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The socioniomic dynamics behind the movement against trade freedoms is covered in the Cultural Trends section of this month's EWFF. The scale and momentum of the trend are evident in the global range and quickening pace of these stories. They range from Europe to the U.S. and China and all came within the last 24 hours. As more nationalistic trade policies emerge, once hyperbolic foreign markets like Dubai and Brazi have reversed course.  These could be the first hints of the global capital flight that is bound to accompany the new era of "economic confrontation."

July 2005, EWFF
A Bearish Tradewind Blows In
Read this excerpt from Conquer the Crash:
Bear markets engender trade protectionism. When fear makes people defensive, they often act on impulse, without full regard to reason. Protectionism is correctly recognized among economists of all stripes as destructive, yet there is always a call for it when people’s mental state changes to a defensive psychology. Voting blocs, whether corporate, union or regional, demand import tariffs and bans, and politicians provide them in order to get re-elected. If one country does not adopt protectionism, its trading partners will. Either way, the inevitable dampening effect on trade is inescapable.

The U.S.-Sino trade relationship is suddenly crumbling. This change confirms that wave 3 down is in effect. In addition to the clear parallel to Smoot-Hawley in July 1930, when the end of another important second wave rally ushered in the Great Depression, the emerging trade tension is accompanied by a misplaced sense of confidence that a trade war can’t happen just because it is “rash,” “unreasonable” and downright “insane.” In addressing the textile trade dispute between China and the U.S., for instance, one expert noted, “If the trade dispute on textiles deteriorates further, the global trade system could be hurt.” He therefore predicted that concerned parties would “compromise by taking a step back.” But the irrationality at the center of the unfolding conflict is precisely the bear market result that Conquer the Crash anticipated.

The bipartisan Schumer-Graham China Free Trade bill would slap a 27.5% tariff on Chinese goods. Early this week, when 67 of 100 U.S. senators supported the measure, pundits quickly discounted its chances. “It’ll never pass the House,” said one. On Thursday, Senators Schumer and Graham decided to temporarily shelve their bill when China revealed that it is likely to make its exchange rate more flexible, perhaps within two months. The agreement, if it comes to fruition, will probably be the focus of much celebrating, but the resulting euphoria will be an echo of September 2000 when the U.S. senate voted to permanently recognize trade ties with China. The October 2000 EWFF used the resulting outburst of bullishness toward China to bet against a positive outcome for Chinese equities saying, “This vote is the bull market counterpoint to the communist takeover of China at the bottom in 1949, which marked the end of the last Supercycle degree bear market in inflation-adjusted terms. It pays to invest contrarily to widely held views.”

There’s a big difference between this latest “trade deal” and those of the all-time highs. A new tone governs the debate, and it’s clearly away from the laissez-faire trend of the last half century. It’s the will of the people, and the politicians will find a way to express it. “Lawmakers from both parties had stockpiled bills to punish China,” notes one article. China is actually forcing the issue with bids to buy Unocal and Maytag. Both bids are from companies that are owned by the Chinese government. The former head of the CIA, James Woolsey, calls the effort a “conscious long-term effort to take over . . . as much of the American economy as possible.” The media are already framing these events as a primary cause of the recent brief stock market swoon, saying stocks fell because Wall Street smelled the “prelude to a trade war, and it doesn’t like what it sees.” But remember, the above quote and others like it in EWFF, EWT, At the Crest of the Tidal Wave and scores of media interviews that we have done in the late 1990s when protectionism was a 1930s relic. EWI has consistently maintained that trade tension would be an unavoidable by-product of the downturn. 

At the Crest of the Tidal Wave
Political manifestations will include protectionism in trade matters, xenophobia, the dissolution of old alliances and parties, and the emergence of radical new ones. Tariffs will become popular, regardless of the fact that virtually everyone knows they are dangerous and wrong, because they are a consequence of an increasingly negative psychology involving fear, envy and a misguided attempt at self-defense.