Yuk yuk. Oh god, that one was really bad. Okay, I promise, there will be no more puns in the future.
But I’ve only just come across this article, “Obama can help free trade with tariffs,” and it’s managed to sufficiently irritate me enough that I can’t let it pass by without comment. We know now that Obama did, in fact, agree to the 35% increase in tariffs on Chinese tires. It was a poor decision, and I have my fingers crossed that this was an ugly unicorn of a decision that won’t be seen again.
But Prestowitz’s article is full of WTF.
The orthodox free-trade view of most pundits holds that if Mr Obama accepts the recommendation he will fail the free-trade test. In fact, the truth is just the opposite. Not to accept the tariff recommendation would be a severe blow to open trade and globalisation as well as to America’s future economic health.
The phrase “extraordinary claims call for extraordinary proof” comes to mind, but Prestowitz sure doesn’t deliver it. On why not imposing barriers to trade is not desirable, he writes:
This kind of trade is not win-win. Rather it is a classic zero-sum game. It is well-known to game theorists that in such situations a tit-for-tat response is the optimal strategy.
Horsedroppings. The ‘optimal strategy’ in any given trade situation is going to depend on what sort of strategy the other 190-odd players on the world market are going with. I seriously doubt that there’s any game theorist anywhere that has declared “in a classic zero sum game, always go with tit-for-tat.” (And for that matter, he’s not even come close to actually showing this is a “classic zero sum game” in the first place!)
But even if Prestowitz were right about the above, game theory alone is completely inadequate for making the sort of decision Obama just made. There are going to be serious political and diplomatic repercussions from the imposition of the tire tariff, and the last thing the U.S. wants to be doing right now is to be setting a precedent for the rest of the world that hard economic times justifies the enactment of short sighted and petty trade restrictions.
Update: An economist responds to Prestowitz’s argument.
Prestowitz has been singing this song for years now, originally making the same anti-trade arguments about Japan.
His arguments about game theory are also flawed. Tit for tat is only an optimal strategy in a two-player scenario if each side perfectly interprets the other. Otherwise, you might end up with neverending escalation when one side’s actions are misperceived. There is a huge risk of misperception in the trade context because many interest groups (e.g., domestic tire producers) purposefully skew the ‘perceptions’ in order to achieve the best results for themselves.
One more thing: you’re right that international trade is not a zero-sum game. Maybe Prestowitz should read Sowell’s Basic Economics:
To be fair, I don’t think he meant international trade in general was zero sum. … But what exactly it was he did mean was pretty incomprehensible. I’d never heard of the dude before, and glancing at his books now, it looks as if he’s got a carousel of Asian countries, and every few years or so he plucks out a new one to serve as the foil to his protectionist theories…
On a side note, I was actually feeling a bit uneasy about quoting out parts of the article. I feel a little like I was taking stuff out of context, but I really don’t think there’s a way around that while keeping the articles blog-length appropriate.
p.s., to anyone out there trying to read the article: you don’t actually need to sign up with FN. Just copy and paste the headline and plug it into google, and it’ll give you the full text of the article. (I also think you can just replace the “false” in the URL with “true”, maybe? But I know the first way definitely works.)
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