Donald Trump has assured us on several occasions that “winning” a trade war with China will be easy due to the large trade deficit. After all, we can apply tariffs to far more products than they can. Is he right?
Of course not. First of all, the entire idea that running a trade deficit constitutes “losing” is completely inane–particularly for a decentralized economy that runs on the decisions of economic entities, not the government. Second, it assumes that the interests of consumers are of no importance; only producers matter. Third, the economic and political systems of the respective countries operate to the advantage of the Chinese. The more open American system provides opportunities for both consumers and producers who bear the brunt of the war to complain to their representatives; the state-driven Chinese system, on the other hand, permits the government to compensate well-connected losers and to repress the others in the name of keeping order without appearing to be inept or hypocritical.
And then, of course, there is the question of what, exactly, Trump’s objectives are in fighting the trade war. More on that later in the week.