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History tells us that export bans are a very bad idea
There’s an old saying that those who forget history are doomed to repeat it. Well, a little history. During the 1930s, unemployment was a major problem. In order to protect people from being unemployed, governments around the world, led by the United States, imposed tariffs on imports. The idea was to benefit domestic producers as opposed to foreign producers.
Well, when you put a tariff on something, it’s price goes up. The producers gain, but the consumers lose. And on net, the consumer loss is more than what the producer gains. That’s mainly because there are lower real incomes when prices go up. So people could afford to buy even less of just about everything. Then other countries followed suit and we had something called beggar thy neighbor tariffs. The idea was that, I don’t care what happens to exporters in another country. I just want to protect myself. Well, the whole process contributed to a great depression that was virtually worldwide.
Well, fast forward to today. Unemployment isn’t the problem; inflation is. But governments still haven’t learned. So what we’re doing now in many countries is to ban exports. The idea is to keep the goods at home that will increase domestic supply and push prices down. The politicians can then claim that they have fought to reduce inflation. Now, of course, when you don’t export, prices overseas go up a lot. Then other countries begin to ban exports as well for the same reason.
There’s a long-term problem in all this. When you keep domestic prices low over time, the countries that produce those goods go out of business and these… barriers are going to be up for a long time. Again, take America as an example. We imposed a crude oil export ban back during the oil crisis in 1975. We never got around to repealing it until 2015 – 40 years later. So these things tend to stay.
Well, two prominent examples. India has banned the export of wheat without special government…approval. Now you gotta remember, India is the second largest producer of wheat in the world. Just on the announcement, the price of wheat globally went up 5%. That was on top of an already 25% rise that occurred because of the Russia-Ukraine conflict. And then in Indonesia, they banned the export of palm oil, which is widely used in the area as a cooking oil. Well, prices collapsed domestically, and a lot of palm growers went out of business. They may not come back. In total, 19 countries in the world have now banned food exports of one kind or another. A total of 31 different commodities of food are impacted. That affects, believe it or not, 17% of all world calorie consumption. That is one heck of a lot of calories.
Now the purpose of rising prices, which happens when you restrict exports, is that the prices are designed to ration the available supply, which means some people will lose out. Those people tend to be the poorest people on the planet. And so we’re going to have actually people starving around the world because of this practice. We’re also starting a global commodity supercycle, according to some.
Well, that rise in prices over the long term now has on its side the best helper you can get – the governments around the world who foolishly forget history and are enacting all these export bans.
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