Starving in the Streets (End of Free Trade Edition)

Argentina just passed a bill putting export tariffs on grains and oilseeds. They did this despite the fact that Argentinian farmers had spent 3 months striking against the bill.

Of all the stupid things that people say about commodities like oil and food, the BS about global markets and fungibility ranks near the top. Markets acted as if they were global and fungible for a long time, in both, because there was surplus capacity. There was so much surplus food capacity, in fact, that huge amounts of food used to rot in US and Canadian grain towers, with no one to sell it to who could even afford the shipping price.

But as there are scarcities what we’re going to find out is that these things aren’t exactly fungible. Sometimes that they’re really not fungible. And that the price can be set locally, not globally, by governments which are net exporters by simply choosing to raise internal tariffs or even just manage the amounts exported and the amounts kept for domestic markets. Note that Argentina did this despite huge protests. Why? Because while farmers are powerful in Argentina, every Argentine has to eat, and there are a lot of poor Argentinians. More than there are farmers.

Food and oil are created in specific countries. Those countries, as food and oil become scarce, will tend to take care of their own needs first. This is especially true in states that are democratic, where the rulers can’t just say "let them eat cake". Specific long term contracts will matter. The world market will become less and less of a fact as more and more oil and food is sold based on bilateral arrangements.

Likewise, in democracies, there will be a real temptation to take commodity resources that are necessary for manufacturing and use them at home. Why sell the raw stuff when you can do the value add yourself? Sure, it may cost a bit more than if it was done in some cheaper or more productive country, but when there’s an absolute scarcity of key resources, that doesn’t matter. You have pricing power and you can extract the extra money. It gives your population more and better jobs, which gives you a better tax base. And it gets you reelected.

Global markets are based on surplus situations without strong incentives for nations to horde or make bilateral deals. Those circumstances are ending and we are coming to an end of this era of "free" trade.

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