Paul Krugman: How to Lose a Trade War
Trumps declaration that trade wars are good, and easy to win is an instant classic, right up there with Herbert Hoovers prosperity is just around the corner.
Trump obviously believes that trade is a game in which he who runs the biggest surplus wins, and that America, which imports more than it exports, therefore has the upper hand in any conflict. Thats also why Peter Navarro predicted that nobody would retaliate against Trumps tariffs. Since thats actually not how trade works, were already facing plenty of retaliation and the strong prospect of escalation.
But heres the thing: Trumps tariffs are badly designed even from the point of view of someone who shares his crude mercantilist view of trade. In fact, the structure of his tariffs so far is designed to inflict maximum damage on the U.S. economy, for minimal gain. Foreign retaliation, by contrast, is far more sophisticated: unlike Trump, the Chinese and other targets of his trade wrath seem to have a clear idea of what theyre trying to accomplish.
The key point is that the Navarro/Trump view, aside from its fixation on trade balances, also seems to imagine that the world still looks the way it did in the 1960s, when trade was overwhelmingly in final goods like wheat and cars. In that world, putting a tariff on imported cars would cause consumers to switch to domestic cars, adding auto industry jobs, end of story (except for the foreign retaliation.)
https://www.nytimes.com/2018/07/07/opinion/how-to-lose-a-trade-war.html