Thoughts on trade war: it’s time to rethink strategy

Thoughts on trade war: it’s time to rethink strategy

It’s increasingly clear that Trump is fixated on trade balances, and believes that America runs trade deficits because other countries don’t play fair.

However, despite all those new tariffs the U.S. trade deficit is getting bigger, not smaller (Fig. 1).

And adjusted for inflation, imports are still growing strongly, while U.S. exports have been shriveling. (Fig 2).

According to Krugman, the moral is that, trade balances are mainly about macroeconomics, not tariff policy. The persistent weakness of the Japanese and EU economies, probably mainly the result of shrinking prime-age work forces, keeps the yen and the euro low and makes the U.S. less competitive. Donald Trump’s trade battle with China is starting to look like a forever war — a quagmire with no end in sight, no clear path to a resolution and more potential land mines for an already weakening global economy. However, Trump’s tariffs aren’t producing the results he wanted.

So this might seem to be a good time to hit the pause button and rethink strategy.

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