Trade Wars

War 

(War) h'uh. Yeah! 

(What is it good for?) Absolutely nothin’ 

 uh-huh, uh-huh 

(War) h'uh. Yeah! 

 (What is it good for?) Absolutely nothin' 

 Is a trade war good for nothing, too?

 “The US trade deficit is increasing because the US is losing the trade war with China.” There is a lot to unpack as wrong in that statement. 

First, war is a zero-sum game in that there are winners and losers. Trade is NOT a zero-sum game, and if it is done correctly should be a win-win game. 

Second , trade is not always a bilateral game. The trade deficit between one country and another is not necessarily relevant. In grade school we learned of the 17th and 18th century triangle trade: of slaves from Africa to the Caribbean; of molasses from the Caribbean to New England; and of rum from New England to Africa. (the following by no means is an endorsement of the triangle trade but is illustrative as to why bilateral trade measures are not relevant.) Between New England and Africa, Africa is the loser and New England is the winner. Between Africa and the Caribbean, Africa is the winner, and the Caribbean is the loser. Between the Caribbean and New England, New England is the winner, and the Caribbean is the loser. However the lesson of the triangle trade is that bilateral winners and losers do not mean anything. Another example is when the Red Sox traded Mookie Betts to the Dodgers as part of a three-team deal with the Twins. Trade can involve more than just two parties. 

Third, is the trade deficit in goods and services for the US increasing? Yes, but it has been increasing since the Bretton Woods agreement was terminated in 1971. The US Dollar is an international reserve currency and a major currency used in international trade. If US Dollars are in demand by other countries, they have a reason to be in a trade surplus with the US. This means that the US will be in a trade deficit with the rest of the world. Highlighting the trade deficit in service and goods acts as if the only value of the US dollar is to the US economy, which is not true. If the US dollars have a value to other countries, and there is value in trade between countries that does NOT even involve the US, the expected result is that the US will have a trade deficit. If  US dollars were not a reserve currency or the major international trade currency, there would probably be no trade deficit. 

So is the US losing a trade war with China and is that responsible for the US Deficit in goods and services. That viewpoint is so wrong that it is good for absolutely nothin’.