Opinion | Trade War, What Is It Good For? Absolutely Nothing - The New York Times

Photo President Trump during a meeting with steel and aluminum executives at White House on Thursday. Credit Evan Vucci/Associated Press

We’ve known all along that Donald Trump is belligerently ignorant about economics (and many other things). But up to this point that hasn’t mattered much. He took office amid a sustained recovery that began under his predecessor, and that recovery had already lifted the U.S. economy to the point where “normal” policy rules apply: interest rates are above zero, monetary policy is effective again, so short-term economic management is in the fairly reliable hands of the Federal Reserve, not the chaotic Trump White House. What the president didn’t know couldn’t hurt us.

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:

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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.)

It’s true that trade deficits can be a problem when the economy is depressed, and unemployment is high. That’s why I, like many other economists, wanted us to take a tougher stance on Chinese currency policy back in 2010, when we had around 9 percent unemployment. But the case for worrying about trade deficits, like the case for running budget deficits, has largely evaporated now that unemployment is back to 4 percent.

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. Perhaps even more important in the near term, it would be highly disruptive. We live in an era of global supply chains: just about everything produced in America (and everywhere else) uses inputs produced in other countries. Your new car may well have a chassis assembled in the U.S., an engine and wiring system made in Mexico, electronics from Korea and China, and, of course, steel and aluminum from Canada.

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https://www.nytimes.com/2018/03/03/opinion/trade-war-what-is-it-good-for-absolutely-nothing.html