A Trade War with China Wouldn’t be Terribly Helpful Under the Circumstances

Why can’t we learn even the most obvious lessons from the Great Depression? Many policy mistakes were made then, but perhaps the biggest and most destructive was the Smoot-Hawley tariff that contributed to a world-wide trade war and the reinforcement of the depression’s downward spiral. We’ve already dissed our Mexican neighbors by abrogating the trucking provisions of NAFTA. Do we really want to have a tire war with China to pander to domestic unions? The Chrysler bond holders would probably have an opinion on that.

 We hear monthly reports on our trade balance—on how our exports of goods and services match up with our imports of goods and services. What hasn’t seemed to sink in is the fact that both measures are pointed down. Both our exports and our imports have been shrinking, as have the exports and imports of most major trading currencies. World trade is shrinking because of falling aggregate demand. Do we really want to add tariffs to the mix?

 Competitive trade barriers are insidious. So are competitive currency devaluations, with both designed to stimulate domestic demand at the expense of our trading partners. It’s a negative- sum game. Nobody wins.

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  1. Fred says:

    Nobody wins? That depends on what you are trying to win. Obama is trying to win an important voter block, UAW workers.

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