The forgotten casualty of the trade war is you, the consumer

Stephen Vines says the focus of the widening conflict has so far been on how producers and markets would be affected, even though consumers, some of whom are getting carried away by nationalist fervour, will bear the brunt of the higher prices

PUBLISHED : Wednesday, 18 July, 2018, 1:34pm
UPDATED : Wednesday, 18 July, 2018, 10:33pm

When Mr and Mrs Joe Average fill their Walmart shopping carts with goods made in China, they are most definitely adding to the massive trade imbalance between the US and China that so aggravates (the admittedly easily aggravated) President Donald Trump.

They are not, however, consciously setting out to buy Chinese goods; indeed, the place of origin of many products is often hard to find, assuming buyers are interested, which is rarely the case. What really concerns them is the availability of reasonably priced goods, many of which come from China and other places in Asia.

In vivid contrast, Chinese higher-end consumers are very conscious of the place of origin of their purchases and actively seek out items like medical supplies that are manufactured overseas and command way higher prices than locally made products.

So, it can be argued that consumers have unwittingly been the cause of trade friction. Their buying preferences today cause palpitations in the White House, even though these shoppers are acting rationally.

Nonetheless, consumers are firmly on the sidelines as this trade battle ploughs on. Their interests are relegated to second place while the focus tends to be on how producers and stock markets are affected, and how all this plays out in the realm of global politics.

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Politicians get agitated over the fact that most consumers pay attention only to value for money in making their buying decisions, caring little where the goods come from. But these consumers embody the basic economic theory of supply and demand in which – in an ideal world – willing buyers have unfettered access to willing sellers, whose prices are set by the supply and demand mechanism. Ideal economic theory also dictates that optimal conditions for production determine where goods are made, leading to specialisation in the production process.

However, no one lives in an ideal world and the laws of supply and demand are mitigated by a host of other considerations. Right now these “other” considerations are sending the entire world trading order into something of a tailspin.

The White House was not entirely oblivious to consumers when it embarked on the current trade war. It is notable that Chinese-made consumer products were absent from the initial list of goods targeted for massive tariffs. However, a second onslaught has now been threatened and this will include consumer items such as dishwashers, water filters, parts and accessories for printers, and so on.

Amusingly, America has said nothing about imposing higher tariffs on the mass production of flags and banners bearing the words “Trump 2020”, which are being made in Anhui province.

Presumably, the customers for these campaign tools like the prices and won’t be happy if they fall victim to the trade war.

But it’s not just tariffs on consumer goods which will lead to price hikes. There is also the knock-on effect of tariffs on products like imported steel that go into American manufacturing.

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All this brings into sharp focus the reality that global trading is a tough old business, which leads to the elimination of entire industries in some places and shifts production to places where goods can be produced at a lower cost.

It pains me to write these words, but Trump has a point in complaining about unfair trading practices and the habit that governments have of favouring their own producers.

Often, this is done for a reason. The European Union, for example, has a massive protectionist programme for its agricultural industry, primarily because the political and social costs of not doing so are considered to outweigh the benefits to consumers of cheaper food.

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China is protectionist on a great many fronts, not least when it comes to inward investment because the leadership in Beijing has the mindset of promoting domestic economic growth at the expense of domestic consumer choice.

The consistent pattern here is that producers’ interests are always placed above those of consumers’. As this balance is highly unlikely to be entirely redressed, what remains in question is the extent to which consumers will be disadvantaged.

Even a vicious trade war will not change the realities of production costs, which means that some industries are not going to go back to places that lost out in the global trading system.

What inevitably happens, however, is that trade wars stir up nationalist sentiment and cheap rhetoric. This finds a receptive audience among the very people who will end up paying more for their food, clothing and goodness knows what else. The adage of being careful what you wish for was never truer.

Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster