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Monday, July 03, 2017

Paul Krugman: Oh! What a Lovely Trade War

"If we start breaking those rules, others will too":

Oh! What a Lovely Trade War, by Paul Krugmn, NYTimes: ...Axios reports that the White House believes that Trump’s base “likes the idea” of a trade war, and “will love the fight.”
Yep, that’s a great way to make policy.
O.K., so what’s complicated about trade policy?
First, a lot of modern trade is in intermediate goods — stuff that is used to make other stuff. A tariff on steel helps steel producers, but it hurts downstream steel consumers like the auto industry. So even the direct impact of protectionism on jobs is unclear.
Then there are the indirect effects, which mean that any job gains in an industry protected by tariffs must be compared with job losses elsewhere. Normally, in fact, trade and trade policy have little if any effect on total employment. They affect what kinds of jobs we have; but the total number, not so much. ...
Then there’s the response of other countries. International trade is governed by rules — rules America helped put in place. If we start breaking those rules, others will too...
And it’s foolish to imagine that America would “win” such a war. ... Anyway, trade isn’t about winning and losing: it generally makes both sides of the deal richer, and a trade war usually hurts all the countries involved.
I’m not making a purist case for free trade here. Rapid growth in globalization has hurt some American workers, and an import surge after 2000 disrupted industries and communities. But a Trumpist trade war would only exacerbate the damage, for a couple of reasons.
One is that globalization has already happened, and U.S. industries are now embedded in a web of international transactions. So a trade war would disrupt communities the same way that rising trade did in the past. There’s an old joke about a motorist who runs over a pedestrian, then tries to fix the damage by backing up — running over the victim a second time. Trumpist trade policy would be like that.
Also, the tariffs now being proposed would boost capital-intensive industries that employ relatively few workers per dollar of sales; these tariffs would, if anything, further tilt the distribution of income against labor.
So will Trump actually go through with this? He might. ...
Trump’s promises on trade, while unorthodox, were just as fraudulent as his promises on health care. In this area, as in, well, everything, he has no idea what he’s talking about. And his ignorance-based policy won’t end well.

    Posted by on Monday, July 3, 2017 at 04:10 AM in Economics, International Trade | Permalink  Comments (307)


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