Trade Wars Aren’t Good, But Markets Can Adjust
Harley-Davidson’s decision to shift some production to Europe shows the limited costs (so far) of trade restrictions.
Soon to be European-made?
Photographer: JOHN MACDOUGALL/AFPVirtually all economists favor free trade. But we differ as to what the costs of trade restrictions might be. The decision of Harley-Davidson Inc. to shift more production overseas to Europe to avoid the impact of new tariffs presents a good opportunity to assess those costs – and the good news is that, so far, the economic costs of a trade war appear to be limited.
It is a standard proposition in economics that trade, foreign direct investment and immigration are all potential substitutes for each other. If goods cannot cross borders, perhaps capital or people can. Both are alternative ways of reaping potential gains from trade.