“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.” This tweet of March 2 set out the aims and means of Donald Trump’s trade policy. The apparent victory over Canada and Mexico and the signing of a new trade deal will convince him he is right. But China is not Mexico.
The US president believes if a country sells more goods to a trade partner than it buys, it has “won”. He also thinks that if it buys more goods from a trading partner than it sells, it can “win” a protectionist war, because the other side has more to lose. These two convictions — bilateral mercantilism and asymmetric balance of pain — are his guides. His policy is to use the way in which the US “loses” to secure victory. Since the US is also the most powerful country in any bilateral relationship, it has to win.
Serious economists, back to Adam Smith, would insist that seeking a surplus with every trading partner is not “winning”. It is absurd. This is not even intelligent mercantilism, which would focus on the overall balance. Yet, particularly with free capital flows, overall balance is a foolish goal and one that trade policy cannot achieve. It is incredible that such primitive ideas rule the most sophisticated country on earth.