Economics and politics - comment and analysis

Heiner Flassbeck on Trump’s Tariffs Trade War

Heiner Flassbeck gave an interview to the Real News network yesterday. What is Trump up to now again? Understandably, many Americans (and others) are anxious about Trump raising tariffs on steel and aluminium. Flassbeck first relatives the impact of Trump’s measure and he goes on to propose a framework to make ’free’ trade work for everyone involved.

As Flassbeck says, the Europeans should not retaliate, because it would lead nowhere. When Trump – despicable for all else as he is – says that  “To win a trade war is easy, and the winner will always be the deficit country,” he is not wrong. Germany – which has the biggest surplus in the world – understands this very well. Measures have to be taken to bring down the deficit in the U.S. on the one hand and the surplus in Germany and Europe on the other hand.

What we have now – and this is essential – is not ‘free trade,’ although people call it like that. More importantly, it is not efficient trade. No one knows whether the actually existing trade regime is actually good or bad, it is just a dogma of, among others, the Republicans and the German conservatives and liberals to hold that “free trade is good under whatever circumstances.” That is definitely wrong.

The truth is that we do not have a reasonable exchange rate. We do not have a reasonable trade regime. That is why the Germans can go on with their wage dumping. Instead of tariffs, a lower dollar against the Euro would be much more efficient. It would put additional pressure on Germany to bring down its surplus. Such a system – efficient trade – could create jobs, which is absolutely needed. It is necessary to control exchange rates, but this absolutely taboo for the US. Wall Street is making enormous amounts of money with currency speculation.

Such a currency order could be regulated only in one way: it has to preserve the competitive positions of each country against other countries, which means that no country should use wages or taxes or whatever else to improve its competitiveness at the expense of other countries. For this you need an agreement, a macroeconomic framework which is sorely missing in the world right now. It is not difficult: one adjusts the exchange rate so that it compensates for different inflation levels and one avoids strong competitive measures in terms of taxes. It is the traders and the speculators that are driving the global system permanently into a status of non-efficient trade and huge imbalances. It makes profit for them, but it is highly dysfunctional for everyone else.

You can watch the interview here.