Arnold Kling  

Trade War?

Central Bank Timidity... Supply-side Dissatisfaction, I...

The WindsofChange blog asks, will the foreign-policy rift over Iraq spark a trade war between the U.S. and other countries?

Indeed, a long term French campaign to introduce retaliatory and anti-USA tarrifs in the EU strikes me as not only likely, but probable.

As an economist, I would say that of all the ways to express disagreement with another country's policies, cutting off trade is one of the least effective. If we boycott French wine, for example, we damage French wine producers (who may or may not have anything to do with French foreign policy). But we also damage American consumers as well as American exporters (because if we import less this will raise the value of the dollar and make our exports less competitive). Finally, a trade barrier against one country might simply divert trade to another country with equally odious policies.

Trade barriers, like acts of terrorism, are weapons of the weak. A country like the United States is better off expressing its views on foreign policy directly. See Oil Econ 101.

For Discussion. What is the track record of economic sanctions in producing the changes desired when they were imposed?

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CATEGORIES: Trade Barriers

COMMENTS (4 to date)
Joe Katzman writes:

If effectiveness was the criteria, would French foreign policy look ANYTHING like its current shape? I didn't say it was effective in any economic sense. I said it was probable, for political reasons, and that a worsening of the European economy could be seen as acceptable collateral damage as far as the French are concerned. Especially if that worsening can be somehow tied to the United States in the popular perception.

So, if this is indeed the scenario... what's that likely to mean? Smoot-Hawley is controversial even today re: its effects - how does the underlying structure of our economy now set us up if something like S-H happens again? Eonomically, what's the best response?

Arnold Kling writes:

Smoot-Hawley did not "happen" like some comet hitting from outer space. It was enacted by Congress. We should not enact something like it ever again.

If foreign governments impose new trade barriers, how should we respond? The best response for the U.S. is to reduce trade barriers, and not to put up new ones.

If the French shoot themselves in the foot, there is no reason for us to "retaliate" by shooting ourselves in the foot.

David Thomson writes:

We should distinguish between government policy, and those decisions made by individual citizens. I am adamantly opposed to the United States formally enacting a ban on French wines. However, I see nothing wrong if you or I prefer to buy wines from other countries. It's not like we won't be purchasing imported wine. There are, I might add, some fine wines produced in Australia, Spain, and some of the nations comprising the "New Europe." Please take a look at this web site promoting Bulgarian wines:

Last but not least, the damage to French wine sellers has already occurred. I'm sure that numerous Americans have already opted for other choices to grace their dinner hour. Arnold Kling is expressing concern for an issue that is a done deal. Shucks, what does Arnold Kling have against the Bulgarians? What did they ever do to him? Why do our export dollars have to go to our enemies, the French? And make no mistake about it---France is not a friend of ours!

torbalme writes:

The French have three hearts, not unlike Pele,
world class soccer star and seeker of peace.

Recently governments have been neglecting the
peace god bestowed on us with good fortune
regarding the war. I urge the contributers
of this commentary not to neglect our good
fortune with regards to peace. TOR

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