The Necessary Costs of A Trade War

I am still a big fan of a trade war with China. In fact, I think it would be better if we had no economic relationship with China at all. Yes, we would lose a cheap producer of consumer goods but the costs of such outsourcing are massive – not to the economy per se but to the wage structure and the subsequent destruction of our middle (and lower) class.

In the short run, the costs are evident and the benefits are invisible. If virtually everything at Walmart suddenly goes up by 25% and that’s where you do most of your shopping, then you’re going to take a big hit. We have grown far too dependent on Chinese peasants to make our clothes, toys, drugs, and electronics. We have become hooked on this cheap stuff like a drug addict. A proper policy would take the revenue from tariffs and pump the money back into lower class pocketbooks. Call it a Chinese Tariff Bonus. People won’t be so offended when they see their Walmart bill for those new clothes.

In the long run, companies will have to take into account this tariff so they’ll consider producing these goods in the USA (Dare I suggest something so anachronistic!) All this would be better if every other country in the developed world imposed the same tariffs. Otherwise, China will try to get around this problem by shipping through Singapore or Mexico. They’ll go on trading with the EEC and stealing their IP (which may include some of ours).

China is an evil economic enterprise completely disinterested in anyone’s welfare other than their own. They don’t set up trading partnerships unless it benefits them, not because they’re in a race with us to garner international favor. If they run a deficit with a country it’s because they are desperate for their coal or grain, not because they want to be friends. We (on the other hand) enter into countless trade agreements that are against our economic interests so we can use those countries for military bases or help them become more politically stable. (Why else would we bother trading with Peru or Haiti?) China trades with Mozambique so it can raid their mining industry. It uses Italy as an offshore leather production factory.

We seem to be uniquely interested in overall economic efficiency and being nice to small poor countries – the rest of the world uses trade to directly boost jobs. We can debate this among ourselves but if you care at all about our disastrous income distribution curve then you must accept the approach of the rest of the world and be prepared to accept a loss in efficiency. Trump is too stupid to understand the efficiency argument so he has (correctly) happened upon the latter approach.

Now, if only he could understand how to wrap it in a fully developed policy.

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