Make Gold, Not (Trade) War

“So it begins.” This is what King Theoden said right before the Battle of Helm’s Deep in the Lord of the Rings. Fortunately, the army of Uruk-hai doesn’t threaten the kingdom of men. But something else – also dreadful – endangers us. Trade wars.

Are Trade Wars Good?

President Trump shook the world last week, saying: “(…) trade wars are good, and easy to win.” Wrong! Each economist will say that. It’s true that economists often argue with each other. People even said “two economists, three opinions”. But economists do agree on many fundamental issues. One of them is the proposition that free trade is better than protection.

Why is that? The reason is very simple: people have different skills. It pays countries to trade because they have comparative advantages in producing distinct goods. Instead of producing all stuff independently, it’s better for each country to specialize in the industries where it has a comparative advantage and to trade their output then. It’s much more effective when the French focus on making wine and exchange it later with the Germans for beer (although Rieslings are great!).

Or you can consider foreign trade as a kind of a technology which transforms one good into another. Just think what happens when the U.S. exports bourbon to Japan and imports cars. It’s basically a way to turn bourbon into automobiles! Alchemists always dreamt of such transmutation – and free trade turns out to be the real philosopher’s stone.

Cohn Abandons ‘USS Washington’

Gary Cohn, Trump’s top economic adviser, had already threatened to leave after the President’s comments following the deadly riot in Charlottesville. But he stayed, at least for a while. Trump’s remarks about imposing tariffs on steel and aluminum imports were too much for him. Cohn was against such a move – and he announced his resignation after he lost the tariff battle.