MotM Briefs – Trump and Free Trade

The problem with free trade arises from the beggar-thy-neighbor belief that competitive currency devaluation results in a trade advantage. Without stable currencies that remain equal in value–an international gold standard–free trade becomes a race down the devaluation road. Then the concept of free trade–which is always good–gets blamed for the result. You can’t change the terms of trade by changing the value of currency. In other words, if I trade my U.S. box of widgets for your Euro case of wine, I’m not going to give you two boxes of widgets for the same case of wine just because a confused central bank functionary is experimenting on the real world with his/her Ph.D monetary thesis. We devalued the dollar against the Japanese yen from 250 yen to 89 yen and never achieved a trade surplus the entire time. You would think that might put a dent in the idiotic devaluation/trade theory idea, but no, real-world negative results, in the minds of central bank functionaries and academic charlatans, only means that devaluation should have been greater and accomplished at a faster pace. It says so in their Econ textbook–that they wrote. 

Trump is headed down the wrong path on this issue. He needs to stabilize the dollar, bring other developed national currencies on board with stability, and expand free trade. A trade war will result in negative consequences for everyone. It’s lose lose. Ask the ghosts of Smoot and Hawley.

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