Hatred Isn’t the Answer
More Barbarity in the Treatment of Adam Smith

Trade Wars

By Jonathan B. Wight

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

--President Donald Trump

We should all read Hayek’s “The Pretense of Knowledge,” which is a sharp rebuke to anyone who thinks that making public policy is easy, with knowable and predictable outcomes.

Trump’s tweet on trade suggests a level of bloated bravado, ignorance, and incompetence that is astounding for someone who grew up in New York City and attended elite schools including Wharton.

The tweet is wrong on so many levels it’s hard to know where to start.  Perhaps the biggest issue (to me) is to subsume trade within a narrow accountant’s ledger book.  Two thoughts:

  • One of the main reasons to support trade is because trade promotes other political and social interests. Nixon opened up trade with China not because he thought we could sell them anything (China then was horrendously poor), but because he wanted good relations to help fight the Cold War and the war in Vietnam.  Our previously excellent relations with Mexico and Canada were strengthened when we helped give their economies the chance to sell duty free to the world’s second largest market (after the EU).  Making them richer provides greater border security.  Ditto with Japan and Korea and the EU.
  • The trade deficits that Trump frets about are really capital inflow surpluses! Without the trade deficits we could not have had the trending lower interest rates for past 30 years. The global savings glut has pushed up profits on Wall Street making that sector rich (see Bernanke, here).  So, stopping trade deficits means stopping capital surpluses.  That means pushing us into higher interest rates, a stronger dollar, and none of that is going to help U.S. exporters or U.S. consumers. Quite the contrary.

What kind of strange political logic leads Trump to try to benefit the 140,000 Americans who produce steel at the expense of the 6.5 million Americans who use steel inputs to make other products, not to mention the 327,308,339 American consumers who all use steel in some fashion?  Chances are, it was no logic at all, but a gut reaction. 

From an ethical perspective, harming over 300 million Americans to help 140,000 seems questionable, particularly because these are simply the initial effects of tariffs, and do not take into account the unanticipated side effects of a trade war.    

Comments

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Bastiat's line that 'when goods do not cross borders, armies will' may be apocryphal, but the notion broadly holds.

Love the quote! Thanks, Jonas.

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