How, again, is Donald Trump supposed to win a breath-holding contest with an authoritarian régime that both controls its media and sees little downside in redirecting resources to cushion the impact on potentially noisy losers?: Paul Krugman: How to Lose a Trade War: "Trump’s declaration that 'trade wars are good, and easy to win' is an instant classic, right up there with Herbert Hoover’s 'prosperity is just around the corner'...

...Trump obviously believes that trade is a game in which he who runs the biggest surplus wins, and that America, which imports more than it exports, therefore has the upper hand in any conflict. That’s also why Peter Navarro predicted that nobody would retaliate against Trump’s tariffs. Since that’s actually not how trade works, we’re already facing plenty of retaliation and the strong prospect of escalation.

But here’s the thing: Trump’s tariffs are badly designed even from the point of view of someone who shares his crude mercantilist view of trade. In fact, the structure of his tariffs so far is designed to inflict maximum damage on the U.S. economy, for minimal gain. Foreign retaliation, by contrast, is far more sophisticated: unlike Trump, the Chinese and other targets of his trade wrath seem to have a clear idea of what they’re trying to accomplish.... The Navarro/Trump view, aside from its fixation on trade balances, also seems to imagine that the world still looks the way it did in the 1960s, when trade was overwhelmingly in final goods like wheat and cars. In that world, putting a tariff on imported cars would cause consumers to switch to domestic cars, adding auto industry jobs, end of story (except for the foreign retaliation.)

In the modern world economy, however, a large part of trade is in intermediate goods.... Put a tariff on car parts, and even the first-round effect on jobs is uncertain: maybe domestic parts producers will add workers, but you’ve raised costs and reduced competitiveness for downstream producers, who will shrink their operations. So in today’s world, smart trade warriors–if such people exist–would focus their tariffs on final goods, so as to avoid raising costs for downstream producers of domestic goods. True, this would amount to a more or less direct tax on consumers; but if you’re afraid to impose any burden on consumers, you really shouldn’t be getting into a trade war in the first place. But almost none of the Trump tariffs are on consumer goods....

Trump and company don’t actually have a plan to win this trade war. They may, however, have stumbled onto a strategy that will lose it even more decisively than one might have expected.


#shouldread

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