How will trade wars unfold? Are we doomed? History may scare us. Before the dawn of the American Republic, it was the trade wars among thirteen Confederates that wreaked havoc on the fragile Articles of the Confederation. Fast forward, the interwar trade wars, triggered by the ill-famed Smoot-Hawley Tariff Act of 1930, decimated three quarters of world trade and eventually contributed to the outbreak of the Second World War.
History reproducing itself captures our imagination. It finds its way even in our fictional intergalactic past. Not many people know it was actually a “trade” dispute that precipitated the Star Wars “a long time ago in a galaxy far, far away.” A quarrel over taxing trade routes between the Galactic Republic and the Trade Federation resulted in a blockade of shipping to a small planet of Naboo. Two parties failed to settle the dispute, which brought light-saber wielding warriors.
Perhaps the fact that wars, trade wars or other kinds, happen so often, in both the real and the imagined world, is related to the way in which our brain is wired. Cognitive psychologists observe that our tribal instincts push us to favor in-group members and “infrahumanize” out-group ones. We tend to believe that our people are honest and trustworthy, while they, such as foreigners, are unscrupulous and perfidious.
For example, the United States might believe, rightly or wrongly, that China breaks all the rules and steals the U.S. technologies at the expense of American prosperity. Likewise, China might believe, rightly or wrongly, that the United States unfairly suppresses Chinese efforts to develop and modernize its economy in an imperialistic manner.
This cognitive bias leads to fear, which activates our reptile brain and readies us to fight. As Yoda said, fear leads to anger, which in turn leads to suffering. We are destined to suffer from trade wars.
The Founding Fathers of the American Constitution understood this fatal link. The devastating experience under the Articles of the Confederation prompted them to invent the “Commerce Clause” in the new Constitution that invalidates state protectionism. Likewise, the Allies understood the same link after the end of the Second World War. They created the “General Agreements on Tariffs and Trade” (GATT), which later evolved into the “World Trade Organization” (WTO), to prevent another global trade war.
Indeed, the trade dispute that caused the Star Wars could have been resolved under GATT Article V, which stipulates that “there shall be freedom of transit (…), via the routes most convenient for international transit (…).” Intergalactic diplomats and lawyers could have obviated the need for Jedi knights.
Will the same flash of enlightenment emerge in the near future? The current situation is by no means auspicious. The WTO court has recently been mired by the flames of trade wars. Now does not seem to be a time for trade diplomats and lawyers. Trade warriors are likely to take over, or they may have already taken over.
So, buckle up, and may the force be with you!
