Why you should never start a trade war with an autocracy
Unlike the EU, China seems willing to pay any price to punish Donald Trump’s voters
https://econ.st/2ZEuvzM
America’s government seems unfazed by the damage its tariffs do to the economy. One study by scholars at the Federal Reserve and Princeton and Columbia Universities found that the new levies have raised costs for consumers by $1.4bn per month.
However, Donald Trump is devoted to his voters. And his trading rivals have retaliated where it hurts. A paper by Joseph Parilla and Max Bouchet of the Brookings Institution, a think-tank, estimated that 61% of jobs affected by retaliatory tariffs are in counties that voted for Mr Trump.
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The study found that the EU prioritised minimising such damage. Its tariffs deftly protected domestic consumers, causing less disruption than 99% of alternatives. The bloc targeted Trump voters as well—its tariffs matched the election of 2016 more closely than in 87% of simulations—but not at the cost of upsetting its own citizens.
In contrast, China focused on punishing Trump voters. Its tariffs tracked the election better than 99% of alternatives. They also disrupted China’s own economy more than in 99% of simulations. Even among plans including soyabeans—one of China’s main imports, grown mostly in Republican areas—China’s policy was just slightly more politically targeted than similar options, but far worse for its economy.
China’s choice of tariffs seems designed to deter escalation at any cost. Only regimes with no voters to satisfy can run that risk. The lesson is clear: if you start a trade war, fight a democracy, not an autocracy.