sign uplog in
Want to go ad-free? Find out how, here.

Patrick Watson of Mauldin Economics warns if you think you have already seen a trade war, you ain't seen nothing yet

Patrick Watson of Mauldin Economics warns if you think you have already seen a trade war, you ain't seen nothing yet
Photo: Wikimedia.

By Patrick Watson*

“The new coronavirus is changing everything,” say many pundits.

It’s certainly changed some things, but the pandemic is also accelerating some not-so-new trends. I described one three years ago when I summarized post-WWII economic history in 10 words:

Borders once mattered. Then they didn’t. Now they matter again.

At the time, I was talking about international trade and immigration, both of which the then-new Trump administration sought to reduce. That was, in part, a continuation of tensions that had arisen a few years earlier when Middle Eastern refugees sought entrance to Europe.

Fast-forward to now. We see international travel almost at a standstill, global trade shrinking fast, and barriers to movement rising everywhere. This time, it’s for health reasons rather than economic or political ones, but the effects are the same. 

But this is more than trade war. It’s trade war on steroids… and it is going to get worse.

Blunt force

Stopping the new coronavirus would be easier if we had an efficient way to identify the carriers. Since we don’t, blunt force is the only choice: stop everyone from moving.

The Great Standstill began with border checks on people coming from China. Then it moved to simply stopping travel from China, and then from other places like Italy, and finally to closing borders almost completely.

Those steps might be slowing the outbreak’s progress, which helps. We need to “flatten the curve” so hospitals can treat everyone. But the virus already had a foothold in most countries before the barriers went up. Slowing isn’t the same as stopping.

These measures have an economic effect, though, as do all trade and immigration controls. The global economy functions best when buyers and sellers can easily find each other. Anything that interferes slows down growth.

Nations need to control their boundaries, and what crosses them, for many legitimate reasons. Unrestricted free trade and wide-open borders create other issues. Nonetheless, most developed countries leaned toward openness until recently.

Photo: Wikimedia.

But now, in a surprisingly short time, the coronavirus has much of the world (figuratively) retreating behind moats and raising the drawbridges. And when you do that, you have to survive on whatever you have inside.

Free trade was already on the ropes. Now it’s on life support.

Hoarding problem

The rush to buy extra groceries, while perfectly rational under the circumstances, isn’t just a local event. It is happening internationally, too. Here’s a March 24 Bloomberg report.

It’s not just grocery shoppers who are hoarding pantry staples. Some governments are moving to secure domestic food supplies during the coronavirus pandemic.

Kazakhstan, one of the world’s biggest shippers of wheat flour, banned exports of that product along with others, including carrots, sugar and potatoes. Vietnam temporarily suspended new rice export contracts. Serbia has stopped the flow of its sunflower oil and other goods, while Russia is leaving the door open to shipment bans and said it’s assessing the situation weekly.

Nor is it just food. Governments are hoarding medical supplies and racing to produce once-imported items (like protective masks and gloves) locally.

This makes sense. Weighed against a threat to their citizens’ lives, leaders rightly stop caring about commercial niceties. Leaving your fate dependent on other governments with their own priorities is problematic.

But the result is a lot like what would happen if every country on Earth decided to launch a Trump-like trade war against everyone else. It would spark a global recession—which is what’s happening now. It’s not entirely because of the trade issues, but they aren’t helping.

But we do have one truly new development.

Map: Wikimedia.

Something new

As I was writing this article Sunday afternoon, I got a news flash. It said Greg Abbott, our governor here in Texas, was ordering 14-day quarantines for those entering the state from Louisiana, by either ground or air. He deployed state troopers to monitor road crossings.

Other governors have taken similar steps. And, as with international borders, they may slow the virus a bit, but they won’t stop it. Especially since they aren’t stopping commercial traffic. Truck drivers can carry the virus, too.

Local officials are getting tense as well. Some cities and counties that have ordered lockdowns and closures want to isolate themselves from neighboring jurisdictions that aren’t yet doing so.

The US is a kind of giant free-trade zone. That’s one reason for our growth. What happens when it breaks up into 50 or more smaller trade zones?

It’s not impossible. Constitutionally, only Congress can regulate interstate commerce. That means state authorities can’t stop incoming cargo… but they can still make life difficult for anyone who brings it in.

So the same kind of trade and immigration tensions most recently seen with Mexico are now appearing inside the US, thanks to the coronavirus and the political response to it.

Where does that lead? Someplace we haven’t seen before, and we may not like it.

So you can tell where this is going. Thanks to the coronavirus, existing barriers to trade are solidifying, both internationally and locally. New barriers are rising, too.

If you think we already had a trade war… wait until you see what’s coming.

*Patrick Watson is senior economic analyst at Mauldin Economics. This article is from a regular Mauldin Economics series called Connecting the Dots It first appeared here and is used by with permission.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.



As far as trade wars go, I simply hope that this disaster speeds up the Great Decoupling from China.

breaking apart, conflicts, decoupling are the concepts that are fond of and chanted by WASP (White Anglo-Saxon Protestant).

The US of A is even falling apart internally where Federal government is robbing medical resources from state governments.

Harmony, order and united are just words in dictionary or in a pipe dream.

NZ, lucky enough, is still led by rational people who know which country to follow.

Stay safe and healthy everyone.

Hi Xingmo, good to see you’re back. I’ve missed your ironic humour.

Of course we remember the Chinese civil war a mere seventy odd years ago.

Sadly, 2021 onward will be a shock & awe reckoning for China.. world nations started to wake up, self basic reliance is actually the most important in nationhood building. The saving mentality by shifting production to cheaper countries is not the best option, even comrade Xingmow would agree with it, after all how many in China is still below poverty line, is it not 1.3billions? - Correct me if I'm wrong, but do re-quote me what CCP no.1 promise to Chinese peoples? if not mistaken he promised to bring them up to prosperity by targeting around 43million per year? or per three years? - anyway, it's on the pipe dream now - Let's talk about continents, how many countries on each of those continents? are being taking care by China, toward prosperity or just a few of their ruling elite. 'Rational people' to follow.. a country? which leads us/the world in this current path, just simply from their 'exotic dietary habit' - I thought snake & pangolin are cute in the wild, until it's being served as dishes.


And the end of the sycophantic pandering of our politicians and business leaders to that corrupt dictatorship.

The low point was Ximon and his “cultural fusion” nonsense. Sickening.

Storm clouds were gathering as China used the developing crisis to complete some more islands for "scientific studies" in the S China Sea and back in NZ a sense of foreboding emanated from the gathering media crowd as the Fonterra Gulfstream, bought by the Cloggy before it all went pear shaped, taxied in and skidded to a halt in the gathering gloom of a wet Auckland Terminal.
The doors opened and down the step came the noted epidemiologist, Sinophile and everyone's favorite uncle, Rewi W.
A hush came on the crowd as he paused, looking gallant in his hipster travel pants, Yuan spilling out of several bulging pockets. The rain, gently falling upon his floodlit visage with his hair swept back in a Gompertz curl, gave him an angelic glow. A young child sleeping rough, post Key, at the airport periphery gasped "Was it the messiah?"

Raising an arm clenching a wrinkled A4 splattered with Uyghur blood he shouted " A Market for Our Time"

A hollow cheer rang out of the highly leveraged Waikato, the polluted plains of Canterbury and the cruel boglands of Southland. The rest of NZ fell silent. They had seen this before and it hadn't ended well then.

DD, it's known worldwide that China is for Chinese, Chinese is for China's traditions, culture, heritage - it's never going to be African countries for examples. Now every CCP pro camps started toning down the virus rethoric came from USA, as the Japanese waking up that sleeping giants in a Pearl Harbour saga, this Wuhan/Chinese virus started showing it's force in the American soil - watch how those 350millions sleeping patriots reaction from 2021 onward. The re-labelled to Covid19 is just irrelevant, no Chinese protesting when we talk about Chinese take away, Chinese resto, Chinese herbal etc. OR? when world stated in the past 'Spanish Flu', perhaps the current Spanish can also ask for re-labelling? - There are around about 200 nations on this planet, do we really wants that everything have to be 'made in China' at what cost?, 'cheaper' NO, really at whatever the cost? - China method for thousand years is simple: Capital/funds out movement can only happened with: 1)Land procurement 2)Movement of it's people

Who is up for building a new EV car manufacturing plant in NZ.?
Close the imported car gateway by introducing massive duty charges and start by building conversion kits for vehicles currently on the road, use the duty collected from diehards to start up the new business

Car autarky? Even if this was a Sensible Suggestion (try EV'ing a 50-tonne Scania B-train) where, oh where, are the Li, Cu, Co and many rare earths gonna come from to make all of them Batteries, Motors and Control gear? One aspect's for sure, we cannae Mine or Dredge for any of this.......

Using trains and smaller trucks. The roads may last longer.

Take off the Rio Tinto subsidy, and use the surplus power to make hydrogen. There's plenty of rain down their too.

Self sufficiency, and watch the wealth flock to this country.

Hydrogen may be a saviour for some, Toyota and Honda continue to invest and now GM is joining Honda on a small EV, none are noted as fools chasing a rainbows gold.

Sounds like Robin Hood's business plan except he's stealing from the poor to give to the rich

I am predicting a rough ride for our primary exports as our destination markets pull up the drawerbridge to protect their local production

How many countries don’t make enough food to feed themselves though? You seem to have it in for our primary industries lately, whys that? Generally, most people are thanking NZ’s lucky stars that what we do produce is actually needed and not some good or service that people can do without.

The clue may be in his handle - probably part of the MSM who being lefties hate the real wealth producers. Baur gone - Channel 3 and Herald to follow?

“ The term Fourth Estate or fourth power refers to the press and news media both in explicit capacity of advocacy and implicit ability to frame political issues. Though it is not formally recognized as a part of a political system, it wields significant indirect social influence.”

We may well be looking at the great re-set. We shouldn't be surprised; some of us have been anticipating it for years.

The position to get to was self-sufficiency, near as possible. Own food, no debt, simple systems as repairable as possible. The best investments were in useful stuff, not esoteric digits in the casino. Same goes for NZ.

And for the electric car commentator upthread - stand back and ask what the problem is. EV's are an answer, but not to the question we have to ask.


I’ve always thought that we would be lucky to make it to 2030 without substantial economic collapse, but it is hard to see how we get out of this. This virus is like a laser guided missile to the heart of neoliberal globalisation and the “forever growth” fairytale.

The downward slope of the Seneca cliff awaits.

Well put.

It's hard to see this one re-booting. Oscillating, yet. Re-booting, no. Dennis Meadows reckons on a saw-toothed descent. I'm guessing the financial ponzi unravels rapidly and all bets become off. That suggests chaos pretty soom after.

Power - Agree, saw a report that Global debt is 250 Trillion, Global Bank Capital 10 Trillion - join the dots then run! Talking of runs saw a Bank Run in Baltimore of a small local Bank with cars and depositors lining up to withdraw their cash.

Yep, Timmy as per;
Capitalism using Neoliberal globalisation excuse to shield the greed & always manifested/socialising the loss by all tax payers, as from post GFC until now.. forever QEs.
China's capital out movement? only means.. have to be accompanied by land procurement overseas & people movement, sadly their own virus now targeting that. No more people movement=no more capital outflow=no more land 'investment' overseas. The blue team are hardest to be hit first here, whichever you talk about.. political, banks..

Indeed. Interesting times ahoy. We'may all have to learn to be nicer to one another. Just what Jacinda wanted wasn't it?

China is the world's largest exporter, but not everything they export is beneficial.

I am a long time critic of China and the west's pathetic and desperate bowing down to it.
I favour a move away from the heavy pro-China bias. However....

This needs to be moderated by the fact that the relationship with China will still be important. What's more, an aggressive move away from engagement with China risks making the same mistakes that were made in isolating Japan in the 1930s.

If our Brave New World means no more foreign idiots driving to Glenorchy on the wrong side of the road, and blocking all our tourist sights and polluting our country, then I'm all for it. If it means buying locally made stuff instead of Australian Pam's longlife milk from Pak''n'Slave, then I'm all for it. If it means all the foreign owned foreign staffed firms can't make a go of it here, then I"m all for it. If it means all the foreign minimum wage temporary work visa workers go back to their own country, then I'm all for it. If it means the dairy farmers have to pay the actual cost of doing business, including cleaning up after themselves, then I'm all for it. Etc etc.

Let's draw out some Consequences of the 'all for it' themes - all varieties of autarky - a common characteristic of medieval economies:

  • No more foreign idiots = between 50 and 75% of the tourism industry, employing 400K workers, is toast. Add 'em to the welfare rolls or retrain 'em - all Gubmint cost, paid for by You Know Who.
  • No Importing Australian produce = no metals (Li, Cu, Fe, and the rare earths being prospected at Dubbo), so kiss goodbye to solar panels, EV's and Big Batteries. As for wheat, well, Oz grows most of the hard wheat used in our bread.
  • Foreign-owned firms include every Car, Machinery, Household Appliance, amongst many others, so good luck when your tractor goes into Limp Mode and they have Departed our fair isles.
  • Foreign minimum wage temporary work visa workers go home - and are replaced by automation, manufactured either offshore, by foreign-owned firms here, or local firms using fairly much exclusively foreign-made parts. We seem, unaccountably, not to have chip fabs or bearing factories....
  • Dairy pays - via the plethora of New Taxes sure to come our way, and what does that do to the prices of dairy products locally? So who pays? Check a mirror. And who is Excluded because of high prices? The poor and children.

Autarky seems to be flavour of the month. Especially to commenters who clearly haven't Thought it Through.....

Understand your underlying sentiment with the implied barb at the US which has credibility but China also has a part to play in being open about Wu Flu no matter how embarrassing it may be. I suspect ordinary Chinese people are also somewhat unhappy with their Govt as other countries are with theirs - Hong Kong is obvious as is Italy with the EU. Having China or any other country as a major part of the supply chain is always a risk as is any dependence China has on others so cooperation in diversifying sources is sensible for all and it does not mean anyone taking a big hit. Rumours/Reports true or not become facts of perception and this may be the biggest danger as individuates may choose not to purchase goods from somewhere they see as unfair in their terms so all sides need to demonstrate with actions their willingness to cooperate & compromise for the good of all. The world post Covid 19 will be different, it could be a much better world requiring good will and trust .