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You get what you give
Why you should never start a trade war with an autocracy
Economists often argue that trade wars cannot be won. Yet they will be
among the few beneficiaries from America's barrage of tariffs. For
decades, rich countries’ sound trade policies denied academics cases of
tit-for-tat protectionism to study. But new American taxes on many goods
from China and metals from everywhere have produced the data set of
their dreams.
America's government seems unfazed by the damage its tariffs do to the
economy. One study by scholars at the Federal Reserve and Princeton and
Columbia Universities found that the new levies have raised costs for
consumers by $i.4bn per month.
However, Donald Trump is devoted to his voters. And his trading rivals
have retaliated where it hurts. A paper by Joseph Parilla and Max
Bouchet of the Brookings Institution, a think-tank, estimated that 6i%
of jobs affected by retaliatory tariffs are in counties that voted for
Mr Trump.
Is this a coincidence? If a country’s imports from America already come
from mostly Republican areas, those regions will bear the brunt of a
trade war. However, a new paper by Thiemo Fetzer and Carlo Schwarz of
the University of Warwick finds that America's rivals probably did
consider politics when crafting their policies.
To test if recent tariffs were politically motivated, the authors needed
to compare them with alternatives that were not. They devised this
benchmark by creating at random 1,000 hypothetical bundles of targeted
goods for each trading partner, all worth the same as the actual trade
facing tariffs.
The authors then compared real-world policies with these alternatives.
First, they assessed the political impact of each plan, by measuring how
closely its targeted areas matched Republican gains when Mr Trump was
elected. Next, they estimated how much each policy would harm a
retaliating bloc's own economy, by counting the share of its imports of
the chosen goods that come from America. The more a country relies on
one supplier, the more switching to a less efficient source is likely to
hurt.
The study found that the eu prioritised minimising such damage. Its
tariffs deftly protected domestic consumers, causing less disruption
than 99% of alternatives. The bloc targeted Trump voters as well—its
tariffs matched the election of 2016 more closely than in 87% of
simulations—but not at the cost of upsetting its own citizens.
In contrast, China focused on punishing Trump voters. Its tariffs
tracked the election better than 99% of alternatives. They also
disrupted China's own economy more than in 99% of simulations. Even
among plans including soyabeans—one of China’s main imports, grown
mostly in Republican areas—China’s policy was just slightly more
politically targeted than similar options, but far worse for its
economy.
China's choice of tariffs seems designed to deter escalation at any
cost. Only regimes with no voters to satisfy can run that risk. The
lesson is clear: if you start a trade war, fight a democracy, not an
autocracy.Plot:
Short summery: When coming up with tariffs - the voter states for the president responsible for the tariffs you are reacting to are targeted economically. EU did so while protecting their citizens from trade losses. China did so, while maximizing losses for the US, regardless of trade losses for their own citizens.
China don't give a f*ck.
Fascinating stuff.
Last edited by notimp,
