To me, a trade war is something that is drastically needed today—not as a political issue, but as a vital issue for business. Not many people understand why this is important, and the complex issues behind it. People are blaming President Trump for initiating such a thing, and others vociferously defend him. But whatever side you’re on, it is a topic that affects every one of us, especially those of us with businesses.
Recently the European Union signed a free trade agreement with Japan — one of the largest trade agreements ever executed. We’ll see what this agreement looks like when all is said and done, but the key word in this agreement is “free.”
Hindrance for Sales
Today’s trade agreements actually hinder sales. A salesperson must rely on an infrastructure—a set of regulations, a framework within which goods or services can be sold.
In ancient times, such things did not exist. Trade conducted by Marco Polo, for example, was strictly based on a value of the goods being traded; there were no tariffs or restrictions.
Today trade on a global basis is extremely complicated, especially for goods and services within certain categories such as medical, pharmaceutical and agriculture.
No Input Into Agreements
How much input do average businesses have into trade agreements? The answer, unfortunately, is none. We’re totally dependent on politicians. There are interest groups involved, but such groups are composed of major corporations—small and medium businesses have no chance. In a sense, because trade agreements can only be affected by interest groups composed of mega-companies, they create a kind of monopoly.
Smaller businesses might even produce superior products or services, but even so, they have no influence on their own trade framework. And even though small and medium businesses comprise the majority of businesses in the U.S., and provide the majority of jobs, they still have no say in trade agreements. This is where I feel trade agreements become completely unfair.
In Europe, countries that are members of the European Union must depend on the trade agreements negotiated by the EU with other nations. EU member nations must then ratify agreements and abide by them.
Currently, trade agreements are being reevaluated and potentially revamped, and in many cases, we have no idea what the outcome will be. When you’re in a business and don’t know the outcome of a trade agreement which might affect you, it’s hard to know where to invest. It could be that a new or revised trade agreement could take a business in an entirely new direction, or even eliminate a particular business model altogether.
On top of that, the trade agreements that do exist, that we must abide by, are not transparent. We can’t find out everything there is to know, all the relevant facts and figures. So in that respect, we’re trying to do business blindly.
With all of this complexity, a company must operate in such a way that trade agreements aren’t ruining margins on exports. Extreme caution must be maintained with a constant eye for changes in trade agreements — otherwise, margins disappear.
It can happen that a company becomes affected by too many injurious trade agreements, and will change from exports to only conducting business locally, within their own country.
Trade agreements can have a profound effect on a factor that motivates commerce in the first place: innovation. When a company cannot any longer afford to invest in innovation, it cannot compete.
Competition is what has brought about some of the greatest product innovations that have ever occurred. As an example, look at automobiles. I can remember my first car: it had an engine, four tires, a steering wheel, windows that were manually rolled up and down–and that was pretty much it. Today the average automobile is probably more intelligent than Apollo 11 and has features such as heated and cooled seats, state-of-the-art sound, navigation systems, TV screens for passengers, and even massagers. All of this came about because manufacturers, in the heat of competition, invested heavily in innovation.
If innovation is suppressed, in the end, it will be consumers that suffer. A company must survive, and cannot pay for burdensome trade agreements and innovation at the same time.
Free Trade is the Only Answer
The Austrian School of Economics gives us the final answer to all of these issues: free trade. In the end, that’s the only way we’re going to be able to conduct commerce on a global basis with any kind of success and forward motion.
The Austrian School states that “trade has a peacekeeping component.” This is because when two nations are engaged in trade beneficial to both sides, war can never take place.
At the end of the day, trade is at the core of international relations. For, let’s face it, trade is how international relations came about in the first place!