When people think about trade wars, they tend to think of them in terms of countries or governments. We simply say there's a trade war between the U.S. and China, for example. That's why it's so interesting to speak with Matt Klein, who's written a new book together with Michael Pettis about why trade wars actually stem from inequality within countries, rather than between them. The argument in "Trade Wars Are Class Wars" is that high income inequality breeds economic imbalance that ends up spilling over borders. Here's an example. Policies made in China see workers overproduce in the interests of the state, with profits going to state-owned enterprises and the elite. The workers themselves are hurt as they don't see much in the way of profit, so they don't have extra cash to spend on American goods, which in turn harms U.S. workers too.
That framework is important because it suggests that even if governments agree on a trade deal, tensions that led to friction in the first place will not necessarily disappear. In fact, Klein argues that in the current climate, where governments will have to try even harder to keep jobs for their constituents despite lower demand for goods, those imbalances are set to grow. You can listen to his thoughts on the latest episode of the Odd Lots podcast.
Follow Bloomberg's Tracy Alloway on Twitter at @tracyalloway.
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