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Trade Wars Are Not Good And Easy To Win

Summary:
Much has been written recently on “how to win a trade war”.  Bromides include being nice, getting allies and choosing the appropriate countervailing measures. Trade wars are good, and easy to win,” Donald Trump declared this spring.  “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down 0 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” Each of these proffered courses of action is woefully misplaced. To win a trade war, the belligerents must be deprived of targets and ammunition.  The elimination of targets involves purging all tariffs, subsidies and other man-made impediments to inter-personal trade across

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Much has been written recently on “how to win a trade war”.  Bromides include being nice, getting allies and choosing the appropriate countervailing measures.

Trade wars are good, and easy to win,” Donald Trump declared this spring.  “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

Each of these proffered courses of action is woefully misplaced.

To win a trade war, the belligerents must be deprived of targets and ammunition.  The elimination of targets involves purging all tariffs, subsidies and other man-made impediments to inter-personal trade across geopolitical boundaries.  In other words, the unfettering of market processes:  free trade.

Free trade is an ideal borne of liberty embedded with the institution of private property.  Free and extensive trade between individuals regardless of location lowers tensions and makes us all better off.  The absence of a centrally choreographed trade policy is, morally and economically, the only proper and humane approach of dealing with scarcity.  To oppose this ideal is to embrace violence directed at other persons and their belongings.

Taking away the ammunition involves depriving authorities the ability to intervene in peaceful transactions between consenting individuals.  This means bringing pressure to bear against the domestic national or federal government such that barriers and diversions cannot be created, and existing ones reduced and ultimately abolished. Again, to oppose this ideal is to embrace violence directed at other persons and their belongings.

To avoid a trade war and for practical and moral reasons, every intervention in domestic or foreign markets, should be rescinded.  The sooner the better, particularly in both Canada and the United States.

To minimize collateral damage from governments in other countries maintaining (or increasing) tariffs or subsidies, Canadians would be helped, not hurt, by unilaterally terminating all regulatory impediments, tariffs and subsidies in Canada.  The rationale has been around for a long time.  “If a foreign country can supply us with a commodity cheaper than we ourselves can make it,” wrote Adam Smith in 1776, “better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country will not therefore be diminished… but only left to find out the way in which it can be employed to the greater advantage.”

Smith’s insight is that productivity would increase with resources shifting to those lines of production for which individuals have a comparative advantage.  Canadians and others would become more prosperous more quickly, and make a greater variety of less-expensive goods available for all.

Danny LeRoy
Danny Le Roy is an Associate Professor of Economics at the University of Lethbridge. He received his B.A. (Honours) in Economics in 1992 from Carleton University and his MSc and PhD in Agricultural Economics in (1994 and 2002, respectively) from the University of Guelph. He teaches courses in agricultural systems modeling, commodity marketing, agricultural policy and micro-economics.

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