Trade-Wars Trump

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According to Krugman:

“Donald Trump is belligerently ignorant about economics (and many other things). But up to this point that hasn’t mattered much. …

But there was always reason to be concerned about the possibility of crisis — either a crisis created by outside forces, like some kind of financial collapse, or one created by the administration itself. In that case the Fed’s rationality wouldn’t be enough. And it’s starting to look like we have a trade policy crisis on our hands.

“Trump has always had a thing about trade, which he sees the way he sees everything: as a test of power and masculinity. It’s all about who sells more: if we run a trade surplus we win, if we run a trade deficit, we lose”

This is, of course, nonsense. Trade isn’t a zero-sum game: it raises the productivity and wealth of the world economy. To take a not at all random example, it makes a lot of sense to produce aluminum, a process that uses vast amounts of electricity, in countries like Canada, which have abundant hydropower. So the U.S. gains from importing Canadian aluminum, whether or not we run a trade deficit with Canada. (As it happens, we don’t, but that’s pretty much beside the point.) …

So we can’t “win” a trade war. What we can do is start a cycle of tit-for-tat, and when it comes to trade, America — which accounts for 9 percent of world exports and 14 percent of world imports — is by no means a dominant superpower.

A cycle of retaliation would shrink overall world trade, making the world as a whole, America very much included, poorer. Read On.