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What "Trade Wars are Good" Proves

March 2, 2018

Donald Trump has deflated the myth that so-called jobs creators will be good shepherds of our national economy. The man insistently holds onto a zero-sum view of the world. In all situations, by his lights, his win is another's loss, and vice versa. Some narrow-minded businessmen might view the world in these terms, but Presidents never should. 

 

For a President, allowing some sectors to succeed at the expense of others, even competitors in other nations, is like moving the deck chairs on the Titanic. It doesn't help the ship of state stay afloat or help it move successfully toward the intended destination. The simple fact is that Trump exhibits no understanding of the distinction between making money, which is too often at another's expense, and improving social welfare by actually creating something of value. No one who does would ever say "trade wars are good." The only way to defend that claim is on the theory that they must be good because, after all, they helped make the Depression Great. But who else, beside Trump, would imagine using "good" in this perverse way. 

 

Economies thrive when people are able to specialize in the production of goods and services and then exchange them in robust and open markets. Trade wars are antithetical to that. This is what the theory of comparative advantage is all about. As I tell my students (and yes, please suspend your disbelief by imagining a world in which lawyers write and secretaries type), if a lawyer is better at typing and at practicing law, as compared with her assistant, it is still social welfare enhancing for her to practice law and for her assistant to type the briefs. Absolute advantage is less important than comparative advantage in specialization and exchange and in promoting economic growth. And the insight a fully generalizable. Comparative advantage applies to individuals, businesses, communities, and yes, nations. 

 

Protecting domestic sectors from competition, such as steel or aluminum, cannot improve long term social welfare. It can, however, incite trade wars. Disadvantaged nations (more likely Canada than China, actually, although facts don't seem to be driving policy here), can be expected to reciprocate, hence trade wars. The most extreme consequence is balkanization, meaning smaller, segmented economies, with specialization and exchange arising within, not across, nations, stunting economic growth at home and abroad. This is among the central lessons that resulted in ridding the United States of the dysfunctional Articles of Confederation in favor of the Constitution, and that arose in the lead up to and tragic aftermath of the Smoot-Hawley tariffs. Domestically and internationally, we have experienced trade wars. Contrary to Trump, they are never easily winnable, and they result in tragedy for all who are affected. 

 

Once more we are learning the importance of having a President who exhibits a depth of understanding about government, history, economics, and yes, even basic psychology. And once again, it is apparent that Donald Trump has much to learn. Ignorance is problematic, but it need not be fatal; ignorance coupled with an unwillingness to be educated, however, is. The Republican party was willing to take a high stakes dice roll. Although Donald Trump seems unwilling, possibly unable, to learn, the ultimate question is whether that will remain true of his party. Let's hope not.

 

One last comment: There is something strange about chiding the Republican party, or its leader, for failing to embrace such principles as comparative advantage, open markets, and economic growth. Historically, this has been an area in which that party has exhibited substantial insight and commitment. Both sides in our ideology wars have blind spots. Hence the name of this blog. To advance as a society, it's important to realize that ideas are more important than whichever group claims to hold them. And today, even with respect to those ideas that the Republican party has historically embraced, it's leader appears to be, well, at sea. 

 

I welcome your comments.

 

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