The nonsense of Commercial Wars

Donald Trump revives theories that always ended in greater poverty.

During my school years, they never taught me what an oxymoron was, neither at my university years. The first time I read that word, in fact, I had to ask my parents: what does this mean?

That’s when they explained to me that oxymoron is when two words come together that, in reality, mean exactly opposite things. Examples of this can be “the fire that cools”, “an eternal instant” or, to adapt it to our political reality, “liberal Peronism” and “Marxist capitalism”.

Now, another oxymoron that is decades old has recently returned to the covers of the newspapers. It’s about the famous idea of Commercial War, which revived the demagogic president of the United States, Donald Trump, from the ashes.

The concepts of “war” and “trade” are so far apart that to say that a Commercial War must be done is almost the same as saying that a War of Love must be made: What would that be?

War and commerce are concepts so opposed that the world began to civilize itself when it replaced one by another. That is when it stopped making war and discovered the advantages of voluntary exchanges.

Against Steel and Aluminum

Last week, Donald Trump announced that it will impose tariffs on imports of steel (25%) and aluminum (10%). In doing so, he left no fallacy to mention.

According to Trump:

When a country loses billions of dollars in trade with almost any country with which it trades, trade wars are good and easy to win. For example, when you are USD 100 billion down with a country and this one becomes cute, we stop trading and win big.

What are you talking about?

What the American president is referring to is trade deficit that the United States has with other countries. A trade deficit appears when the value of imports exceeds the value of exports.

That is when the USA sends more dollars to a third country for the purchase of imports of what that country sends to the United States for the same concept.

Now, to consider this a problem and a “loss” for the economy is simply ridiculous.

Imagine that a doctor takes his car to the mechanic every year. Throughout the year, it detects that it spends paying its mechanic USD 2,000. Inquiring into the numbers, it also detects that the mechanic does not spend a single dollar in hiring the services offered by this doctor. Thinking and thinking he arrives at the following conclusion: These scoundrels take all my money and I do not come to see or take the pressure. This ends here: I don’t take my car anymore to have it checked. If this is the case, of course, the doctor will stop seeing the mechanic and the story will end with the car totally dilapidated.

Is that, obviously, people have “trade deficits” with the mechanic, the hairdresser or the grocer permanently, but the other side of these deficits are the services and products that these businesses provide us.

In commerce, both parties always win. Some put the money, and others deliver the goods. And since each part of the transaction values more what it receives than what it delivers, the trade benefits both. There is no “War”, but a peaceful voluntary agreement that improves everyone.

Now, can it be the case that we have a trade deficit with all our counterparts? Yes.  In that case, we spend more than what we earn, but because we are in debt. So, someone is financing us because they trust in our ability to repay.

The same applies to countries. And that’s why the US has a trade deficit more than 40 years ago. Why are billions of dollars that arrive to invest and give credits in the United States? The other side of this financing is consumption that exceeds local production and, therefore, a trade deficit.

No problem there. Upside down protectionism.

The protectionist policies of taxing imports receive that name because -supposedly- they protect someone inside the anti-importing country.

Indeed: if a tariff is imposed on steel imports, steel companies will have less competition and will be able to raise their prices, increasing their employees’ salaries or hiring more workers.

Trump, in fact, points precisely to that: We must protect our country and our workers. Our steel industry is wrong. IF WE DO NOT HAVE STEEL, WE DO NOT HAVE COUNTRY.

Here appear two new fallacies. The first is that the cost to which workers and entrepreneurs of steel or aluminum are going to be protected is being hidden. Obviously, we know that the cost to pay for such protection will be a higher price for those goods. But another disastrous consequence of protectionism is that it affects other branches of production.

Anheuser-Busch, the largest producer of beer in the world, based in Missouri, already warned that not only will have to pay USD347 million more for the consumption of beer but that the obstacles against aluminum threaten no less than 20,000 jobs in the beer industry.

Protectionism does not protect jobs, but some jobs to the detriment of others.

The second fallacy is the assertion about steel. “Without steel, we do not have a country,” says Trump. The reality, however, is that the United States does not go through a shortage of steel. Everything you need, you get at market prices, which are low thanks of having an open economy.

Paradoxically, the tariff of 25% is what will create the shortage of steel, which must be replaced at higher prices with local production. What Trump wants is not that there is more steel (which is not scarce), but more “Made in USA” steel, which will be achieved at the cost of higher prices and greater economic inefficiency.

With his protectionist policies, Donald Trump demonstrates that he does not know the nature of the exchanges and the advantages of specialization. It’s a shame, protectionism always ends in greater poverty and   Commercial wars are won by no one, but we all lose.

Originally published in contraeconomía.
Written by Ivan Carrino
BA in Administration from the UBA and Master in Economics from the Austrian School from the Rey Juan Carlos University of Madrid. Economic analyst in Global Investor, contributor to Libertad y Progreso.