The Power of Independent Thinking

←  NEWSROOM



Stay Connected
Get the latest updates straight to your inbox.









Commentary

The Only Way to Win a Trade War Is Not to Fight



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 don’t 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 T’Challa has apples and wants oranges. Sufi has oranges and wants apples. They trade at a price they both find agreeable. Importantly, they don’t 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 “we’re running record trade deficits” and a politician saying “we’re running record capital surpluses” are saying the same thing. I’m not sure why they don’t emphasize capital surpluses more, but I suspect it’s because people view foreign investment in the US as a very bad thing because it means they are buying our assets. It’s a view of international trade as imperialism that simply isn’t correct.



Art Carden is a Research Fellow at the Independent Institute in Oakland, California and an Associate Professor of Economics at Samford University’s Brock School of Business.







  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org