Yesterday, Steve linked to and discussed an article in which Irwin Stelzer argues that President Trump might win the trade disputes he has incited, and that winning them might even be “easy.” The article is significant because as Steve noted, Stelzer is not a fan of Trump. In addition, Stelzer is an astute observer of economic matters.
As a counterpoint to Stelzer’s article, I recommend this piece by David Goldman. He argues that tariffs are not the way to counteract China. Like Stelzer, Goldman is astute. Unlike Stelzer, he is something of a Trump fan.
The two articles are not directly at odds. Goldman’s argument is that tariffs on Chinese products aren’t going to stop Chinese theft of U.S. intellectual property and subsidization of the industries it intends to dominate. Stelzer doesn’t disagree. This question, he stipulates, is beyond the scope of his argument, which I take to be that the U.S. can inflict more pain on China than China can inflict on us, and thus force some sort of agreement with the Chinese.
But what is the point of inflicting pain and obtaining an agreement if doing so won’t achieve our strategic objectives. As Goldman concludes:
Tariffs won’t work. A tariff war might succeed in reducing China’s growth rate substantially and tipping the U.S. into recession. But it won’t stop China’s gradual advance.
Stelzer also discusses the tariffs that affect our allies. He argues persuasively that we are well positioned to fight trade wars with them.
As a counterpoint, I recommend this article by Robert Samuelson. He argues that a trade war with our allies will make it “much harder to impede China’s ability to acquire advanced technologies on favorable terms.”
The reason? To achieve such objectives we need a global coalition. Winning and/or fighting a trade war with our allies undermines efforts to form such a coalition.
President Trump has launched the trade war with our allies in the name of our reducing our trade deficit. Samuelson says Trump’s obsession with the trade deficit is misplaced.
Larry Kudlow, Trump’s Director of the National Economic Council, has gone further, saying:
Trade deficit is a terrible gauge of the economy. Or let me put it in reverse. If we’re in a position of having a large trade deficit that means we’re growing, and we’re growing faster than the rest of the world.
Kudlow did not revise his opinion after joining the Trump team. Recently, I heard him say basically the same thing on Fox News.
For these reasons, starting a trade war against our allies seems misguided. We would likely win some battles but not the war