IMPLICATIONS OF GLOBAL VS. REGIONAL TRADE STRATEGIES.

Author:Binnings, Tom
Position:THEECONOMIST

President Trump initiated "fair" and "strategic" trade posturing earlier this year --raising the specter of a trade war. Most economists support free trade and point to the interstate commerce clause in the U.S. Constitution as one of the great historical innovations in economic development. The unimpeded flow of commerce between states guarantees the migration of economic resources (labor and capital) to areas of greater opportunity. It allows businesses to expand nationally and minimizes state protectionism. Colorado's economy benefits immensely from this economic freedom.

Unfortunately, reality gets in the way when we discuss global free trade. The U.S. Constitution established the framework for a national government to help guide commerce. While the World Trade Organization was founded in 1995 to promote free trade and has authority granted by member nations to impose penalties, enforcement on trade and intellectual property disputes appears to have less of a bite. Furthermore, unlike interstate commerce in the U.S., there is no global institution promoting the migration of labor for economic benefit. As a result, trading partners, like marriage and business partners, must assess fairness and devise strategies that include self-serving aspects while still maintaining long-term, mutually beneficial relationships. This is where we are today: questioning if we have been too naive as a nation in our post-World War II pursuit of globalism. Are we better off with heavy doses of nationalism or regionalism since the natural geography of trade tends to be more localized?

Strategic trade has many nuances. First, there is national defense. In wartime, we need to secure critical materials and components. This argument offers some legitimacy. But does that really apply to tariffs on steel and aluminum from Canada and Mexico? National defense argues for domestic auto production. But does this work when many components are sourced globally? Given future wars will be different than past wars, more high-value defense-related manufacturing and technology investment in the U.S. would benefit the nation and Colorado due to the state's strong connection to defense. Consumers, however, will pay a price.

There also is strategic trade related to comparative advantage. U.S. companies and individuals are known for innovation, creativity and branding. The system of protecting intellectual property is greatly compromised when technology is transferred too fast and...

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