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Home » Opinion: Supply Chains and Trade War (Very Wonkish)

Opinion: Supply Chains and Trade War (Very Wonkish)

The invaluable IGM Forum poses policy questions to a representative panel of economists. The goal is to provide a snapshot of the professional consensus on various issues, which is important because advocacy groups — mainly on the right — combined with media “balance” often conveys the impression of division where there really isn’t any.

August 15, 2018
Paul Krugman, New York Times

For example, essentially no experts believe that tax cuts pay for themselves, even though there are Stephen Moores out there who are paid to insist that they do.
So last month the IGM Forum weighed in on the issue of supply chains and trade war — the issue that the current trade war, unlike previous trade conflicts, is taking place in a world where much trade consists, not of shipments of consumer goods, but of shipments of inputs used in production. The panelists more or less unanimously agreed that the prevalence of global supply chains increases the cost of trade war. But is the consensus right?
Well, although I yield to nobody in condemning the stupidity and corruption behind Trump trade policy, I’m a bit skeptical about the supply chain concern. Or maybe the best way to say this is that there are three possible stories about how supply chains might increase the costs of trade war, and while two of them are right, I suspect that many economists are buying into the third, which isn’t.
So, what difference does a supply-chain trading system make?
One thing it does is create the possibility that protectionism will be bad mercantilism — that even in its first-round effects it will actually destroy more domestic jobs than it creates, because it creates a competitive disadvantage for domestic downstream producers. Given the Trump tariffs’ heavy loading on intermediate goods, that looks right.
Read more

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KEYWORDS Global Supply Chain Management Global Trade & Economics Regulation & Compliance SC Security & Risk Mgmt Supply Chain Analysis & Consulting
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Opinion: Supply Chains and Trade War (Very Wonkish)

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