards that of its European partners, and yet exports have not had the boost expected to halt the deterioration in the trade balance of goods and above all the loss of market share. market within Europe. It must be said that the economy does not iron the dishes and the lost skills are not reconstituted by suddenly lowering the charges. Policies improve the environment for companies that are present, not those that have left. The objective of the present policies must be to consolidate the existing comparative advantages and to create an environment conducive to the creation of capacities in the future.

There remains non-cost competitiveness. In this respect, the only political lever is spending on research and development and spending on education and training, cruelly absent from France 2030. The advantage of such policies is that they are by nature cooperative, because science has no borders. The returns to spending on research and education benefit beyond those who make them. On the contrary, cost competitiveness policies are non-cooperative, which was the case with the wage contraction policies of the Hartz reforms under Gerhard Schröder in Germany.

In addition, research and education policies, if they benefit everyone, do not exclude the appropriation of benefits through innovation and the creation of comparative advantage. The increasing returns associated with research expenditure allow for appropriation by the firms that innovate first. Europe has everything to gain from establishing cooperative competitiveness policies.

Admittedly, non-cooperative competitiveness policies are not war, but they create a climate of unnecessary economic tensions. To see trade too much as an attribute of power, we forget that it is above all a question of exchanges and mutual gains. Trade may well be a weapon, by its hindrance, but it should not be the object of war.

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