President Trump, like many others along the political spectrum, has derided the persistent U.S. trade deficit – particularly with China – as a waste of capital leaving our country. The view that the U.S. would benefit by correcting this imbalance is taken up in a new book, with a message that should concern all financial market participants.

Trade Wars are Class Wars, by Matthew Klein and Michael Pettis, is well researched. Its main premise, that trade “wars” are instigated by politicians who are trying to please constituents who believe they are getting a raw deal in life, is correct.1 And the book contains a great deal of valuable descriptive economics and political analysis. The granularity of their knowledge and the diligence of their work are impressive.

But Trade Wars is laden with logical inconsistencies and proposes remedies for the United States that will hurt rather than help: restricting foreign investment, lowering taxes, and increasing government spending. It is a recipe for impoverishment everywhere and greater inequality among countries if not within them.

We are broke enough already!



A visualization of international trade flows.
Each color represents a different category of goods.
Source