Friday, March 23, 2018

Good Wars ?

Most people fear trade wars, because they know a trade war can easily become a real-killing-people kind of war.  Most economists fear trade wars, because it destroys the principle of comparative advantage, reducing the standard of living on all sides.  Fortunately, on March 1st of this year, the President assured us that "trade wars are good, and easy to win."  Let us pray . . .

History shows us that "winners" in trade wars only win in the short-run, and everybody loses in the long-run.  But, there is something different this time.  It will be the first time there has been a trade war in a globalized world!  It is not uncommon for a finished good to require parts from a dozen different countries.  The problem of unintended consequences has never been greater.

Some economists believe that policy makers on all sides will retreat from their trade war, once they realize the problem of unknown consequences.  I'm afraid they never heard of machismo.

Some Republicans believe all this is just a negotiating ploy, so that China will do whatever is necessary to resolve the North Korea problem, to avoid the economic damage of a trade war with us.  Others think putting a match to lighter fluid is a better negotiating ploy.  After all, what was the point of announcing a steel and aluminum tariff just before renegotiating NAFTA, only to exempt Canada and Mexico almost immediately?

It is hard for me to see the words "wars are good" actually being said, without feeling intellectually, morally, and emotionally appalled.