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Monday, 10 April 2017

The Complexity of International Trade

I only recently caught up with this piece by Paul Krugman. Partly it is interesting for what it says about international trade. 

In the several large economies he cites, a large proportion of the apparent value added element of export goods actually comes from other countries.  So, for instance, he argues that cars assembled in Mexico and exported to the USA have a large proportion of their components actually made in the USA.  Hence a Trump protectionist policy would have the effect of damaging US component manufacturers as well as the assembling plants in Mexico. 

That is rather the opposite of what Trump supporters assume, but it is also something in line with what the Select Committee for Exiting the EU found about Brexit.  A UK car assembler might also find many of the components are sourced from around the EU.  Higher tariff would damage both the assembler and the supply chain.  Again that seems a rather more sophisticated view of how the modern economy works than the way it appears to David Davis, who seems to have a more zero sum view of trade.

The other striking point is his suggestion that Trump is in an impasse from which he might seek a "Malvinas" solution, in an article posted some time ahead of the attack on Syria

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