What’s Behind Trump’s Trade War?

WASHINGTON, DC – Since World War II’s end, trade has grown 50% faster than global GDP, owing largely to successive rounds of liberalization under the auspices of the World Trade Organization (previously the General Agreement on Tariffs and Trade, or GATT). But now, US President Donald Trump’s latest dose of import tariffs could push the world into a full-blown trade war, undoing much of that progress.

Proponents of free trade have always celebrated the growth of international commerce because they regard it as a sign that countries are capitalizing on their comparative advantages through specialization, which implies increased efficiency overall. By contrast, critics of free trade worry that it might lock poor countries into producing goods that offer little room for productivity growth, and point out that even if there are aggregate gains from globalization, there are also clear losers.

In fact, few would disagree that a static comparative advantage theory is a poor guide for development policy. A more dynamic framework is needed to determine whether trade also brings knowledge and learning to new markets. If it does, then it can be an engine of future economic growth and social progress.