When goods do not cross borders, soldiers will.
– Frédéric Bastiat
The human story is the story of trade. Early humans were nomadic. They developed migration routes for moving themselves across geographies, equipped only with what they could carry. Then, about twelve thousand years ago, humans began to settle, to farm, and to have surpluses. These surpluses could be stored, but only for a finite time and in finite amounts. The established migration routes were pathways to other places, connections to other humans, other settlements with different crops, or livestock, or tools. The result of production and connection is trade. The resulting trade network allowed people to specialize and focus on producing greater yields, which further fueled trade, and further developed trade systems. These trade systems not only facilitated the exchange of goods, but also of ideas, and over time, culture, art, science, religion, and all kinds of cerebral creations. Trade required the invention of writing systems, math, and administration. Trade required currency, and so we saw money. Trade expanded over time, and trade routes became more established (regionally, continentally, and even globally). Trade was the force behind the development of societies, cities, empires, and eventually the nations of today. No other creature in this world has trade routes but us. Birds and mammals have migration routes. Ants have foraging routes. Bees have pollination routes. But none have trade routes. The reason of course is because they don’t have trade. And they don’t have trade because they don’t have ownership, not in the sense that we do. Dominion is the birth of man, and trade the driver of his story.
Circulatory System
The greatest poem is the heart’s continuous circulation of blood, full of rhythm and motion, unbroken in its course.
– T.S. Eliot
The human body is a miracle. One of its major operating systems is the cardiovascular system, which I grew up calling the circulatory system. This system moves blood, the liquid of life, carrying oxygen, nutrients, hormones, and waste through the body. The blood is pumped through the system by the heart which beats about 100,000 times per day. With each pump, it sends oxygen-rich blood outward through the arteries and brings oxygen-poor blood inward through the veins. Anything that slows or impedes the movement of oxygen through the system is bad for the body. The system works best when blood flows strongly and freely as it moves to and from the organs like seaports, airports, and cities, and throughout the capillaries to the remote settlements of your fingers and toes. Fluidity of blood flow makes each organ healthier and connects the system as one body that seeks to take care of itself and all of its parts.
Silk Road
I have not told the half of what I saw, for I knew I would not be believed.
– Marco Polo
In the 3rd Century BCE, the Han Dynasty in China began exploring lands to the west. This exploration established the initial trade route connecting China to the Roman Empire. This trade route with its myriad veins, arteries, and capillaries developed to be a central circulatory system for trade and for human development over the next one thousand years. The name Silk Road was coined centuries later by a European academic, referring to the large quantities of silk that made its way from China to Europe along that vast network of trade routes connecting East and West. The Silk Road played a central role in cultural, commercial, and technological exchange for over a millennium. Coinage systems became standardized along the network. Banks and credit systems emerged. Societies across the two continents were exposed to and influenced by each other’s art, architecture, religions, and science. Empires came and went like Rome, Persia, the Mongols, and the Ottoman Empire, all investing in the Silk Road in an effort to facilitate or control (and tax) trade. Ports like Alexandria and Carthage became global trade capitals linking Africa, Europe, and Asia. Islamic caliphates, Byzantine traders, and African kingdoms created flourishing trade zones across the Middle East and Africa, all building their wealth from the trade facilitated by the Silk Road. It’s difficult to overstate the impact of the Silk Road on the development of societies and on the human story itself.
Often described as the modern Silk Road, China’s Belt and Road Initiative (BRI) is a massive global infrastructure and economic development project launched in 2013. The goal of this project is to enhance global trade and stimulate economic growth by building a network of roads, railways, ports, pipelines, and digital infrastructure that connect China to Asia, Africa, Europe, and beyond. China is literally building bridges. They are building high-speed rail, highways, airports, and seaports. They’re developing pipelines, power plants, dams, and renewable energy. They’re installing fiber-optic cables, satellites, and smart city technologies. The outcome will be growth, collaboration, and Chinese dominance over a huge part of the world.
Florence
I have seen angels in the marble and carved until I set them free.
– Michelangelo
The European Renaissance is a story often told, a seminal and critical shift in human society taking place in Europe in the 14th and 15th centuries. This vast historical period is vibrantly captured in bold and beautiful art work and usually told in summary as a fairy tale revolving around the city of Florence, Italy. Florence was the poster child for the Renaissance. Europe had awakened from its dark slumber, a thousand years of religion, autocracy, kings, ignorance, suffering, disease, and poverty. Europe was catching fire with light, exploding with art, philosophy, science, culture, learning, secularism, and the rebirth of the middle class. Florence asserted itself as the hub of this new humanism, using its wealth to recruit the best and brightest artists, thinkers, innovators, and entrepreneurs. All of this growth, all of this wealth, all of this success, and all of this cultural advancement was driven by free trade.
Florence’s textile industry was the backbone of its economy. The city’s wool and cloth manufacturing was unparalleled. They imported the wool from England, Spain, and Flanders and processed it in Florence. Thus, it wasn’t the raw materials born of Florence that gave the city its wealth. It was, instead, the skill and knowledge of the artisans who processed the wool into desirable luxury products—a specialization that can only exist in a fluid global trade network. The Florentine wool dyers were not only importing the wool. They were also importing the dye and its ingredients. While the textile industry made Florence rich, they lacked the natural resources involved. Instead, they added value to the materials through knowledge, artisanry, and skill. Thus, they were a services economy, a knowledge economy, an information economy, and an innovation economy. This position in the global supply chain was facilitated by fluid trade, and it made Florence very rich. Florence then capitalized on this wealth, on their ports, and on their cultural vibrancy that recruited wealthy people as well as anyone wanting to work for wealth (a new middle class) to become one of the major banking centers of Europe. Increasingly wealthy and powerful, Florence’s economy was built on adding value in the global network of trade and capitalizing monetarily on their critical role in that network—a major organ in the world’s circulation system.
Glass Road
The internet is the most powerful force for economic progress ever invented.
– Jeff Bezos
Today, over 95% of international data traffic crosses the Atlantic Ocean through thin strings of glass in the form of light. Encased in protective layers of steel, copper, and waterproofing material, these fiber-optic cables are strung thousands of miles along the ocean floor between North America and Europe. Some are publicly owned and some private such as the Marea cable (a joint project by Microsoft and Meta) that runs from the coast of Virginia to the coast of Spain. The days of using ships or telegraphs to send information around the world are over. Fiber optics allow near-instant global data transfer. Stock markets, banks, and corporations all rely on high-speed data. And culture flourishes due to connectivity. Students anywhere in the world can attend virtual classes from the world’s major universities. Scientists can collaborate in real-time, sharing massive datasets across continents. Economic, academic, and cultural content travels the globe in milliseconds. These many cables of the Glass Road have become geopolitical assets, as well. Nations compete to control or protect them, and attacks or disruptions to these cables can threaten national security and economic stability. The Glass Road is the Silk Road of the digital age, carrying not silk and spices but information through light. This trade network has accelerated globalization; revolutionized communication and commerce; and connected people, ideas, and cultures like never before.
World Order
The truth is, trade benefits the masses.
– Warren Buffett
Global trade defines the world order. To alter the system of global trade is to change the world and the global balance of power. In our modern era, all of the world’s economies, cultures, governments, commerce, and daily life are interconnected through trade networks of goods and information. Our current world order has evolved from the foundations put forward after the second world war when institutions like the WTO and the IMF were formed to stabilize and facilitate trade expansion between nations. Trade agreements in North America, the forming of the EU, and China joining the WTO all removed blockages from the system to allow increased flow of trade. Containers revolutionized shipping and were like giant oxygen-rich blood cells pumped into the world’s economic system.
With over 80% of global trade moving by sea, the paths through which these goods move are critical to global function. The Suez Canal in Egypt connects the Mediterranean Sea to the Red Sea, facilitating trade between Europe and Asia. The Panama Canal connects the Atlantic and Pacific Oceans, allowing trade between the Americas and Asia. The Strait of Malacca connects the Indian and Pacific Oceans. The Bab el-Mandeb Strait provides passage between the Arabian Peninsula and the Horn of Africa. The Strait of Hormuz allows shipments out of the Middle East. Each of these pathways is crucial to global world order, and fluid flow breeds a healthy system with healthy parts. To have fluid flow, global trade needs to be stable. This stability is achieved by a balance of world forces. We need geopolitical forces to promote globalism and cooperation, not protectionism and competition.
If geopolitical pressure drives nationalism due to threat, then the companies that control much of the world’s trade will be forced to align with their home nations or to arise as entities equivalent to nations, functioning as independent entities in the geopolitical space. That may be an inevitable future at this point—for corporations to function like nations. Currently about 55% of the container shipping industry is controlled by private European companies, and about 25% is controlled by private Asian companies. U.S.-based companies control less than 1% of the private shipping industry. Is the U.S. at the mercy of these foreign companies? If the U.S. increases its combativeness with China and further ostracizes Europe, Canada, and South America, what will 99% of the shipping industry do to America in response?
The digital trade landscape looks very different. The dominant corporations of global digital exchange are located in the U.S. and China. Are we at the mercy of these companies? If multilateralism dies through trade war, then we’ll see a balkanization of global trade, which will lead to increased conflict between nations. Such a shift will also accelerate the rise of geopolitical corporations functioning in the arena of nations. And if the U.S. loses control of global trade—even though self-inflicted through protectionism, nationalism, and economic warfare—then it will likely resort to using its military might to attempt to regain it. This of course means war.
The global trade system is the world order. The architecture of the current system has stable foundational components, and if these are changed, then the nature of the entire structure is thus changed. It’s difficult to imagine a structure that can be recreated from its foundation and remain standing through the process.
Tariffs
Tariffs are an act of war.
– Warren Buffet
A tariff is a tax imposed by a government on goods entering that government’s sovereign borders. For example, if the U.S. puts a tariff on Chinese-made goods, then any product that an American company buys from a company located in China will be stopped at the border on its way into the U.S. and the tariff will be applied to the buyer’s cost. The buyer—the company here in the U. S. who is buying the product from the company in China—pays the cost of the tariff to the U.S. government. So, if the tariff is set at 100%, then that American company will pay double for every item they buy from a company in China. They will pay the cost of the item and then pay that same amount (100% tax) to the government of the U.S. If they buy a $100 item, they will pay the government an additional $100. If they buy $200,000 of items, then they will have to pay the government an additional $200,000.
Tariffs are not a modern invention. Ancient Rome and the Dynasties of China all imposed duties on goods entering cities or crossing borders. In medieval and renaissance Europe, kingdoms and city-states used tariffs to control and tax trade routes. The imperial nations of Europe during the 16th-18th centuries, a time of lavish kings and queens and courts, used tariffs to control and tax trade routes to accumulate gold. The British Empire imposed heavy taxes on imports and subsidized exports to create trade surpluses. It was actually the Industrial Revolution of the 19th Century that led to the West thinking differently about trade. A rapidly industrializing Britain led the way by making a shift toward free trade. They partnered with France and inspired a slew of bi-lateral and even multi-lateral trade agreements across Europe. Germany did not participate, which eventually led to World War I (Germany versus the rest of Europe). After the war, protectionism was on the rise again, and the U.S. passed the Smoot-Hawley Tariff Act in 1930 which sharply increased import taxes. This maneuver was seen as an act of aggression toward the developing free world and triggered a wave of retaliatory tariffs that led an already over-leveraged U.S. economy into the Great Depression. After Hitler’s Germany then drove the West into the second world war, the United States emerged as a giant of production, and the baby boom gave the nation all the workforce it could handle. In an effort to prevent a repeat of global depression, many countries came together and established the General Agreement on Tariffs and Trade (GATT). As a result, global tariffs decreased radically, removing clots and blocks and damage from the circulatory system of the world economy. The newly-formed World Trade Organization expanded GATT’s scope and enforced trade rules. The outcome of these international agreements has been rapid globalization and increasing fluidity in the system of trade around the world.
Today the world’s economy is at a global crossroads. The U.S.-China Trade War from 2018–2020 led to billions of dollars collected in tariffs by both nations’ governments. This was all paid for by the populations and businesses of each country to their own respective governments, not by the governments to one another and not by one government’s people to the other government. Not only did we pay our government those billions of dollars, but companies in both nations laid off huge numbers of workers, and the price of everything went up. Some will argue that tariffs can provide protection for domestic industries by making imports cost-prohibitive, but this blockage of international competition, collaboration, and innovation is just an attempt to save what we have in an industry or allow us to create our own isolated version of an industry. Either way, it’s short-sighted. The most concerning effects of high tariffs, particularly from the U.S. in today’s global trade war, is the outcome of the U.S. losing its dominant role over the global free trade economy. The U.S. is the heart of the world’s economic circulatory system. But that status will not persist if the U.S. moves toward protectionism. Will all the nations of the world follow into isolationism and prepare again for world war? Or will some other nation slide into the vacuum and become the new world leader of free trade?
In the short term, U.S. tariffs will increase government revenue (because American businesses have to start paying the government a lot more money). In the longer term, tariffs decrease the purchase of goods made from companies that are located in other nations. This is sold to the public with slogans like “Buy American” and “Bring Back Good Jobs” but it is ultimately a constricting and blockage of blood flow in the world’s economic system (a system in which the U.S. is the greatest benefactor). And targeted tariffs on a single nation are clots. They are deadly to that organ, and they are crippling to the system as a whole.
So, why do it? Why would our government impose tariffs if they only put a cost on our businesses and on our people? What would be a reasoning that makes sense? Well, imposing tariffs enrichens the wealthy elite. In the short term, the shake-up from tariffs tank the stock market, and the top 1% buys the sell-off. When the market rebounds, the super wealthy own even more of the market (and got it for dirt cheap). In the long run, if the tariffs are successful in reshoring manufacturing, then who do you think will own it? Who will own this newly developed means of production? America’s wealthiest will own it. And who paid for it? The bottom 90% paid for it through inflation, business taxes, and temporary unemployment. The payoff for the masses will be those “good jobs” they were promised. Sadly, these good jobs will look more like the company towns of the 1920s and the debt-based indentured servitude that drove the wealth consolidation of the robber barons. The depressing reality of the current U.S. attempt at tariff policy is that it is an intentional effort in fortress-building for the sake of protectionism. It will not create a vibrant middle class revival like the days of the Florentine Renaissance, but instead a mercantilist, colonial, war-based global order like that of the empires of Europe, with an elite class of rulers in the ilk of England’s King George, Russia’s Peter the Great, and the Louises of France—deluded sociopaths in offices adorned with 24-karat gold.