There is such a thing as external reality, of which any moral ideal, political goal, or action must take due notice. The revelation today that POTUS has been infected by the coronavirus provides an example. One should want to preserve individual liberty during a pandemic or another natural or man-made catastrophe, but reality must still be acknowledged in a logically consistent way.
Restraints to trade are like pandemics: it is important to understand how they work and what are the trade-offs involved. Trade wars are not “good, and easy to win,” as POTUS tweeted on March 2, 2018. An exception would be if “good” means good for special interests (such as domestic steel or washing machines manufacturers) and for the politicians’ interest. And they are not “easy to win,” as Adam Smith knew two and a half centuries ago, except if “winning” means exploiting the consumers of your own country and reducing prosperity.
A ruler wants to reduce the trade deficit? He may try to restrain his subjects who want to import or he may try to subsidize those who want to exports, but economic realities, including the reactions of those bossed around, must be taken into account. Ignoring them leads to other results than those expected. In the Summer issue of Regulation, I analyzed the “Trump economy” up to December 31, 2019—that is, before the pandemic. The results of ignoring the economics of international trade were visible:
Figure 7 above shows that the U.S. trade deficit on goods and services did not decrease between the last year of Obama’s presidency and 2019; in fact, it increased by 23%. If we consider only the trade deficit on goods, Trump’s preferred metric, that deficit increased by 16%. Moreover, the trade deficit in goods with China, which was his main target, decreased by a mere 0.5%. He has attacked the world trade system, regulated American exporters, and imposed tariffs on American consumers, all for a measly 0.5% reduction in a meaningless number.
Of course, it is not because POTUS and FLOTUS have not been prudent enough that NOTUS (the Nth Lady of the United States or anybody else in America) must be coerced into doing or not doing something. Note also that, if the federal and state governments in the US did not interfere with the prices and the allocation of testing equipment and materials, there would be no shortage and NOTUS could get her test results within 24 hours just like people in the White House apparently do: like them, she, the humble NOTUS, would just have to pay the market-clearing price.
In the current White House infection, let’s wish the best to POTUS, FLOTUS, and the others, but the pedagogical lessons of this event (as Rahm Emmanuel might say) must not go to waste.
READER COMMENTS
Jose Pablo
Oct 3 2020 at 11:29am
“A ruler wants to reduce the trade deficit?”
Then he must explain how does he plan to reduce the capital account surplus: is he going to reduce the amount of real estate, stocks, bonds, and government securities bought by foreigners?
Which one? By how much? Why? … if some people are willing to work their ass off to provide you with products and services in exchange for newly printed “piece of paper”, what’s the problem?
The Dutch used a similar strategy to buy Manhattan, it paid off handsomely.
If politicians can mess around with an economic topic in which even Krugman and Mankiw agree on, then all hope is lost.
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