US and China playing chicken

Timely reminder from Brad Setser about the unintended consequences of trade spats, using the US tyre tariff/Chinese chicken feet retaliation from 2009.

Brad’s posts are often quite technical and dense, so I have taken the liberty of annotating his charts below to tell the story:

ice_screenshot_20170125-083251
ice_screenshot_20170125-082527

 

The lessons being:

  • there are lots of unintended consequences to trade spats – US tyre manufacturers won the first battle but lost the war
  • there are ways around targetted tariffs (most are not as obvious as the chicken feet example), these ways usually enrich middlemen and leave both consumers and producers worse off

We (not eagerly) await Trump’s first salvo in the upcoming trade wars… I have no idea how significant it will be.

Damien Klassen is Chief Investment Officer at the MB Fund launching in April 2017. Register your interest now (if you haven’t already):

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Comments

  1. Trade wars don’t really hurt, they just allocate resources differently. If you want manufacturing jobs, someone has to pay, somewhere!

    Lets be brutally honest here – there isn’t free trade in most things currently, anyhow… if Germany went back to the DM, would it be trading at levels where the Euro is now? China SOE subsidisation?

    At the end of the day, as Putin notably said recently, statecraft is about accruing benefits for your own populace. “…We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.”
    ― Henry John Temple Palmerston

    • Trade wars don’t hurt… if you don’t believe in the theory of comparative advantage, which is a pretty well proven theory. That said, maybe a trade war will knock some sense back into policy makers and markets.

  2. China is a surplus country. The surplus county always loses in a trade dispute.
    The US ultimately has a lot to gain from unwinding the grotesque trade-financial flows that are referred to as ‘Chimerica’.
    It is the ONLY aspect of Trump’s world view that I agree wholeheartedly with.

    • “China is a surplus country. The surplus county always loses in a trade dispute.”

      Bingo.

      Surplus economies need customers. The most sought after customers are customers with high wages. Hence America.