Saturday, April 7, 2018

The Emotional Lure of Trade Wars

I've made a claim several times over of the course of this blog, including recently: that we are not nearly as rational as we think we are. This is not only a philosophical claim, it is actually at the center of my current research agenda with my good friend and award-winning blogger Pete Trumbore (whose stuff you should go read).

What Pete and I are exploring, in the particular context of violent conflict, is essentially the notion that our general understanding of human behavior is wrong. In the social sciences (political science and economics in particular), we have built a lot of explanations on the foundation that people are fundamentally rational - that is, that we weigh costs and benefits and choose the course of action that maximizes our gains and minimizes our costs.

To actually do this well requires a lot of thinking and analysis, which is why over the years folks (Simon, Kahneman & Tversky) have pointed out that we can't really be completely rational, because we don't have the brainpower. We can't consider all of the possible alternatives, we don't do probability math well in our head, we take shortcuts. But at heart, we think we're still basically rational, in that we try to make decisions cognitively - we look at information and select among the options that we think are the best.

There is probably some truth to this, more so in some contexts than others. But for too long we have ignored the role of emotions. Life is filled with examples of people making decisions, not because they thought it was the best option, but because they felt like it. Feelings are very often (maybe almost always) in the driver's seat.

This doesn't just apply to emotionally-charged arenas like civil war. The brewing conflict with China over trade is an excellent example. President Trump's core argument is that the current status of trade with China is "unfair" and "losing" and "out of control". His argument isn't an "argument" at all (an argument, after all, is a connected series of statements intended to establish a proposition). It's just a bunch of emotional assertions claiming that things are bad.

Most economists - people who spend their time studying economics as rationally and scientifically as possible - don't agree. But that doesn't matter, because for the administration this isn't about who is right in the sense of facts and truth. It's about what feels right. And Donald Trump has long made his feelings on China known.

The spiral of actions and counter-actions, threats and counter-threats, that have emerged in the last few weeks fall into this pattern. If you feel that the trade deficit with China is bad, then it feels right to "punish" China with tariffs. This is not an option chosen out of a menu of options because it is most likely to reduce the trade deficit at the lowest cost. There are many other options, most of which will cost the US economy less and many of which have a higher chance of success. But "punishment" feels right, and so that's the course we take.

China, of course, responds in kind. There has been much talk about China needing to "save face", which is really a different cultural framing of the role of emotion. You can construct an argument for why "saving face" is the rational thing to do, but it's a bit like modeling the solar system with the earth at the center - it's possible, but the math gets really messy, really fast.

Some time ago, Pete Trumbore blogged about a conversation he had with a Trump supporter. The foundation of this man's support for Trump was entirely, 100% emotional. It wasn't about policy positions, or Supreme Court picks, or anything else. The man supported Trump because it felt right. And because the things Trump does feel right.

The brewing trade war with China is very much a part of this larger puzzle. I would contend that our policy choices - including international policy, long thought to be the rationalist haven of "hawks, doves, and owls" - has always been more driven by emotion than we would care to admit. The present administration has stripped away any presence to rationality and laid bare the emotive foundations of what's really driving decisions.

If we think this is problematic - and I certainly do - the answer isn't to reject emotions and become Vulcan (as if we could). Instead, we need to think about our emotional responses. We can choose how we feel about things, and find more positive emotional paths. Being angry with the Chinese, or afraid of their economy, is probably a bad choice. It's certainly going to lead to bad policy. But if we want to change that policy, we need to get beyond trying to argue with facts. Facts don't matter here. How we feel does. That's the discussion we need to be having.

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