Trade Wars Lead to Real Wars

“When goods do not cross frontiers, armies will.”

This is a quote attributed to 19th-century French economist Frédéric Bastiat.

And history backs it up.

Prior to WWI, countries throughout Europe abandoned the gold standard, devalued their currencies, and exacted costly tariffs to compete for export markets in a vicious trade war.

Another currency war erupted years later — first in Weimar Germany in 1921, and then France in 1925. Throughout the 1930s, the world’s major economies once again raced to devalue their currencies — the pound sterling, the franc, and the dollar.

In the United States, President Hoover signed the Smoot-Hawley Tariff Act, raising tariffs on more than 20,000 imported products. This brought reprisals from trade partners, intensified the currency war, and deepened the Great Depression.

The historical record is clear on this issue.

Trade wars are dangerous. And the global economy isn’t the only thing at risk.

Trade wars stoke nationalism and breed hostility that often bleeds into other areas of diplomacy. They also cause economic hardship, and the domestic politicians responsible are usually quick to scapegoat foreign trade partners. 

That’s what we’re in for here.

China’s Foreign Minister Wang Yi is describing Trump’s tariffs as “blackmail” and pledged to “counterattack.”

America’s other major trade partners are lining up reprisals as well, in what’s quickly devolving into a tit-for-tat cycle of recrimination. 

At the same time, President Trump continues to threaten America’s neighbors — Canada with annexation and Greenland with invasion. 

“We need Greenland,” Trump said. “We have to have Greenland. It’s not a question of ‘Do you think we can do without it?’ We can’t.”

Trump is also threatening to bomb Iran after targeting regional proxy groups with strikes last month. 

"If they don't make a deal, there will be bombing," Trump said. "It will be bombing the likes of which they have never seen before."

That threat was reinforced by the deployment of F-35 fighter jets and B-2 bombers to the region. 

The B-2 Spirit can carry up to 40,000 pounds of ordnance, including nuclear bombs and the GBU-57 Massive Ordnance Penetrator — a 30,000-pound bunker buster.

The latter could be used to strike Iran’s nuclear facilities, even if they’re buried deep underground. 

The Idaho Air National Guard's 124th Fighter Wing — which was previously deployed to combat ISIS — has also been sent back to the Middle East, along with several A-10 Thunderbolt II attack aircraft.

Two aircraft carrier strike groups — the USS Carl Vinson and USS Harry S. Truman — are also making the rounds in the region.

As with the trade war, none of this posturing has been effective. None of America’s partners or adversaries in Europe, the Pacific, or the Middle East are taking to Trump’s attempts at extortion. 

Instead, they’re all vowing retaliation. 

What, then, will Trump’s response be?

When his trade war backfires and Americans grow angry at soaring prices and mounting job losses…

When China, Iran, and even America’s allies openly flout Trump’s effort to bully them into submission…

What happens when the world Trump is trying so hard to break bites back?

I guess we’ll see. 

In the meantime, I’m looking at the market and it’s down 1,500 points. 

Two stocks are up — Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC). 

Do with that information what you will.