At the same time, economies of scale and scope have driven down relative trade costs, which have fallen by 85percent between the early 1800s and now, opening up a world of opportunity. However, this process has not all been smooth sailing (pun intended), with regular outbreaks of trade wars over the centuries. The most recent episode is the trade war that has broken out between the US and China.
And with US President Donald Trump threatening to raise import duties on an additional $267billion (R4trillion) worth of Chinese products, it is worth pausing to reflect on what the trade wars of the past can teach us about the likely outcomes of the current dispute, especially as South Africa seems likely to get caught up in the crossfire.
Despite Twitter claims to the contrary, lessons from the past reveal trade wars seldom produce winners and more often than not, the results leave both sides battle-bruised, scarred and worse off for the affair. In fact, the comic names of many of these trade tiffs - the Battle of the Bananas, the Pasta Spat, Chicken Friction - not only belie the animosity invariably surrounding these disputes, but also their damaging consequences.
Instead, history teaches us that past trade disputes have led to heightened geopolitical tension and dampened global economic growth, which in turn have sparked social crises, wars and economic depressions. Take, for example, one of the most famous trade wars of the modern era, initiated under the Smoot-Hawley Tariff Act of 1930. In an eerie parallel to current events, this act was passed by US lawmakers with the promise of protecting American jobs, particularly in the agricultural sector.
Attempting to ease the effects of the Great Depression, the act subsequently raised US import duties from 15percent to more than 40percent on nearly 1000 items ranging from eggs and sugar to oil drums. This strategy did not turn out as planned. US import and export volumes plunged 40percent over the next two years as trade partners retaliated by raising their own tariffs in a tit-for-tat trade war. The knock-on results saw prices of goods and services falling, unemployment surging, banks collapsing and world trade plunging.
The decade following the Great Depression saw a halving in global trade. And as crop prices fell and exports dried up, the American farmers who were supposed to benefit from the trade protection policy instead suffered perhaps the most of all. Far from the heroic measure needed, the Smoot-Hawley Act is now widely blamed for amplifying the depression and, if not instigating, at least contributing to the eruption of World War II.
There is a difference between the Smoot-Hawley Act and Trump’s trade proposals in that the Smoot-Hawley Act raised tariffs against everyone, whereas Trump’s focus has remained largely on Mexico and China.
However, the outcome is likely to be the same, as world economies are even more interdependent now than they were in the 1930s.
Tlotliso Phakisi is an investment analyst at Cannon Asset Managers.'