Trade, Tariffs, Currencies, Colonialism, the Gold Watch and Everything

The present-day tariff-trade-war conflicts boil down to Neocolonial strategies to gain control of markets for exports and resource extraction on terms that are only favorable to the Neocolonial power.

The title of today's essay pays homage to the inimitable John D. MacDonald's novel The Girl, the Gold Watch & Everything in which the gold watch has the power to stop time.

In the context of today's keening cries of tariff-trade-war agony, let's use this imaginary power over time to return to the ancient world's many long, dangerous and immensely profitable trade routes, for example the (mostly) sea route from Rome to the ports and riches of the southern coast of India, an enduringly profitable trade bonanza ably described in The Roman Empire and the Indian Ocean: Rome's Dealings with the Ancient Kingdoms of India, Africa and Arabia.

Let's start by dispensing with the conveniently pliable fantasy of "free trade." Though some reckon the author's estimate that 30% of the Imperial income resulted from Rome's duties on foreign trade exceeds the actual percentage, the trade's great volume through the customs offices in Alexandria are described in ancient texts.

On the Indian side of the trade, various restrictions limited Roman access to approved ports and local merchants' dealings with visiting Roman ships and merchants, who established permanent polyglot colonies of Mediterranean traders in Indian ports.

What characterized this trade was not that it was "free" but that it was mutually beneficial and not within the control of either side of the trade. Rome ruled the Mediterranean largely by extending the mutual benefits of commerce to the territories it had conquered. Pay your taxes and customs duties, and all would be well. Try to eliminate the Imperial slice of the pie--now that would bring trouble in the form of legions.

Even if Rome had hankered to control the coast of southern India, it could not project power that distance with the modest craft of the day, and to what benefit when trade delivered goods and income without the horrendous expenses of transporting troops and supporting permanent garrisons? For their part, Indian merchants established trading communities in ports on the Red Sea but relied on Roman policing to protect the land route across the desert to the Nile.

Once technologies enabled imperial ambitions to extend across the globe, then two profitable possibilities emerged in the form of Mercantilist Colonialism. Once an imperial power wrested power from local rulers and established a colony, two profitable forms of commercial control could be imposed:

1) The colonial subjects could be forced to buy manufactured / finished goods produced by the imperialist nation's home economy, guaranteeing a reliable market for its value-added exports, and

2) The colony's natural resources could be secured at low prices for the express use of the Imperialist domestic economy.

In the post-colonial era, mercantilist advantages were gained by severely restricted imports while flooding the domestic economies of trading partners with below-cost goods, driving domestic competitors out of business and establishing a quasi-monopoly that could be exploited once the competition had been eliminated.

These mercantilist strategies were typically hidden within regulatory thickets rather than visible tariffs. For example, in the 1960s and 70s, Japan mastered the art of limiting goods imported from the U.S. via various bureaucratic subterfuges while making full use of the relatively open door to Japanese exports.

(As I have explained in numerous essays, this policy was the direct result of America's Cold War with the Soviet Union, which incentivized the U.S. to support its allies' postwar economic recovery by opening the vast American market to their exports.)

Currency manipulation plays a key role in the mercantilist strategy of restricting imports while flooding others' economies with exports. By devaluing one's currency, the cost of imports rises while the cost of one's exports priced in competing currencies declines.

In effect, currency devaluations act as a hidden tariff on imported goods which soar in price, while slashing the price of exports in economies with strong currencies.

The quasi-monopolies created by mercantilist policies are forms of Neocolonialism--colonialism imposed not by military force but by currency manipulation and state support for exports and bureaucratic thickets that limit finished-goods imports.

The profits from this mercantilist Neocolonialism are then used to buy up mines, ports, agricultural land, etc. in resource-rich nations--another form of Neocolonialism, that is, control of markets and resources by means of mercantilist finance rather than military force.

Another mercantilist strategy is to demand transfers of intellectual property / patents as the price of access to local markets, which turn out to be heavily restricted via bureaucratic thickets.

Financialization is another form of Neocolonialism: flood a smaller target economy with low-cost credit at a scale never before available, indebt the target populace as they snap up motorbikes and other goods previously out of reach, then as they default in the inevitable bubble pop / recessionary hangover, buy up land and other assets on the cheap.

(For example, the Thai Baht lost half its value in the complex Asian Financial Crisis of 1997-98, plummeting from 25 to 56 to the US dollar. Thai assets were then "on sale" for those holding US dollars.)

Once the ensuing sovereign debt crisis crashes the local currency, this too is advantageous, as the financiers' currency gains purchasing power, in effect putting all assets priced in the local currency on sale.

The present-day tariff-trade-war conflicts boil down to Neocolonial strategies to gain control of markets for exports and resource extraction on terms that are only favorable to the Neocolonial power.

If everything else fails, Mercantilist Exporters will devalue their currencies to raise the cost of imports and slash the costs of its exports in targeted economies. The danger here of course is a race to the bottom as other mercantilist nations dependent on exports devalue their currencies.

Neocolonialism also plays out in the home economies in perverse ways. When American corporations chose to offshore the nation's industrial base to increase their profits, this in effect gutted Flyover America in the same way a Neocolonial power guts a rival's domestic economy.

I addressed many of these dynamics 13 years ago in The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012).

Welcome to Neocolonialism, Exploited Peasants! (October 21, 2016).

Let's call it what it is: a struggle of Mercantilist-Financial Neocolonialism that manifests as Trade, Tariffs, Currencies, Colonialism and Everything. As for the gold watch, we can't stop time but we can imagine the end-game of currency devaluations and the demise of Mercantilist-Financial Neocolonialism.

My book Global Crisis, National Renewal discusses America's opportunity to establish a sustainable economy that will dominate not by force or the subterfuge of mercantilism but by becoming a model of efficient use of resources, capital and labor: the opposite of the Mercantilist Landfill Economy that now dominates the global economy.

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