In Trade Wars, Everybody Loses

In Trade Wars, Everybody Loses
Ted Fox feeds cattle on his farm on Aug. 9, 2014 near Osage, Iowa. In retaliation for sanctions imposed on them, Russia announced a ban on food imports from the United States and other nations. Scott Olson/Getty Images
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Exactly 100 years ago, a conflict erupted in Europe, which was then called the Great War. And while the political and military escalation into war is intriguing, it was trade, which stopped first. The trade wars, which morphed into World War I should put the sanctions and countersanctions against Russia into context and remind the West that everybody loses.

The World Trade Organization report on world trade from 2007 succinctly summarizes the trade frictions before World War I.

“Strong animosity prevailed in France toward Germany due to the loss of territory (Alsace, Lorraine) following the war of 1870/71 [the reader can substitute this part for Ukrainian territory]. In the two decades prior to World War I, a number of tariff wars broke out, usually provoked by the establishment of a new, more protectionist tariff, or in the course of renegotiation of bilateral treaties. After the expiry of a treaty, tariffs were often raised temporarily as a means of improving negotiating leverage.” Sound familiar?

Most of the Western press is trying to make us believe that Russia is on the losing end of this trade war. “US Sanctions not Mere ‘Trifles’ for Russia’s Oil Industry,” writes Guy Chazan of the Financial Times. And he is right. Russia depends on Western technology for oil exploration and its huge state-owned energy companies need access to Western capital markets.

West Also Loses

But guess what, Western companies either make money selling equipment to Russia or, like ExxonMobil, eagerly want to explore relatively cheap oil formations in the Arctic or Siberia.

If they cannot, they'll have to look for more expensive oil elsewhere. Russia likewise will be hindered in supplying cheap oil, driving up prices on the world market, all other things being equal. The losers are the companies on either side and consumers worldwide. Governments also lose out on the tax revenue.

Without planned revenue for new equipment, oil services companies like the Netherlands Fugro and America’s Schlumberger will have to scrap their marginal research projects. As a result, innovation will suffer in the long term.

Food

Benjamin Triebe and Joachim Jahn of German daily Frankfurter Allgemeine Zeitung go out of their way to point out that Russia—because of countersanctions—will lose $43 billion in food imports from the West.

Valentin Schmid
Valentin Schmid
Author
Valentin Schmid is a former business editor for the Epoch Times. His areas of expertise include global macroeconomic trends and financial markets, China, and Bitcoin. Before joining the paper in 2012, he worked as a portfolio manager for BNP Paribas in Amsterdam, London, Paris, and Hong Kong.