Saturday, August 18, 2018

C21 - The World and Economic Life

News reports abound about the huge  and fairly recent falls in the value of the Turkish lira. The Chinese Yuan too has fallen in value as of course has the British pound.

Business pages of newspapers also report that currencies in a whole host of other countries are falling in value to such an extent that the pound  sterling despite its recent Brexit falls in value, is worth more in overall terms viz  viz other currencies now, than was the case prior to the internal referendum about the UK leaving the European Union.

The USA's President Trump arguably could be said to have influenced many of these currency depreciations through his trade policy of imposing huge tariffs on for example, Chinese steel and Turkish aluminium imports, ostensibly to protect the USA's own home market.

In economic terms however, I am not sure that increasing the prices of imports in this way will be any more beneficial for the USA than for the world at large although it is interesting that so far, the EU seems to have caved in to American threats if it tries to retaliate, to tax car imports far more highly than at present. The American policy on Iran too though based on non-trade reasons is having an effect. The EU's response initially was robustly negative but some large EU companies now appear to be towing the American line for fear of losing trade rights with the USA. Will the EU strengthen its own line or essentially capitulate to the USA? 

Time will tell however whether The USA's policy in the trade war it appears to be risking, is beneficial at least for the home country. Meanwhile the effects of these trade barriers on world trade generally could be detrimental to many ordinary individuals.

A surprising  at least to yours truly, feature of these tariff wars so far is the appreciation effect they appear to be having on the value of the American dollar.

Logically one would expect the currency of a country imposing huge tariffs on imports from other countries, thus risking a diminution of  its own  exports  when the countries affected retaliate, to be adversely affected by the  consequential reduction in its trade with the world. 

Possibly the facts both that the American dollar is a reserve currency and the USA economy is huge and self sufficient, explain the continuing strength of its currency - thus far. 

One concern however is the possible effect on employment or should I say unemployment, not only in the countries directly affected by the new trade tariffs but also in the USA where the need has already arisen for local farmers to be subsidised by the federal government owing to the loss of markets being caused by retaliatory tariffs being levied on American produce.

My own view is that the Americans are wrong as regards the imposition of trade barriers generally, other than perhaps on Iran where the motivation appears to be about nuclear arms rather than fair trade. 

Generally though unless countries row back somewhat from the threatened trade  wars, the worst losers will be the poorest people - it was ever thus.

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