Book review: Matthew C. Klein and Michael Pettis, Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace
| Date | 01 August 2021 |
| Published date | 01 August 2021 |
| DOI | 10.1177/00157325211010568 |
| Subject Matter | Book Review |
Book Review
Matthew C. Klein and Michael Pettis, Trade Wars Are Class Wars: How
Rising Inequality Distorts the Global Economy and Threatens International
Peace. Yale University Press, 2020, US$28, 269 pp., ISBN 978-0-300-
24417-5.
Globalisation and free trade have come under pressure, and nationalism is on the
rise. Responding to this mélange, this thought-provoking book argues that the
origin lies in rising intra-country inequality and the structure of international
finance, and not in competing interests between countries. To balance trade and
avoid war, the authors call for reducing inequality and creating an international
reserve currency.
The epigraph from John A. Hobson’s 1902 study of imperialism properly sets
the stage for this book. He argued that rising inequality in Europe caused
nationalism and resulted in financial follies in the colonies and wars. Klein and
Pettis have observed the occurrence of similar processes globally since the 1970s,
and their book cogently explores how seemingly imbalanced national trends have
systemic, international effects. The analysis frequently describes how these
processes show up in national accounts, or how, for example, trade in intangibles
changes the interpretation of current account data.
The first chapter engages with Alexander Hamilton’s and Friedrich List’s
notions of a developmental state. They argued that free trade would inhibit the
USA’s development, disagreeing with their contemporary David Ricardo who
argued that due to investors’ unwillingness to invest money abroad, trade
imbalances would mainly cause price-level adjustments, and that this would ensure
that initial relations of absolute advantage would relatively quickly turn into
mutually beneficial trade governed by comparative advantage. Disputing Ricardo’s
assumptions, Klein and Pettis argue that since the nineteenth century, cross-border
financial claims have in fact increasingly shaped trade. Today, these claims stand
at four times the size of global output. They argue that bilateral trade data is
misleading if we are to understand this complex system, for example because
multiple border crossings inflate the data and, for purposes of tax avoidance, profits
show up as FDI income. Thus, they prefer considering overall current accounts.
The second chapter argues that cyclical, speculative financial flows have
shaped trade and global growth. It describes nine cycles between the 1820s and
1990s in which large savings accumulating in financial centres led to credit flows
to the peripheries. The authors argue that throughout history, large and sudden
monetary flows have had disastrous effects on any country: the resulting asset
Foreign Trade Review
56(3) 364–367, 2021
© 2021 Indian Institute of
Foreign Trade
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DOI: 10.1177/00157325211010568
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