Perilous times — World Trade War 1

By Brian Plummer

Monday, July 23, 2018

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It was Mark Twain who said that history rhymes. I recognise the current trade war as a modern version of the opium war. It is different because we are in 2018, not in 1839. The world is globalised and the United States, not the United Kingdom, is the world power that needs goods (not tea, but various merchandise) from the world — not only China.

In 2017 the total US trade deficit was $566 billion. The trade deficit with China was $375 billion. It's responsible for 66 per cent of the total US deficit in goods, but the US has a trade deficit with all its major trading partners. In 1975 US exports exceeded foreign imports by US$12.4 million, but that would be the last trade surplus the United States would garner. Starting in the early 1980s, annual US trade deficits reached unprecedented levels. The US trade deficit surpassed US$100 billion in 1984 and peaked at a record US$153 billion in fiscal year 1987. The United States had a large trade deficit long before China became the factory of the world. This trend is not sustainable.

The US national debt is US$21.2 trillion, which is the largest in the world. The US is in a similar predicament as the United Kingdom after the American Revolution. They have an insatiable appetite for cheap consumer merchandise, not tea like the British, but their economic situation is not supportive of this. Like the United Kingdom ,the US tried to negotiate, but that was unsuccessful, so they declared a trade war — not an opium war and not just with China but with all its major trading partners because it is modern times and war between nuclear powers will be mutually assured destruction for all parties.

The US seems addicted to war — War on Drugs, The Korean War, Vietnam War, War on Terrorism, War in Afghanistan, War in Iraq, and War on Poverty. The modus operandi — both foreign and domestic — of the United States is to look at everything as war. The 2018 US Defense Budget was signed into law on December 12, 2017 by President Donald Trump. That budget authorises just under US$700 billion in defence spending, a 2.4 per cent increase in military pay, and a 0.7 per cent increase in basic housing allowance.

In 2017 China, Russia, Saudi Arabia, India, France, United Kingdom, and Japan spent US$578 billion combined, while the United States spent US$610 billion on defence. This World Trade War 1 will have serious repercussions. The cost of living will go up globally because tariff is additional cost which will be passed on to the consumer — me and you. The price of goods will go up significantly. The United States is a major trading partner of Jamaica and the Caribbean, so this will definitely affect us.

The potentially explosive interaction between the spreading trade war and the overhang of global debt — at an astounding US$247 trillion (the Institute of International Finance, IIF) — will be disastrous. Since 2003, global debt has ballooned. As a share of the world economy (gross domestic product [GDP]), the increase went from 248 per cent of GDP to 318 per cent. In the first quarter of 2018 alone, global debt rose by a huge US$8 trillion. These debts requires rising incomes, while an expanding trade war threatens to squeeze incomes. The resort to more tariffs and trade restrictions will make it harder for borrowers to pay their debts.

Don't forget the 2008 global financial crisis, called the Great Recession, was just stayed, not rectified, by quantitative easing (QE) and unprecedented low interest rates. In Europe they went into negative territory, while in the US it was zero. In other words, the world economy is fragile and still in recovery. All Caribbean countries, including Jamaica, are recovering — and some are recovering from natural disasters. I would recommend that Jamaica acquires some gold in its reserve. Gold is the only currency that has stood the test of time. All other fiat currencies eventually fail.

I want to posit that the syndicate called Caricom is at a juncture that we either further integrate or inevitably disintegrate. The only guarantee in life is that everything must change — either improve or decline. With an estimated population of 18 million, including associate and observer nation, we represent only 0.257 per cent of the world population and represent 14.5 per cent of the United Nations. Caricom is not the most powerful trading bloc and political alliance, but it can be significant with proper foresight. We are emblematic of the global order forged under colonial dominance and are now trying to forge our own destiny. Being a small fish in a big pond we navigate perilous conditions, where developed countries have their interests and we tend to have them as allies — hoping they take care of us. The major historically forging forces in our existence are slavery and indentured labour, piracy, and geopolitics. These dramatic experiences made us “prevaricating people”.

Conversely, Trump is a man suited for this time. He is street smart, not an academician. He made his riches with some questionable deals by being street smart (reading people and capitalising on it). Whether Russia played a role in his election victory or not he won the US presidential election because he was street smart and catered to the fears of some of the US electorate. He presented himself as a saviour and said he was going to drain the swamp and “Make America Great Again”.

More than likely his policies will not make America great again, because the US's problems are systemic. Nevertheless, these are perilous times; no time for necessities. He knows when the situation is dangerous one must be bold and use primal strategies. I believe the leaders of Caricom need to strategically adapt a bolder approach. Look at the corresponding banking debacle. It is more expensive and more difficult to send and receive money in all Caricom countries and all the leaders are doing is the ineffectual prevaricating rhetoric and conventional diplomacy. Something of that magnitude that affects so many citizens negatively requires bolder action. Do our leaders expect the US to put our interest as high priority? The future belongs to the bold. Even the Caricom youths know that. Are our youths bolder than we were? They are suited for the times. Personally, I practice decorum, but I know some situations call for assertiveness, not sycophancy.

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