Forum newsletter: Alternatives to the trade war

Dear friends and colleagues, 

is it now better to respond to Donald Trump’s tariff provocations with firmness – or to flatter him, since the man tends toward a certain narcissism? The question is highly relevant economically, but it is more likely to be answered through psychology or game theory than by, say, the Ricardo Theorem, which economists long used to explain who trades with whom.

Hard to predict? Sure. What does seem predictable, however, is that economics will have to be rewritten to some extent. No matter how the current trade war ends, what follows will most likely not be a return to free (global) trade.

Spontaneous exchange, for all its benefits, has caused too many side effects – whether devastating regional ruptures like in the Rust Belt, northern England’s industrial regions, and eastern Germany; or unsustainably high surpluses in some countries (Germany and China) and deficits in others (namely the USA), which Trump wasn’t the first to criticize; or the enormous power of individual tech giants; and dangerous dependencies, such as on a country like Taiwan, which produces a large share of semiconductors (chips) – also a result of free trade between companies, where such geo-strategic dimensions, logically, play no role.

There are many good reasons to manage things better across the board – for example, to intervene proactively when sudden shocks, cheap competition, or climate-related transformation threaten to plunge entire regions into deep crisis. Or to ensure that strategically important products are at least partially manufactured nationally, in order not to jeopardize our national sovereignty.

The real question will then be how such security or industrial policy interventions, deemed legitimate, can be defined and limited so as not to lead to the kind of arbitrariness and escalation we’re now seeing in Trump’s blunt-force version. In other words: what might a cooperative “global governance” look like – one that combines legitimate protection with the benefits of otherwise free trade?

That may sound utopian for now. But it may already be worthwhile to start thinking about such a scenario – for the time after Trump. Leading experts will try to explore what such a future world could look like at the second Berlin Summit on June 13. That day will also be about whether the latest financial packages and adjustments to the debt brake in Germany indicate a kind of European paradigm shift – toward more meaningful investment. And about how the German economy can overcome the shocks from China and Trump.

The summit will kick off with smaller expert roundtables on June 11. Official registration for June 13 will open soon. If you’re interested, you can put your name by sending an E-Mail to info@newforum.org.

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What could a climate policy look like that doesn’t keep failing due to resistance against higher prices? We’ll be discussing this already next Wednesday, April 30 at 5:00 p.m., during our next New Economy Short Cut. There we’ll try to draw initial lessons from Joe Biden’s climate policy, which relied much more on positive incentives than on carbon pricing. Highly relevant: after all, the new federal government will soon have to respond to the next price shock – keyword: ETS2. Click here to register for the online event.

Have a great weekend,

Thomas Fricke

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