In his New York Times OpEd, “Why a Trade War with China Isn’t ‘Easy to Win’ (Slightly Wonkish),” renowned economist and Nobel Laureate Paul Krugman revisits mercantilism to criticize President Trump’s trade war strategy with China. In traditional mercantilism, states seek wealth and power through an export-based economy. With trade as a zero-sum game, producer interests dominate consumer interests as states maximizing exports gain a relative advantage over other states. In an overly simplistic view, a trade war with China would thus hurt the Chinese economy much more than the U.S. economy due to China exporting more goods to the U.S. than the other around. In 2017, for example, the U.S. sold China a mere $130 billion in goods compared $500 billion in goods from the Chinese to the U.S.
Paul Krugman dives deeper in this mercantilism view by differentiating between “income at risk” and “exports at risk.” He argues producers and nations should care more about how much income they derive from exporting rather than how much they export. Based off his calculations, China exports around $17 billion worth of iPhones to America each year, but Chinese producers account for only around $1 billion. This is because China’s factories are the final assemblers, but do not see most the profits. On a broader scale, he claims “the income China derives from exports to the U.S. is probably not much more than half the face value of those exports.” Thus, even when seen through a mercantilism view, U.S.-China trade is much less lopsided than it seems. As we have seen in areas such as U.S. agriculture and the recent stock market scare, a trade war has hurt the U.S. economy much the original raw trade numbers might have suggested. On the bright side, we still have the TPP to help control Chinese growth. Right?
Paul Krugman, “Why a Trade War with China Isn’t ‘Easy to Win’ (Slightly Wonkish),” New York Times, May 22, 2018, Opinion section, .
David N. Balaam and Bradford L. Dillman, “Wealth and Power: The Mercantilist Perspective,” In Introduction to International Political Econonomy, 5th ed. Boston: Longman (2011), 57.