Trade War: What is it Good For?

“Trade wars are good and easy to win. When we’re down $100 billion with a certain country, we just don’t trade anymore with them…we win big. It’s easy!”

Oh, boy, that’s dead wrong.

When you spend $100 at your local store, you don’t lose $100. You gain goods and services that are more value to you than the $100 that you just spent. If the government intervenes and stops you, you have to go to a worse alternative. That’s the loss.

Don’t believe this nonsense about the trade balance. A trade deficit is nothing but millions of customers spending money at their best option. It is not a loss; it’s millions of gains.

But if the government intervenes and stops them, consumers lose their best goods and services; businesses lose their best and cheapest inputs, like steel, and become less competitive.

So, a “trade war” is nothing but two governments fighting over who can inflict the most damage on their own citizens. And just like in real wars, they quarrel about who started it. But the question is not who began to punch himself in the face first, it’s who stops doing it. Or, as Joan Robinson puts it in a metaphor, “Just because your trading partner throws rocks into his harbor, it’s not a reason for you to throw rocks into your own.”