Donald Trump’s trade war with China poses a serious threat to the US itself, which is bound to suffer severe losses due to trade diversion. But it may also lead to broader damage, as tit-for-tat tariffs reduce overall exports, undermine total global trade flows, and impede world economic growth.
TOKYO – In 1950, the Canadian-born Princeton University economist Jacob Viner explained a customs union produces a “trade creation” effect, as lower tariffs and non-tariff barriers spur increased flows of goods among member countries. But Viner noted that a customs union also generates a “trade diversion” effect, as countries that are not part of it face reductions in their trade with countries that are. By raising trade barriers with its major trading partners – especially China – the US now risks negative trade-creation and trade-diversion effects.
TOKYO – In 1950, the Canadian-born Princeton University economist Jacob Viner explained a customs union produces a “trade creation” effect, as lower tariffs and non-tariff barriers spur increased flows of goods among member countries. But Viner noted that a customs union also generates a “trade diversion” effect, as countries that are not part of it face reductions in their trade with countries that are. By raising trade barriers with its major trading partners – especially China – the US now risks negative trade-creation and trade-diversion effects.