We are well into the second year of Trump’s trade war, which has produced a volatile but flat stock market (The S&P 500 index sits, at this moment at 2856, almost precisely its 2873 value of January 28, 2018, just before this trade war began), and which threatens to undo the benefits of his first-year tax cuts and deregulation. Trump, who assured us that “trade wars are good and easy to win,” may have overestimated his bargaining power, and may soon feel the pressures of a shortening window of time before the 2020 political campaign kicks off in earnest.
Meanwhile, he’s de facto conceding that his trade war is hurting people at home, even as he boasts of the tariff revenue that has been collected (he ignores the reality that it is the people at home, not the Chinese, who are paying these tariffs. Yesterday, he announced a $16B aid package for farmers hit by the trade war.
Hurt everyone, then help a favored view. This is the modus operandi of every big-government politician since time immemorial. Thomas Sowell had this to say about it:
The welfare state is the oldest con game in the world. First you take people’s money away quietly, and then you give some of it back to them flamboyantly.
While Trump’s game isn’t what we’d normally call “the welfare state,” in practice it’s the same game. It’s picking winners and losers.
Trump has been a mystery to those who’ve tried to figure out what makes him tick, beyond the obvious. There’s enough “evidence” to support many conclusions, from free-trader to protectionist, from deregulator to big-government-lover. But, in all these, we continue to see, and see more clearly, that he sees the world and interactions through the lens of winning and losing. Even in the business world, that’s myopic, since deals that give both parties what they want are good outcomes, but in a political leadership role, it’s counterproductive and harmful. It’s an immature world view. Sadly, it’s become more and more common across the political spectrum.
It’s long been obvious that progressives think in terms of winners and losers. Theirs is the politics of covetousness, of envy, and of hating others’ success. Unfortunately, that same zero-sum mindset has infected the Trump Republicans, who are cheerleading this destructive trade war.
Yes, there are issues in our business dealings with China, particularly in theft of intellectual property (I’m not among those libertarians who don’t believe in IP rights, although I think we overdo it, to economic harm, in some ways). But, addressing them shouldn’t involve a game of chicken that threatens to torpedo our economy. Moreso, this trade war isn’t solely, or even primarily, about IP. Trump has made it crystal clear that he thinks the trade imbalance, or trade deficit, or balance of payments, is worrisome in itself. He’s wrong.
Trade deficits don’t matter. This isn’t a revelation. Indeed, Adam Smith himself observed, 243 years ago, that:
Nothing… can be more absurd than this whole doctrine of the balance of trade.
That reality is, based on available evidence, alien to Trump. So, the trade war escalates, and we all lose. Except for the favored few, who get their bailouts.
What should we do, regarding trade with China? Instead of applying punitive tariffs to force China to open her markets, we should just let her keep subsidizing her exports. That’s a wealth transfer from China to the American people. Meanwhile, we should aggressively pursue bilateral free-trade agreements with all her neighbors and competitors. Foster competition and free trade across the globe, and reap the rewards for America and her markets. Stop trying to pick winners and losers. That’s not the government’s job, and it almost invariably gets it wrong. Promote a win-win agenda, where goods and services move freely across our borders. There’s more economic growth to be had, and we’ll all be better off for it.
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