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Back to 14_03_2018_opinion_ECO_guerras
José Luís Álvarez Arce, Professor of Economics, University of Navarra, Spain School
No war is a good war, not even commercial ones
Businesses and citizens will pay the consequences of Trump's protectionist offensive
Donald Trump has done it again. From his favorite vantage point, Twitter, the US president has unleashed a new storm with consequences that are difficult to predict. In this case, he has gone one step further in his protectionist approaches. True to his style, with no apparent filters, he has declared that "when a country loses billions of dollars in trade with virtually every country it trades with, trade wars are good and easy to win. For example, when we lose $100 billion to a country that plays smart, we stop trading and win big. it's easy!". This tweet appeared, moreover, after the announcement of the imposition of tariffs by the United States on steel and aluminum imports.
There are many elements of concern in Trump's words, both in the United States and in the rest of the world. They denote a profound ignorance of the economic logic of trade and of recent history. Let's take it one step at a time.
Trump boasts that, as a successful businessman, he is more than capable of making economic policy decisions. However, he forgets that the management of a Economics differs substantially from that of a businessman. Specifically, the logic of skill between companies is that of a zero-sum game. If one business gains market power in a market, it is because others lose it. However, international trade is a positive-sum game, in which participants benefit simultaneously. Each one specializes in what it does relatively better and purchases the rest of the products and services of others who have a relative advantage in their production. Thus, with the same resources, it is possible to enjoy more goods and services.
In the same sense, the trade deficit is not comparable to the losses of a business. A country like the United States benefits from its deficit, since its counterpart is that it enjoys greater inflows than outflows of capital. In other words, the United States runs a deficit because it finances its economic activity with the inflow of funds from abroad. Trump does not seem to be aware that the financing needs of his Administration, as a consequence of his tax cuts, make this advisable entrance.
Another aspect that Trump does not seem to take into account is the nature of modern international trade. A substantial part of it corresponds to exchanges of raw materials, components and intermediate products that are necessarily carried out in global value chains. In other words, many goods and services are not produced in a single country, but their production processes are fragmented in different locations, seeking the best conditions for each stage of those processes. Protectionist measures prevent these chains from functioning, reducing production in all countries.
And if these theoretical arguments are not convincing, let us look at the history of protectionism and trade wars. The most dramatic case affected the United States during the Great Depression of the 1930s, when the protectionism in which countries tried to take refuge led to a trade war in which everyone lost. Without going back that far, 15 years ago, the protectionist measures of the then President Bush for the steel sector led to the net loss of some 200,000 jobs work in the U.S. industries that needed this material for their production.
Whatever Trump says, trade wars hurt everyone. No one wins them. He should look at the immediate result of his announcements: the fall of the Dow Jones dragged down by the values of companies dependent on imports taxed by tariffs; or the curious advertisement of Campbell, US producer of the mythical canned soups, pointing out that the announced tariffs will make his product more expensive. He may consider himself a winner no matter what happens, but U.S. companies and consumers, as well as those in other countries, will suffer the consequences.