Does Donald Trump's trade war work
The argument sounds logical and seductive: Last year the United States of America ran its highest trade deficit since the financial crisis - 566 billion dollars, a total of twelve percent more than the year before. That can only be due to the unfair trading practices of America's trading partners. So it is only right and proper for President Donald Trump to impose punitive tariffs on steel and aluminum, to question the North American Free Trade Agreement NAFTA with Canada and Mexico and thus ensure a piece of justice. At least that is the logic of "America First".
Most economists agree that this line of argument is fundamentally wrong. Trade deficits cannot be reduced by tariffs, because such charges initially only have the effect of increasing the prices for the product to be declared in the country that levies the tariff. Specifically: For American car and aircraft manufacturers, steel and aluminum will be more expensive when the announced tariffs come. No one can say how this will affect the trade balance.
It is not even clear whether from an American perspective it would be desirable to reduce the deficit. The balance of the trade balance is only an accounting quantity that does not in itself say anything about whether a country is doing well or badly. But the number can be wonderfully misused, on Twitter, on television and in the election campaign: one deficit is bad and the other is to blame. "When a country loses billions of dollars trading with almost every country it does business with, trade wars are good and easy to win" - this tweet from the American President could go down in history as the closest possible way to paraphrase the misunderstanding behind the Fixation on trade deficits stands.
The misunderstanding that has settled in the minds of Trump and some of his advisors could have devastating consequences: the abandonment of the multilateral, rules-based global economic order. The announcement of the new tariffs this week would mark the beginning of the end of this order.
From Trump's point of view, Germany is one of the culprits
The United States' trade deficit has two mutually dependent causes. First, Americans consume and invest significantly more than they save. Second, the American capital market is extremely attractive, which is why foreigners are eager to invest their money in the United States. This is particularly evident in the example of China. The United States has the highest bilateral deficit of any country with the People's Republic of $ 375 billion. A significant part of the deficit is being financed by the Chinese and the Chinese government buying US government bonds. At the end of 2017, American debt was in Chinese hands for a total of $ 1.2 trillion, 13 percent more than the year before.
So the Washington government relies on the Beijing regime to fund its budget. Nevertheless, Trump attacks the People's Republic because of its trade surplus. Germany also belongs to the culprits from Trump's point of view. The United States' trade deficit with the Federal Republic ranks fourth at $ 64.3 billion. Trump and his advisors have also accused the German allies of unfair behavior. This is completely unjustified, says the Würzburg economics professor Peter Bofinger, member of the Expert Council of Economic Wise Men, who in the past has often criticized the federal government for its austerity policies and export surpluses. "We now have two percent growth, wages are rising, you can't blame the Germans for that." That is to say: It is not up to the Germans if the imbalance in mutual trade has decreased only a little.
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