International trade disputes there are no eternal friends, only eternal interests

Why does international trade conflict occur?

I don’t know if you have ever thought about such a question-why do international trade disputes occur?

The so-called international trade disputes are frictions and conflicts that occur in international trade activities.

Take China and the United States as an example. Since the establishment of diplomatic relations between the two countries in 1979, the relationship has been good. Both sides are core nodes in the global supply chain, and their trade exchanges have been very good.

But, you know, in March 2018, the Office of the United States Trade Representative suddenly issued the "301 Report" ("Investigation on China's laws, policies, and practices regarding technology transfer, intellectual property, and innovation based on Section 301 of the 1974 Trade Act) Results"), kicked off the prelude to trade disputes.

The United States has not only had trade frictions with China, but over the past few years, it has also had trade frictions with countries such as the European Union, Canada, and Japan.

You might think that globalization has been going on for decades, and free trade has brought global prosperity. Isn’t it good for everyone to do business together? Why must there be friction?

In the past, the core theory of international trade was "comparative advantage." Economists such as David Ricardo, Heckscher Olin, and Paul Samuelson all told us that the international The division of labor and international trade will benefit every participating country and increase social welfare.

However, in the process of international trade, it is not all a win-win for efficiency and benefits. Looking back at its history, it is often a way of war and conquest, full of blood and fire. It is difficult to explain these conflicts based on the principle of "comparative advantage" alone.

In my opinion, the entire traditional international trade theory with "comparative advantage" as the core only considers the optimal allocation of resources, but does not consider another equally important issue-conflict of interest.

Therefore, through more than 30 years of research in the field of international trade, I have proposed two new principles on the basis of "comparative advantage", one is called the principle of "transnational monopoly profits", and the other is called "the growth trap fixed by the division of labor." principle.

I believe that through these two principles, we can better reveal the underlying logic of current and future international trade disputes, allowing us to see the origin of international trade disputes, and to understand the context of rebuilding the international order and promoting the long-term economic growth of various countries.

What does the "comparative advantage" principle ignore?

First of all, I have to say that the "principle of comparative advantage" I mentioned at the beginning is indeed very explanatory under the framework of the past international trade theory.

The principle of comparative advantage is mainly composed of three models.

The first is Ricardo's model of technological comparative advantage;

The second is Heckscher-Olin’s factor endowment comparative advantage model;

The third is Paul Krugman's international trade model of monopolistic competition.

Let's take Britain and India as examples. India is rich in tea, and Britain's strength is manufacturing fabrics. What do Ricardo’s technological comparative advantage and Heckscher-Olin’s factor endowment comparative advantage mean?

It is said that if the cost of fabric production in the United Kingdom is lower than the cost of producing tea in the United Kingdom, the "relative cost" is lower than the "relative cost" of fabric production in India. Then the United Kingdom has a "comparative advantage" in the fabric industry. Accordingly, India also has a comparative advantage in the tea industry.

Therefore, the United Kingdom will produce and export more fabrics, while India will produce and export more tea. The two countries will exchange each other, so that everyone can concentrate on doing what they are better at, and the efficiency will be greatly improved. Such an international division of labor will improve the social welfare of both countries.

Note that Ricardo's comparative advantage is to compare the relative labor productivity of the two products. For example, the labor productivity of cloth in Britain is higher than that of tea in India. Therefore, for the United Kingdom, it is very cost-effective to export fabrics and import tea.

So, what does Heckscher-Olin’s factor endowment comparative advantage mean? It compares production factors. For example, cloth is a capital-intensive product, while tea is a labor-intensive product; Britain is relatively rich in capital, while India is relatively rich in labor.

Therefore, the United Kingdom exports capital-intensive fabrics, while India exports labor-intensive tea.

Then, the third model of comparative advantage is the monopolistic competition international trade model established by the American economist and Nobel laureate in economics, Professor Krugman. Its core logic is that due to increasing returns to scale, every There is only one manufacturer for each brand, and consumers like the diversification of products, which brings about international trade in the industry.

I won’t explain this model much.

In general, the core logic of the principle of comparative advantage is that each country carries out international division of labor and international trade according to its relative cost advantage, which will benefit every participating country and improve social welfare.

But here comes the question. Since the comparative advantage is so good, why does international trade continue to generate frictions, disputes and conflicts?

Having said that, I need to tell you the first principle I put forward-the principle of multinational monopoly profit, and use it to help you understand the underlying logic of international trade disputes.

Take the import and export of tea and fabrics from Britain and India as an example. Ricardo’s model tells us that because of its comparative advantage, in the international division of labor, Britain will produce and export fabrics, while India will produce and export tea.

But how are the international prices of tea and cloth set?

The Ricardo model assumes that the international market is perfectly competitive, and the price of the international market is also determined by the perfectly competitive market.

For example, if the UK and India completely divide the labor according to Ricardo’s comparative advantage and price according to the perfect competition of free trade, a pound of tea is 1 yuan, and a foot of cloth is 2 yuan, then the relative price of cloth and tea It's 2 yuan.

I ask you to pay attention. Here, we assume that the UK and India have a complete division of labor, that is, India only produces tea, not fabrics, and the UK only produces fabrics, not tea. Therefore, there is a range of relative prices between cloth and tea. , We assume it is 1 to 4.

The relative price cannot be too low. If the price of the fabric is too low, the British textile workers will feel that they are not worthwhile, and he will switch to growing tea; but the price cannot be too high. After the price is too high, the tea farmers in India It's not worth it, he doesn't know how to grow tea, so he switched to weaving.

However, all of this is based on Ricardo's perfect assumption. In fact, the perfectly competitive pricing of this free trade is not in line with the actual situation. What is the actual situation?

Later, we all saw the fact that the British conquest and colonization gave the British East India Company absolute monopoly power. Therefore, the United Kingdom would increase the monopoly price of cloth to the highest point of 4 yuan, and the United Kingdom would have Obtained all the monopoly profits and transferred all the profits to the United Kingdom.

How are transnational monopoly profits realized?

So, how are modern multinational monopoly profits realized?

Let’s take the United States as an example. The realization of American multinational monopoly profits is no longer achieved through war and colonization as in the past, but through the four aspects of technology monopoly, financial monopoly, rule monopoly, and military monopoly. Achieved.

Let me give you an example of Huawei. In the 1990s, our country could not produce program-controlled telephone exchanges. We had to import program-controlled telephone exchanges from abroad. Guess what the price is? 200,000 yuan per unit.

Later, Huawei conducted technical public relations and began to produce telephone program-controlled switches independently. Guess what the price is? 20,000 yuan, which is 10 times worse. So take a look at the monopoly pricing of high-tech products achieved through technological monopoly, and how amazing the profits are.

The typical supply of a financial monopoly is oil and U.S. dollars.

On our planet, the oil market is priced in U.S. dollars and paid in U.S. dollars; U.S. dollars dominates the oil pricing and payment system, and the United States controls the oil production and processing industries of the major oil-producing countries in the Middle East. This is what makes the U.S. To a considerable extent, it can influence or even manipulate global oil prices.

The third is rule monopoly. The United States has a veto power in various international organizations such as the United Nations, the World Bank, and the International Monetary Fund.

Therefore, we will find that a considerable part of the formulation of international rules reflects the interests of multinational monopolies in the United States.

Finally, military monopoly, not to mention, the military is a strong backing for the strength of a great power. Even if the United States does not engage in large-scale wars, military monopoly can provide the United States with technological monopoly, financial monopoly, and rule monopoly. Strong support.

What does the "growth trap solidified by the division of labor" bring?

Why do poor countries not necessarily achieve economic growth after joining the international division of labor? This principle cannot be explained, so I have to introduce you to my second principle-the growth trap principle of solidified division of labor.

The traditional economic growth model believes that if each country has the same technological level and a closed economy, the per capita GDP of each country will converge, that is, the production level of each country will converge.

why? The main reason is the so-called principle of diminishing returns to capital, that is, the poorer the country, the scarcer the capital, the higher the return on capital, and the faster the growth.

In this way, poor countries will grow faster than rich countries, and in the end everyone will converge-this is in the context of a closed economy, that is to say, in the absence of international trade.

But what will happen under the conditions of an open economy with free trade?

In Heckscher-Olin's "factor endowment" model, there is a very important theorem called the "factor price equalization" theorem. What does that mean? It is said that the capital of rich countries is abundant, while the labor force of poor countries is abundant.

Originally, because of the scarcity of capital, poor countries have a higher rate of return on capital. They should find ways to develop capital-intensive industries.

However, once free trade is carried out, due to comparative advantages and international division of labor, poor countries will mainly produce and export labor-intensive products. At the same time, they will not develop their own capital-intensive products if they import capital-intensive products. Industry.

Then, because of the international market pricing brought about by free trade, the prices of products in various countries tended to be consistent, which led to the convergence of costs and factor prices in various countries.

So what does this bring? ——Due to the international division of labor brought about by different factors, it will fall into a state of "solidification". Poor countries will only produce and export labor-intensive products, while rich countries will have more and more advantages in capital-intensive industries. , Such as industry, high-tech industry and so on.

The rate of return and growth rate of investment in poor countries and rich countries have also tended to be the same.

So you see, the international division of labor brought about by free trade, when viewed dynamically, has turned into a growth trap for poor countries.

Is this principle supported by actual data? We have found that a large number of African and Latin American countries have long been trapped in poverty in the international division of labor in free trade.

The World Bank has a term called "single-product countries" for these countries, because these countries have long produced single resource-based products, such as mineral products and agricultural products, and their economies have never escaped the single-product growth trap.

The first application of the principle of the division of labor and the growth trap is the so-called great diversion of industrial and agricultural countries in human history. After the British Industrial Revolution, there was a great diversion of the development of the East and the West, and the developed countries in the West moved towards industrialization. , Modernization, stepped out of the "Malthusian population trap"

However, even now, developing countries such as Africa and Latin America have not escaped the growth trap and are still struggling on the road to industrialization.

What deserves our great attention is that the artificial intelligence revolution may bring about the second major diversion of the global economy. Some developed countries, mainly the United States, focus on high-tech research and development and obtain monopoly profits in high-tech industries, while other countries The division of labor is concentrated on processing and manufacturing. Competing with robots can only obtain low returns and low living standards.

Therefore, for developing countries, free trade is not only the export of products, but more importantly, in the process of free trade, learn science and technology from developed countries to achieve industrialization and industrial upgrading.