Trade as a Zero Sum Game

By Steve Saville

[This blog post is an excerpt from a TSI commentary published on 27th March 2018]

The policies of the Trump Administration are being influenced by the view that international trade is a zero sum game, where whoever receives the most money is the winner at the expense of whoever receives the most goods. Under this line of thinking, which sometimes goes under the name “mercantilism”, policies are beneficial if they increase the amount of money coming into the country relative to the amount of money going out of the country. As discussed below, it’s the wrong way to look at the world.

Another way of framing the mercantilist position is that the winner is the one who ends up with the larger amount of the medium of exchange and the loser is the one who ends up with the larger amount of real wealth. For reasons we’ll get into in a moment there are actually no winners and losers, but if it were true that one side was getting the better deal then surely it would be the one that ended up with the most real wealth; especially these days, when the medium of exchange is created out of nothing by the banking system.

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Global Trade Update

By Callum Thomas

A few data points have come out on global trade over the past week so it’s worth taking a look at what has been a really key theme for the global economic recovery and acceleration that we have been seeing.  Indeed, the global trade slowdown (basically a near-miss global recession) in 2015/16 was a key driver behind the route in commodities and global market turmoil that culminated in 2 stock market corrections and a drive lower in bond yields.  It also helped spur on the ECB, BOJ, and China to undertake further stimulus, which has been key in driving the improvement that we have seen in global trade.

Anyway, as for the data, at a high level, the CPB Global Trade Monitor data showed global trade growth running at the strongest pace since the 2010 bounce back from the global financial crisis.  This improvement has been matched in the industrial production growth stats.  It’s also verified with the RWI/ISL global container throughput data, which shows volumes running above trend.  Shipping cost indexes, while somewhat volatile, have also recovered notably, and are something we are watching closely for clues on the next steps.

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