Tuesday, March 13, 2012

Trade War and the Euvoluntary Principle

Fighting a trade war is like going to a gunfight with an open breech. The state inevitably (and by "inevitably", I mean as a simple identity) harms its constituents as much it harms as the supposed opponent. Recall that by revealed preference, voluntary trade makes both parties to trade better off. Recall also that hostility is often met with hostility. When an administration bars Chinese tires from being shipped to the US, perhaps they ought not be too taken aback when China allegedly hoards rare earth minerals a few years later.

Now, this may not be Smoot-Hawley all over again, but it can be a reminder that unintended consequences are by no means unforeseeable consequences. In a rush to protect American consumers (?) from the devastating effects of inexpensive foreign tires, firms now find natural magnets more dear. Funny how that works.

Politicians and journalists like to talk about leveling the playing field. Pity that their bulldozer often ends up salting the earth.

Apologies for the godawful analogy.

I think the euvoluntary connection here is that moral intuitions about the value of trade just fly out the window when dealing with outsiders. If the median voter is distrustful of foreigners and elected officials seek an edge in the polls, then trade partners can make for an effectively voiceless scapegoat. Even when foreign trade is actually euvoluntary, it can be easy enough to make a man-of-straw case that it isn't.

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Do you have suggestions on where we could find more examples of this phenomenon?