The psychological attachment to preventing loss, a powerful human tendency called loss aversion, could be key to understanding the politics behind trade wars, according to Neil Irwin, senior economics correspondent at The New York Times.
“The simple idea is that, losing something is more painful than gaining the same amount for that thing, so if you find 20 dollars in the laundry, that’s not as pleasurable as losing 20 dollars on something else,” said Irwin, founding staff member of the Times’ Upshot economics blog.
Irwin joined Bold Business to discuss his New York Times article on loss aversion theory and the trade war with China. He argues that people on the losing end of a trade war are much more willing to fight than those who are coming out on top.
“For the last generation, for decades now, the politics of trade have revolved around the losers from trade being really upset and the winners being happy, but not as happy,” Irwin said.
As a result of current geopolitical beliefs about loss aversion, according to Irwin, we should be concerned for any American company that uses steel and aluminum, such as the auto industry, in-home devices, etc.
“For the last 40 years, people have lost their jobs due to trade agreements,” Irwin said. In current trade battles, the winners are the smaller companies in the steel and aluminum industry, due to President Donald Trump’s new tariffs dispute with China. This causes these domestic producers to increase production and hire more staff.
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