When Trump launched his trade war in January 2018, the elites were apoplectic. They lectured Trump on the benefits of “free trade” and “comparative advantage” and how trade made everyone “better off.” Never mind that the elite theory of free trade is badly flawed.
There is no free trade because of tariffs, nontariff barriers, government subsidies, currency wars, interest rate manipulation and a host of other tricks and obstacles. There is no comparative advantage because the input factors (labor costs and capital costs) are mobile and can hop from one country to another with ease. And not everyone is better off.
There are winners (elites who own the technology) and losers (everyday citizens who lose good manufacturing jobs) and the costs and benefits are not equitably distributed. But the elites cling to these free trade myths despite contrary evidence.
Now comes a huge surprise as described in this article. Mohamed A. El-Erian, former CEO of Pimco and now the chief economic adviser at Allianz, is an economic thought leader and bona fide member of the global financial elite. El-Erian says that most of Trump’s analysis is correct. The positive results of trade have not been fairly allocated. Trade is not just an economic issue; it’s a social and political issue. Finally, he says, “More people now are beginning to wonder whether the new U.S. approach — provided it’s not used repeatedly — could in fact serve as a beneficial disruption that helps reset international trade relationships and place them on a firmer footing.”
In other words, El-Erian is acknowledging that Trump was right all along in understanding the problem and moving to address it, despite some confrontational rhetoric. Let’s hope that other elites are as fast as El-Erian to see the benefits of Trump’s trade policies.
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