Tchaikovsky’s swan lake and the global trading economy

The Black Swan catastrophic event

How does a ballet of such tragedy correlate with the global economy? Well looking at recent headlines it’s hard not to feel like we are in act three, we are not dancers drowning in a dark lake but we are drowning in debt with the threat of an economic crisis on the rise. However, this is not the link that I am drawing, instead a catastrophic, unexpected and globally damaging event is defined as a ‘black swan event’. The previous ‘Odiles’ that we have seen in recent generations are the 2008 financial crash and the global pandemic of Covid-19. The 2008 Financial crash started on Wall street, in New York, but the implications on the global markets meant that waves of economic destruction rippled across the seven seas. The global pandemic not only affected the health and livelihood of populations across the planet, but it also affected global economies, and created soaring inflation across the globe. These black swan events are perhaps why we are seeing the enforcement of tariffs and deglobalization tactics. 

Fear over Trump’s imposition of tariffs has left governments with their shirts tucked in, acting like school boys in front of the headmaster, just this headmaster is an orange painted president. A tariff is a tax imposed on imported goods, raising the price of the good for the consumer, and thus the consumer is more likely to buy a locally or nationally made good. The benefits of tariffs include less competition for domestic goods and services, therefore can help these local businesses compete. However, typically the tariffs come as a burden to the consumer and have the potential to increase the cost of living. Further, goods and services are often composed of many different materials and aspects, some of which are imported. One clear example is the cost of building; if a tariff was placed on imported bricks, then the cost of bricks would rise for the builders, and thus the cost of building would also rise. 

Tariffs are a protectionist policy. Other protectionist policies include:

Embargos - a complete ban on the importation of a good 

Quotas - how much of a good / service can be imported 

Administrative barriers - special requirement and regulation for importation 

Subsidies - subsidising domestic goods and services so they are more competitive than imported goods 

Protectionist policies can create a more independent economy, this could potentially mean that a black swan event could have less of an impact on this economy. However, due to the interdependency and intertwined global trading economy, protectionist policies are often the spark to light the fire of a trade war. Trump is keen on tariffs, we have seen this before in the US - China trade war in 2018. The Nation Bureau of Economic Research wrote a paper exploring the implications of this trade war, called THE ECONOMIC IMPACTS OF THE US-CHINA TRADE WAR. 

These economic sanctions used by governments are a ‘soft power’. For example, when Russia invaded Ukraine, the European Union (EU)  EU nations implemented economic sanctions on Russia, one of the most significant being the oil price cap, so that Russia could not make a profit off oil exports. The cap was implemented over an embargo as to keep the global energy market relatively stable, as to minimise consumer burden. Despite this the price of fuel has still suffered inflation and added to the cost of living crisis in which many Europeans have to choose between heating or eating during winter. The war is an abstract black swan event. It shows the risk of dependency on energy importations. The people of Ukraine have lost so much, family, livelihood and their homes. Yet very little ‘hard power’ that refers to military pressure has been applied by the EU. This is because of the ‘just war theory’, first written in Catholic theology, and further developed by modern ethics. EU troops are not applying extremely erosional military pressure in Russia as the outcome would lead to an even greater loss of lives due to the nuclear and militia threat of Russia. 

As we move West, many European nations are facing a rise in right wing political groups that typically boast the implementation of protectionist policies. Britain left the EU in February 2020, after the Brexit referendum in 2016. The departure from the EU economic and political union and free trade agreement didn’t just leave British tourist standing in airport queues for longer, but it also has an ongoing economic effect, reducing Gross Value Added (GVA) by 10% by 2035, this data was found in the Cambridge Econometrics report on ‘London’s economy after Brexit: Impact and implications’ . However, it is important to note that the UK is negotiating trade agreements within and outside of the EU, therefore there is much uncertainty over the future positive and negative outcomes of Brexit. In the most recent Office for Budget Responsibility report in October 2024, the estimate was a 4% decline in long-run productivity due to post Brexit trade agreements with the EU. Signifying the potential destruction of protectionist policies. 

In summary, protectionist policies and trade wars do not coincide with consumer benefit, often adding hot air to the balloon of inflation, further driving the cost of living crisis, and simultaneously creating political tensions. However, we can understand the reasoning of these measures. Not only are they a soft power but additionally black swan events have injected fear into populations and politicians, leading to a desire to develop economic and energy independence. Should we aim for a drive in globalization, or retreat back into economic independence?