The President is at it again: Having made good on his promises to punish foreigners in the United States, he is working hard to punish foreigners outside the United States as well as the Americans who trade with them. Trump has tweeted that it is easy to win a trade war. I respectfully disagree.
First, trade war is an oxymoron. People dont trade unless they expect to be better off, and the way to persuade someone to trade with you is to offer them something in return that they prefer to what they are giving up. Suppose TChalla has apples and wants oranges. Sufi has oranges and wants apples. They trade at a price they both find agreeable. Importantly, they dont do so unless they both expect to be made better off. We make them worse off if we stand between them and say thou shalt not.
Second, rhetoric about the trade deficit is misleading. Trade deficit sounds bad, but a trade deficit makes up a large chunk of the US current account (payments flowing out) and is offset by the US capital account (payments flowing in). A politician saying were running record trade deficits and a politician saying were running record capital surpluses are saying the same thing. Im not sure why they dont emphasize capital surpluses more, but I suspect its because people view foreign investment in the US as a very bad thing because it means they are buying our assets. Its a view of international trade as imperialism that simply isnt correct.
|Art Carden is a Research Fellow at the Independent Institute and an Associate Professor of Economics at Samford Universitys Brock School of Business.|