Enforcement

Before heading off on vacation, Matt Yglesias did a post on trade wars and noted correctly that:

The details of roquefort’s problem, the key issue is that in a "trade war" like this, everyone loses:

1. The Europeans won’t buy our beef. We’re mad.
2. So we refuse to buy their cheese.
3. This doesn’t help our cattle guys. But it does make me sad, since I love roquefort.
4. And it’s terrible for some French dairy farmers.
5. So maybe they’ll have enough political clout to persuade the Europeans to retaliate by refusing to buy a wider set of our goods.
6. At which point everyone is even more worse off.
7. Bad scene.

It’s a downward spiral of mutual retaliation that makes people on both sides of the Atlantic poorer.

Of course an alternative solution to save us from this bad ending would be for the French to have not put up their trade barriers in the first place. Standards-free trade - open trade with no labeling requirements, quality standards, or enforcement of basic worker protections on the producer side - is a bad thing. But so long as French consumers are being told that the beef they are buying has been injected with hormones the government has no business banning or taxing it. If Frenchmen are really that concerned about the living conditions of the food being slaughtered for their tasting pleasure they won't buy it, the local supermarket won't order it from the American cattlemen, and we will stop importing it to France - what we like to call the free market.

But why do we have to retaliate? Because we have a rule based system that governs the terms of international trade. If everyone just did "what was best" there wouldn't need to be rules. But most states act in their own self interest.

Since the US exports beef it is safe to assume that French ranchers costs per pound of beef are either more than than the American cost plus the cost of freezing and shipping it across the Atlantic, or French farmers raise less cattle than Frenchmen want to eat. But French cattlemen decide they want more money so they lobby their government, and since the President likes his job and wants a second term he orders his trade department to ban US beef. America, your move.

We have a choice: retaliate or not? If we do not retaliate Matt gets to eat his roquefort, the French cheese producers keep making money, and American cattlemen keep getting screwed. If we retaliate, well, we know how the story ends. But there is a missing future piece to this equation. If the French know we will retaliate - regardless of how much it pisses off the DC foodie crowd and lobbyists - it will make them think twice next time before they decide to BREAK THE RULES and send us all into the trade equivalent of mutually assured destruction.