25.09.2022

Trump’s trade war will bury the US economy?

As an American economist, professor at Boston University Lawrence Kotlikoff writes on his Seeking Alpha blog, Trump’s main idea, which the circle of “advisers” repeats, is that the US trade deficit reflects whether the country wins or loses in the area of ​​trade.

And since the US is facing a trade deficit, the president “knows” that the United States can only win in the “trade war”. To realize the insanity of this assumption, imagine a world in which there are only two countries A and B that produce only cabbage and beef.

Country A can only produce cabbage, for which its population has a deadly allergy. But the population can consume beef. Country B can only produce beef for which its population has a deadly allergy. But the population can consume cabbage. Naturally, country A exports cabbage to country B and imports beef from country B. Assume that the cost of selling cabbage from country A to country B is equal to the cost of selling beef from country B to country A. This means that the trade deficit equal to zero.

If the great leader of country A stops trading, the trade deficit will be zero. But the people of country A will die from cabbage poisoning, and the people of country B will die from beef poisoning. There will be no winners; there will simply be losers from the “trade war.”

Then suppose that country A decides to have a big barbecue this year to celebrate the rule of its great leader and orders twice as much beef from country B than usual. Country B, of course, produces more beef. To force country B to trade twice as much beef for the same amount of cabbage this year, country A will agree to trade twice as much cabbage for beef next year.

Country A will now have a trade deficit, and Country B will have a trade surplus (the opposite will happen next year). But the country’s trade deficit And this year speaks of its excessive consumption this year (for which she will have to face overproduction next year). If a “trade war” breaks out, all the inhabitants of countries A and B will die, so there will again be no “winners”. Again, value has nothing to do with a trade deficit.

Let’s change the situation. Suppose there is a third country C, which can produce and consume beef or cabbage equally well. Initially, C did not conduct trade relations. She just consumes what she produces. But when the great leader of country A stops trading with country B, all the inhabitants of country A will die, including the greatest leader. But this will not affect country B in any way. It will simply trade with country C, which will only switch to cabbage production.

President Trump does not understand any of the foregoing. He also does not understand that the basis of our trade deficit is an incredibly high level of spending by Americans and an incredibly low level of savings. Finally, Trump’s brain lacks the ability to understand a key fact about trade justice, namely, that the tariffs of our allies are on average no higher than our tariffs for them.

Trump cannot understand and greatly exaggerates any problems in the field of trade. But why is this a general “trade war”?

At this time, Trump’s loud and boorish mouth opens again. During the weekend, he and his assistants called Prime Minister of Canada Trudeau a weakling and a liar who deserves a “special place in hell.” Trump strongly insulted Mexico, called the immigration policy of Angela Merkel “insane,” accused China of trade fraud, and said the EU was worse than China in trade. Trump has left TPP and is in the process of destroying NAFTA. It sets tariffs for our trading partners, now they are doing the same with Trump USA. They will undoubtedly raise rates, which will lead to another series of tariffs for cigarettes and even more of his killer tweets.

Our trading “partners” already make it clear to us that they do not need us. And they are right. These are countries B and C, whose combined economy is double that of the US economy. The overall “trade war” will ultimately cause enormous economic damage to our country, but potentially much less damage to our trading partners.

Suppose, for example, that Canadian politicians begin to urge Canadians to stop visiting the United States until Trump apologizes for insulting the prime minister. This can cause serious damage in our country. Imagine that the Chinese will begin to set extremely high tariffs on the export of Apple smartphones and components to the United States. Imagine that the EU will begin to require Americans to open visas to enter Europe. Imagine that the EU will ban Facebook and Google for uncompetitive behavior. Imagine a Boeing boycott.

Imagine a spontaneous boycott of all American goods. Imagine, imagine, imagine – because what has already happened and is happening now, frankly, is hard to imagine. Our president, with his small brain, loud mouth and complete rejection of the truth, alone threatens our entire economy.

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