Branko Milanovic underlines the irrelevance of modern economic theory to international relations and economics:
Mainstream economists can focus on facilitating economic competition within a fundamentally cooperative worldwide system because they pay hardly any attention to how states think about survival in international anarchy, in which war is always a possibility. Thus, concepts like security competition and the balance of power, which are fundamentally important for studying international politics, have no place in conventional economics…Moreover, economists tend to privilege a state’s absolute gains, not its relative gains, which is to say they largely ignore the balance of power.
The inability of economists to meaningfully discuss current international economic relations has become painfully obvious in their, at time pathetic, attempts to teach the US leadership of Economics 101 lessons while not realizing that the US leadership, under both Trump I and II and Biden, was not involved in a policy to improve the position of US consumers or workers but to slow the rise of China and to maintain American global hegemonic position. This inability to engage with reality springs from an extremely reductionist methodological position where one’s welfare is a function of one’s own absolute income only. With such an assumption it becomes entirely incomprehensible why somebody (in this case, a country: the United States) would get engaged into a tariff war and use other policies that reduce welfare of its own citizens (while at the same time also reducing welfare in China and in the rest of the world). A policy that not merely implies a negative-sum game but is designed to be a lose-lose policy, that is, to make both the originator and the target of the policy worse off in economic terms, makes absolutely no sense for such economists.
But it a real world, it does makes sense. Simplicist economists cannot comprehend it because their methodological toolkit is faulty and obsolete: it fails to take into account relativities, that is, the importance, pleasure or utility that we as individuals, and even more so countries and their ruling elites, derive from being richer or more powerful than others. If they were to add another argument in their utility functions, the relativity, whether of own income to another person’s or of own country vis-à-vis other country, they would have to say something meaningful. Instead, they are reduced to the endless repetition of trivialities…
Commentators thus criticize something that is irrelevant, that is not the real goal of the policy and this makes them look silly. They believe that by dispensing elementary economics lessons they show how wrong-headed the governing elites are while in truth they simply reveal inadequacy of their own methodological apparatus.
However, even this critique is too shallow and intrinsically assumptive of the theoretical benefits of international economic theory to be meaningful. First, it completely fails to take into account the actual preferences of the various economic players. Trump is not hurting American workers with his protectionism and the free traders were, quite obviously, not helping American workers with their blitheringly stupid trade policies of the last 40 years.
Second, it fails to observe the real relationship between war and economics, or account for the way in which war with a trading partner is a multiply by zero situation that cancels out all of the supposed benefits of trade and more.
And third, international economics is fundamentally erroneous and therefore reliably unreliable because it takes all the models developed for a single national economy and then tries to apply them, unchanged in any significant way, to a single hypothetical supereconomy that doesn’t even exist and doesn’t have any of the interests, structures, or players that national economies do. International economics is, quite literally, a category error, and is no more viable than Martian water polo or Venusian speedskating.