Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Leadership, Laughter, Tariffs Trade Wars Aren't 'Easy to Win' When You Alienate the World

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Leadership, Laughter, Tariffs Trade Wars Aren't 'Easy to Win' When You Alienate the World

Article excerpt

There are so many issues breaking right now that it's hard to keep track - and focusing on any one leads to feelings of guilt about neglecting the others. But it's worth remembering that the Trump trade war still seems to be on track, and it's important to have a sense of its effects.

The view within the Trump administration is, of course, that "trade wars are good, and easy to win." Where does this view come from? Actually, it involves two propositions.

First, it takes the mercantilist view under which trade as a zero-sum game in which whoever sells more wins. Because the U.S. runs a trade deficit, we're losers, and anything that reduces that trade deficit is good.

Second, it takes for granted the proposition that precisely because the U.S. exports less to other countries than we buy in return, a trade war will hurt them more than it hurts us, reducing U.S. imports more than it reduces U.S. exports.

Now, anyone who looks at the actual effects of international trade knows that the first proposition is wrong: trade isn't just about selling stuff, it's about getting better, cheaper stuff both to consume and to use as inputs in production. But you might assume that at least the second proposition is true: A round of tariff retaliation should reduce foreign exports to the U.S. more than it reduces U.S. exports to the rest of the world, simply because those foreign exports are bigger to start with.

But maybe not. A new study from the European Central Bank suggests that, even though the U.S. runs trade deficits, a trade war would reduce demand for U.S. goods more than it would reduce demand in the rest of the world. The Bank of England has reached a similar conclusion.

Let's be clear: These are the results of models, not actual experience, and could be wrong. But it's still worth asking why the modelers are getting this result. …

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