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Independent Insight Provider

Stewart Paterson

Macroeconomics

Much of the commentary around the US administration's economic policy towards China tends to depict the recent round of tariffs on Chinese imports as an initiations of a trade war by Donald Trump against China. In fact, a more realistic diagnosis is that the tariffs represent retaliation against China's long-standing mercantilist approach to industrial export policy and the general thrust of the policy (if not the specifics) enjoys support from across the political spectrum in the US and indeed much of the rest of the world. Much of the criticism of the policy has as its base the mistaken assumption, in my view, that the starting point was one of free-trade and efficient resource allocation in keeping with economic theory and therefore the tariffs have disrupted an economic equilibrium resulting in a loss of overall economic welfare. In fact, there is a yawning gap between the theory of free trade and the way trade has actually been conducted and therefore many of the theoretical negative outcomes may well not come to pass - quite the reverse.Most egregious misconception, in my view, is the persistent claim that trade with China has been a boon to the consumer in the West and therefore a shift in policy away from indulgent engagement with China towards competitive rivalry will be detrimental to living standards in the West and therefore represents an  "own-goal".

Much of the commentary around the US administration's economic policy towards China tends to depict the recent round of tariffs on Chinese imports as an initiations of a trade war by Donald Trump against China. In fact, a more realistic diagnosis is that the tariffs represent retaliation against China's long-standing mercantilist approach to industrial export policy and the general thrust of the policy (if not the specifics) enjoys support from across the political spectrum in the US and indeed much of the rest of the world. Much of the criticism of the policy has as its base the mistaken assumption, in my view, that the starting point was one of free-trade and efficient resource allocation in keeping with economic theory and therefore the tariffs have disrupted an economic equilibrium resulting in a loss of overall economic welfare. In fact, there is a yawning gap between the theory of free trade and the way trade has actually been conducted and therefore many of the theoretical negative outcomes may well not come to pass - quite the reverse.Most egregious misconception, in my view, is the persistent claim that trade with China has been a boon to the consumer in the West and therefore a shift in policy away from indulgent engagement with China towards competitive rivalry will be detrimental to living standards in the West and therefore represents an  "own-goal".

Why The "Trade War" Is Popular and Not Populist.