Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C Klein

O•N•E
From Adam Smith to Tim Cook
The Transformation of Global Trade
International trade used to be simple. High transport costs and politically
imposed constraints limited the flow of finished goods and raw materials
across borders. In the late eighteenth and early nineteenth centuries, British
thinkers argued for removing tariffs and other barriers to encourage
specialization, while Americans and Germans proposed protecting infant
industries to develop diversified domestic markets. The end of the
Napoleonic Wars, the mass deployment of steam engines, and the invention
of the telegraph led to a boom in trade until the early 1870s—which ended
with what some have called the world’s first synchronized global financial
crisis, the Panic of 1873. From the late 1880s until World War I, high
imperialism in the late nineteenth and early twentieth centuries led to
increased trade within larger blocs even as it limited trade between them.
World wars, the Great Depression, and revolutions upended the
political and economic order in the first half of the twentieth century.
Initially, the impact was to crush international trade to its lowest level since
the late eighteenth century, although these events also caused a massive
redistribution of wealth that left income more equally distributed within the
rich countries than it had ever been. Eventually, these forces created space
for much deeper economic integration.
Even then, most trade at the time consisted of finished goods and
commodities. The innovation of container shipping radically lowered
transportation costs while advances in communications technology made it
easier to oversee factories on the other side of the world. By the late 1990s,
trade had been transformed. Companies spread complex manufacturing
supply chains across multiple countries to maximize efficiency and
minimize taxes. Trade today looks nothing like it did before. Unfortunately,
in spite of all these changes, the popular understanding of trade continues to
be based on obsolete eighteenth-century models.
Pins, Cloth, and Wine
Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations
opens with an account of a pin factory. Smith estimated that it took
“eighteen distinct operations” to make a single pin. Just making the head
required “two or three distinct operations.” One worker would be hard-

pressed to make more than a few dozen pins in a day if he were forced to
perform all the steps himself. What the pin-makers—and Smith—realized
was that each worker became thousands of times more productive by
focusing on specific parts of the process.
Pin-making in Smith’s day took place in a single building, but it can
be understood as a series of trade relationships: the factory owner buys raw
materials from suppliers, after which the first worker effectively buys some
of the materials from the factory owner and makes the first set of
improvements, preselling this unfinished good to the next worker, who
makes more improvements before selling the modified good to yet another
worker. The last worker in the chain ends up with finished pins ready to be
sold to distributors. While businesses exist to simplify these implied
transactions between employees and owners, Smith’s insight—people
accomplish more when they specialize—explains why pin-makers did not
forge their own steel, much less mine their own iron and coal. All of these
separate businesses trade with each other for what they need while focusing
on how they can add the most value.
International trade is simply an extension of this process across
national borders: England is bereft of sunshine but rich in freshwater, while
much of Spain is sunny and dry, so people in both Britain and Spain can

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C Klein