Thursday, September 5, 2019

Trump’s Mercantilist Mess — Robert J. Barro

When US President Donald Trump boasted that trade wars are "easy to win" in March 2018, it was convenient to dismiss the remark as a rhetorical flourish. Yet it is now clear that Trump meant it, because he genuinely believes the bizarre and anachronistic macroeconomic theories underlying his approach....
When even Robert Barro is against you.

Interestingly, Professor Barro reiterates that imports are an economic benefit in the sense of increasing a nation's real wealth, and that trade is really about acquisition imports as real economic goods rather than increasing a country's financial wealth in terms of gold or, now, accounting entries.
By embracing a primitive mercantilist model in which exports are “good” and imports are “bad,” Trump has reversed this impeccable economic logic. In a mercantilist model, an excess of exports over imports contributes to national wealth through the accumulation of paper claims (previously gold). This seems to be what Trump has in mind when he complains that China is draining $500 billion per year from the US economy, mostly by exchanging Chinese goods for US Treasury bonds. Needless to say, it is hard to see how receiving a lot of high-quality goods at low cost amounts to “losing.”
Just as the MMT economists have been saying along with most other economists that understand trade.

Project Syndicate
Trump’s Mercantilist Mess
Robert J. Barro | Professor of Economics at Harvard University and a visiting scholar at the American Enterprise Institute

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