I’m going to be scathing in my critique because these people are both dishonest and incompetent and deserve to be called out on it.
Here’s their formula:
It’s a ridiculously simplistic formula.
First, a stylistic quibble. What is up with those asterisks in the denominator? I’ll give the authors the benefit of the doubt and assume that they wanted the formula to be understandable by people who aren’t familiar with standard math notation, in which the juxtaposition of variables indicates multiplication. But to see it written that way in an official document is just… weird.
The i subscripts in the formula just indicate that the formula is to be applied to one country at a time — country i. I’ll therefore omit the ‘i’s from the rest of the discussion.
∆𝜏 is the amount by which the tariff currently being placed on that particular country should change (according to the Trump administration bozos) in order to drive the bilateral trade deficit to zero. In other words, 𝜏 (the existing rate) + ∆𝜏 (the change in rate) would be the correct final rate (according to the formula) to achieve the dubious goal of a trade balance.
The inanity of insisting on bilateral trade balances
We’re off to a bad start already, because the notion that every bilateral trade deficit should be zero is ridiculous on its face. Let’s look at a simplified example. Suppose Malawi sells us only mangoes, and the US (henceforth ‘we’, since I’m American) sells them only air conditioners. In order for the trade deficit to be zero, we need to buy the same dollar amount in mangoes that they buy in air conditioners, and we should adjust the tariffs we impose on Malawi until that happens. Why is this desirable? Why should the amount of mangoes be linked to the amount of air conditioners? Who the hell knows? It’s just Trump’s idiotic obsession, and it makes no sense.
To make the stupidity even more obvious, think of an analogous situation. Ernesto sells tacos from a taco truck, and George runs a landscaping business. George occasionally buys tacos from Ernesto, and Ernesto hires George to mow his lawn. Suppose Ernesto pays more to George each month than George spends buying tacos from Ernesto. Is Ernesto being cheated? Is he subsidizing George? No and no. George gets every taco he pays for, and Ernesto gets his lawn mown on schedule. It would be ridiculous to say that either of them is being cheated, and ridiculous to say that the goal should be to make the amounts even.
Why is Trump obsessed with trade deficits? It’s because he is confused enough to believe that the existence of a bilateral trade deficit — a trading deficit with a particular country, Malawi in my example — means that they are cheating us and that we’re subsidizing them. He actually believes that we are just handing over the money, getting nothing in return. In reality, we get every frikkin’ mango we pay for, and they get every air conditioner they pay for. No one is being cheated, and to demand that the dollar amounts should match is idiotic and pointless.
Trump actually declares in his executive order that trade deficits are a “national emergency”. He does this because he doesn’t have the authority to impose tariffs unless it’s a national emergency. Otherwise, the job falls to Congress, where it belongs. Trump is lying about the supposed national emergency.
The formula
According to the USTR statement, the x in the formula is the dollar value of what we export to a particular country, while m is the dollar value of what we import from them. The numerator, x – m, is therefore equal to the trade imbalance. If x is bigger than m, then the difference is positive, and we are running a trade surplus. If x is less than m, then x – m is negative, and we have a trade deficit. But note that they have it backwards in the formula: it should be m – x, not x – m. Why? Because the denominator is positive. If both the numerator and denominator are positive, as they would be in the case of a trade surplus, the formula would deliver a ∆𝜏 that is positive. In other words, the formula as written would actually increase the tariffs for the countries with whom we have a trade surplus, and it would decrease the tariffs for countries with whom we have a trade deficit. The formula therefore punishes the (supposedly) good guys and rewards the (supposedly) bad ones, which is opposite to the administration’s intentions. One more indication of their clown car incompetence.
They could easily have corrected the formula if they were aware of the error. Just put a negative sign in front of the formula, or swap x and m, or redefine x and m as the amounts exported and imported by the other country, instead of the amounts exported and imported by the US. Any one of those three would fix the problem, but no.
Let’s assume that we have corrected that mistake for them and that the numerator now equals the amount of the trade deficit, not the surplus. What about the denominator? Well, it just so happens that the values they chose for 𝜀 and 𝜓 are 4 and 0.25, respectively. Those multiply to 1, thus canceling each other. How convenient. These charlatans actually and blatantly chose the values so that they would cancel out, instead of using the most accurate numbers they could find in the literature. They cheated.
After that suspiciously convenient choice of parameters, the formula is now just ∆𝜏 = trade deficit divided by total imports:
Do they actually apply this formula? No. They massage its output even more. They divide ∆𝜏 by two, for no good reason. That means that for the formula to match the actual tariffs, they should multiply the denominator by 2. They fail to do that, as you’d expect. Why 2? My hypothesis is that even those dunces realized that the numbers they were getting from the formula were ridiculously large, and dividing by 2 was a way to get them down to a range that they considered reasonable. More number fudging with no theoretical justification.
Next problem: according to the corrected formula, ∆𝜏 should be negative in the case of trade surpluses. That is, we should decrease the tariffs on imports from those countries. If the existing tariff rate is small enough, it should even go negative, according to the formula, in order to balance our trade with that country. Trump doesn’t like that, so he has arbitrarily declared that everyone will pay a minimum of 10%, whether there’s a trade deficit or a trade surplus. In other words, the policy, which is already misguided, is also unfair — it says that it’s OK for the US to screw other countries by imposing high tariffs, even if they’re doing the “right” thing and allowing us to run a trade surplus with them.
The actual rates
Here are the charts spelling out the actual tariff rates.
The chart labels them “Reciprocal Tariffs”, but that is a lie, since the formula doesn’t take into account the tariff rate charged by the other countries on our exports to them. It’s completely missing from the formula. They aren’t reciprocal tariffs, they’re misguided tariffs in response to trade deficits, and they punish US importers instead of the countries selling us those goods and services.
The label on the middle column is wrong for the same reason, and it’s even further wrong because it depicts a bilateral trade deficit as a quantifier of “currency manipulation and trade barriers”, which it isn’t. We can run a bilateral trade deficit for no other reason than that Americans want more of what the other country is selling us than they want from us. That’s not “currency manipulation and trade barriers”, and the Trump administration is dishonest for trying to sell it that way.
The numbers in the middle column are apparently those that come straight out of the formula. You can tell, because the tariffs that are actually being imposed by the US are just the middle column divided by 2. That’s the arbitrary factor of 2 I mentioned above. The only exceptions are in those cases where dividing by 2 would leave a less than 10% tariff, in which case the tariff is set to 10%. Gotta make sure that everyone gets screwed at least that much.
The US Trade Representative’s explanation
Now some excerpts from the USTR statement. The very first paragraph:
Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing. Tariffs work through direct reductions of imports.
Well, duh. The phrase “tariff and non-tariff factors” covers literally every possible factor in the entire world. Yes, there are actual reasons that we buy more in mangoes from Malawi than they buy from us in air conditioners. Therefore we should conclude that we’re getting ripped off?
While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero.
Not by any reasonable person. You need to do the homework before making policy decisions that will affect the entire world economy. If they want less of what we’re selling than we want of what they’re selling, that can lead to a trade deficit, independent of all the factors they list above.
This doesn’t mean that trade practices can’t be unfair, but it does mean that to assume something nefarious is going on merely because we’re running a bilateral trade deficit is stupid.
If trade deficits are persistent because of tariff and non-tariff policies and fundamentals, then the tariff rate consistent with offsetting these policies and fundamentals is reciprocal and fair.
No. If we like Malawian mangoes more than the Malawians like our air conditioners, nothing is broken. Nothing is unfair. No reason to blindly punish the Malawians. It just means that American demand for Malawian mangoes is greater than Malawian demand for American air conditioners. No big deal.
A case could be made for nudging the US’s global trade deficit — which is the aggregate trade deficit we’re running with all of our trading partners put together — toward zero, but trying to eliminate every bilateral trade deficit is bonkers. These people are clueless.
Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices…
Right there they say that ε < 0, but a few sentences later they assign it a value of 4. The last time I checked, 4 was greater than 0, not less. Their sloppiness is consistent, at least. What is wrong with these folks?
let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies:
As noted earlier, they have the numerator backwards. It should be positive for a trade deficit, not negative, in order for ∆𝜏 to be positive, which represents an increase in tariff rates.
To calculate reciprocal tariffs, import and export data from the U.S. Census Bureau for 2024. Parameter values for ε and φ were selected. The price elasticity of import demand, ε, was set at 4.
Which inside the Trump administration is less than 0, lol. And how convenient that εφ multiplies to 1, as noted above.
Recent evidence suggests the elasticity is near 2 in the long run (Boehm et al., 2023), but estimates of the elasticity vary. To be conservative, studies that find higher elasticities near 3-4 (e.g., Broda and Weinstein 2006; Simonovska and Waugh 2014; Soderbery 2018) were drawn on. The elasticity of import prices with respect to tariffs, φ, is 0.25.
It wasn’t to be conservative. It was to fudge the numbers so that the product εφ came out to be 1. And picking a value of 4 for elasticity isn’t “being conservative” in the sense of “this value is more likely to be correct”. It’s conservative in the sense of “we’d better make this number big because otherwise the tariffs will be so outrageously huge that everyone will see that we’re idiots.”
Think about it. They want φ to be small (whether or not the evidence supports it), because they want to maintain the fiction that other countries will mostly absorb the tariffs and that importers and retail customers will shoulder less of the burden and therefore experience less inflation. On the other hand, a small φ balloons the value of ∆𝜏 to ridiculous levels. So they set 𝜀 to 4 to bring ∆𝜏 down, even while acknowledging that the true value of 𝜀 is closer to 2.
The recent experience with U.S. tariffs on China has demonstrated that tariff passthrough to retail prices was low (Cavallo et al, 2021).
I haven’t verified that, but either way I would sure like to see the actual number. Why didn’t they include it? Is it really 0.25? In any case, the question of pass-through to retail prices is irrelevant when you’re trying to determine which country is absorbing the cost of the tariffs. It’s the pass-through factor to importers that is relevant, and that is close to 1, even if the pass-though to retail customers is less. That means that US importers are bearing the cost of the tariffs and passing some of that cost on to consumers. It’s inflationary, and it’s a tax by the US government on US importers, not a tax on foreign countries. Which contradicts Trump’s whole rationale.
The reciprocal tariffs were left-censored at zero.
No, they were “left-censored” at 10, as you can see by looking at the charts. 10 is the minimum tariff you’ll see in the third column of the charts.
Higher minimum rates might be necessary to limit heterogeneity in rates and reduce transshipment.</p
No explanation of why “heterogeneity in rates” is to be avoided, and no comment on the fact that it isn’t avoided, given the large range of new tariff rates in the third column of the charts. That means there’s still plenty of incentive for transshipment. Take Vietnam, for instance, with a new rate of 46%. There’s a *lot* of incentive for them to transship through one of the countries with a 10% rate.
Tariff rates range from 0 to 99 percent.
There is no inherent limit. Tariffs could be 100%, 180%, or 2100%. 99% is an arbitrary limit. Tariffs could even be negative in a perverse world, in which case the government would be giving importers a bonus for importing more and nudging us toward a trade deficit. Obviously that wouldn’t happen in practice, but my point is that the 99% is arbitrary, and anyone who thinks tariffs are limited to being less than 100% doesn’t understand tariffs.
The unweighted average across deficit countries is 50 percent, and the unweighted average across the entire globe is 20 percent.
It’s pointless to state the unweighted average. An unweighted average is really just a weighted average with all of the weights set to 1. That gives Liechtenstein equal weight with China, which is stupid. Our trade volume with China is some 1,770 times as great as our trade volume with Liechtenstein, but these geniuses are weighting them evenly and presenting the average as if it had some kind of significance. Morons.
Weighted by imports, the average across deficit countries is 45 percent, and the average across the entire globe is 41 percent. Standard deviations range from 20.5 to 31.8 percentage points.
Here, they tell us that the import-weighted average of tariffs is 41 percent. Combine that with their assumed pass-through rate of 0.25. meaning that exporters in other countries will shoulder 75% of the tariff burden. That’s unrealistic and it clashes with the actual data, but even if you take the Trumpers at their word and assume that only 25% of the additional cost due to tariffs is passed to importers, that’s still over 10%, because 0.25 * 41% is greater than 10%. 10% import inflation! So much for Trump’s campaign promise: “I’ll reduce prices on day one.” Idiot.
Good job, Trump supporters. By voting for him, you put power in the hands of these dishonest and incompetent economic doofuses.
Irony. We are apparently not allowed to be skeptical of Trump’s policies. But not by Admin: by his fans. Criticise and you’re in a ‘TDS echo chamber’, easily dismissed.
Might you (in the bowels of Christ) be wrong about him? At all?
Corneel,
Peace is primary to me however if we get peace for a year and another war starts due to our negotiation weakness we have not achieved peace.
Please cite this again. Sorry I missed it.
I am not sure what point you are trying to make. Are you saying that we should condone illegal invasions of sovereign countries? Or do you honestly believe that sacrificing Ukraine will result in a stable ceasefire? Have you already forgotten what happened to the Minsk Agreements?
Allan Miller,
All these sources Fox, Newsman, CNN, MsNBC require a heavy filter and at times its better to completely ignore. I think Trumps strength is in some of his policies. He is actually closer to old school democrats than old school republicans IMO. His weaknesses is he constantly attacks people although this time he has seemed to mellow a little.
That is my concern. Thanks for acknowledging it. The current “peace proposal” from the Trump administration will not suffice by a long shot IMO.
Haha, did you honestly miss it? Very well. Here it is again:
Can you quote something I’ve said supporting Trump? I mean, something direct and not inferred?
You seem to forget my direct and unambiguous declaration that I voted for Biden and Harris. And seem not to have noticed that in four years of the Biden presidency, I never criticized his policies.
My personal opinion is that most politicians who have had long careers are criminals. Both parties. And some independents. I infer that from their rate of wealth accumulation. I stand with anyone who opposes corruption, regardless of party affiliation. This is not a party line stance.
I said before the 2020 election that Biden was mentally unfit, and I stand by that. I believe his incapacity contributed to the failure to prevent the invasion of Ukraine. I say that in hindsight.
Which of the following criticisms of policy (or criticisms disguised as questions) are media-led, rather than representing real Trump beliefs or actions?
– Are tariffs a tax on the exporting country, or consumers?
– Is a trade deficit a subsidy?
– Is elimination of a deficit always the optimal outcome, irrespective of commodities traded or purchasing power differentials?
– Should countries with whom you operate a surplus be tariffed?
– Were the correct values chosen for elasticity and passthrough?
– Can tariffs be revenue raising and self-eliminating at the same time?
– Did Ukraine start the war?
– Is pardon of violent insurrectionists a reasonable act?
– Should one be concerned if judges are arrested?
– Is revenge a fitting activity for a leader?
– Is deportation without due process a concern?
– Should court orders be ignored?
– Is threatening annexation of neighbours a sensible policy?
petrushka,
Apologies if I misrepresented you. You appeared to be taking a swipe at those who believe Trump-critical media.
Biden should have stuck to his guns as a 1-term President, and there should have been time for a runoff too.
But we are where we are. Trump has his feet under the desk and (accusations of TDS notwithstanding) I cannot see a single positive.
No need to apologise to him. petrushka likes to be mysterious, which he achieves by failing to mention names and facts when they are crucial. He succeeds in being so mysterious that he can be said to be deliberately deceptive.
Let’s get directly relevant. Right now he says that he voted for Harris last time. Actually he has earlier explicitly said that he voted for nobody last time http://theskepticalzone.com/wp/trumps-rambling-speeches/comment-page-1/#comment-299879
That same link also indicates that he has nothing good to say about Biden, never has.
Otherwise he speaks in soundbites and half-sentences. When making a point, he relies on ignorance of the political system of his country, ignorance of journalism, and lack of facts. The overall scorecard of his comments is strongly in favour of MAGA Republicans, up to and including anti-vax conspiracies.
Erik,
Yes, I didn’t think I’d got him completely wrong. He isn’t always clear.
To be fair, voting “Biden and Harris” and not voting this time, are not necessarily at odds. That thread’s interesting to read as a missive from ‘the far side’.
colewd:
You’re suffering from a sort of ad hominem fallacy fallacy — a misunderstanding of what the ad hominem fallacy actually is.
To commit the ad hominem fallacy, I would need to argue along the lines of “Trump is stupid; therefore his tariff policy is stupid.” I’m not doing that. I’m showing that Trump’s policy is stupid, entirely on its own. It would be stupid no matter who proposed it.
Trump is pursuing a foolish trade policy, tanking the global economy in the process. His public statements betray an utter confusion regarding basic economic principles. That evidence corroborates my assessment of Trump’s (lack of) intelligence. But my judgment that the policy is stupid is based on the policy itself, not on Trump’s evident stupidity.
Crying “ad hominem!” is a convenient excuse for not responding to my arguments. Set that excuse aside and actually tackle them.
I’ll reproduce my earlier comment for your convenience:
Excellent point. The Armistice was widely criticized at the time as being unreasonable, and likely to lead to another conflict. End of WW2, not so much. England has not given up Northern Ireland, perhaps because the majority of people in NI don’t want that. Irish Republicans want the Ulstermen to get the f outta Ireland (and I happen to agree with them) but they are seeking the return of real estate stolen 375 years ago in a colonial land grab.
You live in Connecticut, right?
Some problems with this setup. You have “Trump has issues” on the one side and “He wants to stop the wars” on the other. Doesn’t it matter what exactly those issues are to see whether the needle tilts to where you expect?
Namely, suppose the issues with Trump are that he is a convicted felon, business fraudster, insurrectionist and thoroughly corrupt nepotist dictator wannabe (or even full-blown dictator, because why not when this was among his campaign proclamations), then perhaps instead of “issues” the more correct characterisation would be “total lack of principle” which would overpower the other side of the scales.
And of course the other side, your “He wants to stop the wars” has its problems all by itself. Can you reason out how the guy who takes office by declaring annexation to Canada and Greenland, threatens Panama with invasion, and switches sides in favour of Putin would be in any way in the business of stopping wars? You could help me understand how I am the victim of corrupt media and have no idea what is real. Would be potentially enlightening if you did that, thanks.
I live in Connecticut.
Life is more complicated than whether sharing Trump’s assertion about corruption makes me a pariah, or whether I think the ship of defeating Russia sailed two years ago.
I’ve never observed the universe bending to my wishes, nor have I noticed politicians reading my thoughts on obscure chat sites. I like tossing out contrary ideas to see how people respond.
I don’t do it to incite conflict. They’re my honest thoughts. I just don’t see any point in echoing popular opinions.
petrushka,
See, this is where I get confused. The implication there is that Trump himself is not corrupt, and is engaged in ‘draining the swamp’, just like he said. To that extent, he’s your guy. And yet from where I sit, he is the most corrupt Western politician of my lifetime.
No-one here is saying what they think because it’s popular. Equally, there is a danger of falling into contrarianism for its own sake. My antivax friends pivoted effortlessly to pro-Russia, swallow-every-conspiracy positions.
The shelves will empty long before the swamp does.
https://x.com/BonkDaCarnivore/status/1916637228110905550
I try not to listen to voices of doom but I like the black humour with this one.
Allan:
That’s Seattle. Here’s a CNBC article on the southern California ports:
Chinese freight ship traffic to busiest U.S. ports, Los Angeles, Long Beach, sees steep drop
Excerpt:
44%!
Imagine, if you will, someone so awful that they had not one redeeming quality. There is broad agreement on this person’s awfulness.
It would be impossible to have any criticism of such a person stick with the faithful, because “you’re just echoing talking points”.
If someone transgresses infrequently, each instance would elicit scrutiny and some fury. But if you go all-in – if you’re nothing but transgression of reasonable norms – people are like rabbits in headlights, paralysed into inaction.
Allan Miller,
Others are learning from his example.
Corneel,
Thanks for reminding me of what you quoted. No one should be prohibited from freely expressing themselves as long as not real public harm is involved.
Hi Keiths
What you are doing is conflating his claims with his policies. It’s a logical fallacy to connect the two and comes off as simply an ad hominem attack against him.
colewd:
That makes no sense. Even if I were conflating his claims with his policies, that wouldn’t make it an ad hominem attack. Criticizing the substance of Trump’s claims and policies is not ad hominem. Crying “ad hominem fallacy!” when you don’t understand what the term means is not a winning strategy.
And of course I’m not conflating his claims with his policy. They’re separate, and I am criticizing both. I’m criticizing his claims because they are obviously false and based on fundamental misunderstandings of trade and the economy, and I’m criticizing his policy because it is motivated by those false beliefs and is doing great harm.
Trump believes that bilateral trade deficits are bad, which is false, and that they indicate that we are being ripped off, which is false. Based on those false beliefs, he is jacking up tariffs. He calls them “reciprocal tariffs” when they are not reciprocal, given that they aren’t based in any way on the tariffs that other countries are charging on their imports from us. He believes that his tariffs are taxes on other countries, not on Americans, which is false. He has falsely claimed that the tariffs will have no affect on the US, though he’s had to back away from that claim given the obvious and severe effects that the tariffs are having.
Stupid beliefs have led to a stupid policy. Both are worthy of criticism, based on their substance. Their stupidity stands on its own. They would be stupid no matter who proposed them, and it’s not fallacious — ad hominem or otherwise — to point out their stupidity.
Trump is struggling to cope with his dismal poll numbers. On Truth Social:
McLaughlin says, on X:
Apparently the “Great Pollster John McLaughlin, one of the most highly respected in the industry” needs some remedial education on reading polls. Those two polls are surveys of registered voters, not just of people who actually voted. So of course the percentage of people reporting that they voted for Trump is going to be less than the percentage of votes he received in the election. Ditto for Harris.
Trump’s numbers are dismal across all the major polls:
NBC — 45% approve, 55% disapprove
CNBC — 44% approve, 51% disapprove (on the economy specifically)
Gallup — 44% approve, 53% disapprove
Fox News — 44% approve, 55% disapprove
WaPo — 39% approve, 55% disapprove
CBS — 45% approve, 55% disapprove
NY Times — 42% approve, 54% disapprove
Those numbers are real, and Trump’s tantrum is ridiculous.
keiths,
You believe that trade deficits are bad is false. This is the substance of the argument and has nothing to do with his claims. It has to do with the policy of using tariffs as a tool to balance trade deficits. You believe in free trade. What you have not been able to do is support your core argument beyond assertion IMO.
Here is my counter argument. Trade deficits can damage a countries long term wealth by substituting our dollars for short term consumables. Those dollars can be used to purchase cash flowing assets in our country that appreciate over time. The example is using the dollars obtained from toys to increase ownership in Apple stock.
Trumps policies are spot on for the United States long term economic viability. If he misrepresents the benefits by some of his claims that is irrelevant to the importance of his policy.
Although this being said I agree any misrepresented claims would be an error on his part as it hurts his credibility.
colewd
Bill, have a go at reading this article. Tell me if you think it is ad hominem after you’ve read it.
Stop doing this Bill, it is NOT a good look! Keiths has been pointing out the rank stupidity of Trump’s belief that bilateral trade deficits are bad. If you want to have a conversation about the overall balance of trade, we can do that, but first you should concede the point re bilateral trade deficits.
Incoherent
It is a well known historical fact that using tariffs to adjust balance of trade is doomed to failure. Tariffs can be a useful tool if used in a limited manner under very specific circumstances. Just because you do not understand this, and Trump does not understand this, does not mean that the rest of humanity is equally ignorant.
Aha! Something approaching an argument, but it is about overall balance of trade, and NOT bilateral trade flows. And yes, if a country as an overall trade deficit, then a mixture of two things can happen: one, its currency gets devalued, causing its exports to become more attractive and its imports less attractive, thus reducing the overall trade deficit (negative feedback); two, foreigners may choose to prop up the country’s currency by purchasing assets that are denominated in and traded in that country’s currency. Notice that these assets do NOT have to actually exist in said country, just be traded in dollars. Not sure I see the negative impact to colewd if my brother in the UK buys Pfizer stock on the NYSE…
Nope. That’s just your unsupported assertion. You are wrong.
<spit-take> his WHAT?
Now the interesting thing here, and I alluded to it in an earlier comment, is that the USA has been able to run long-term trade deficits due to the willingness of foreigners to invest in dollar-denominated assets. This willingness is motivated by the use of the dollar as the default currency of international trade, and by confidence in the solidity of the USA as a going concern. (Similarly, the US government has been able to run its own deficit thanks to investors’ willingness to buy US Treasuries). Should these levels of willingness change, driven by a lunatic government, the effect on the dollar’s value could be dramatic.
ETA: I did not read Alan’s Guardian article until after I posted this. Consilience, anyone?
Hi Alan
It seems like an opinion piece against his policies. As Keiths corrected me it is not ad hominem per se but its content exhibits left leaning bias.
I think it has a chance well above zero to be almost completely wrong as we look at it years down the road.
Are you at all skeptical of this article?
DNA_Jock,
The impact is the longterm profits move out of the US and into the UK decreasing tax revenue in the US and increasing tax revenue in the UK.
The currency devaluation in the US is hampered the dollar being the largest reserve currency..
https://grok.com/share/bGVnYWN5_168936f0-aa54-4490-86b2-33f9b1e7dc49
colewd,
Not obviously. Unless ‘left-leaning bias’ is simply a synonym for ‘critical of Trump’. The Left would just prefer trade policy to be non-moronic. It’s not a lot to ask.
A lot of this will echo what Jock just said, but perhaps repetition is what you need at this point, Bill.
colewd:
We’re talking about bilateral trade deficits, and yes, Trump’s belief that bilateral trade deficits are bad is goofy.
You buy more from your local supermarket than they buy from you. You run a bilateral trade deficit with them. Is that a bad thing? Should you demand that the supermarket buy stuff from you so that the trade deficit disappears? That would be crazy, right? Yet that is Trump’s logic when it comes to bilateral trade deficits between the US and other countries.
Is the supermarket cheating you? Should you take them to court? Are you subsidizing them? You buy your groceries willingly, and they give you everything you pay for. By Trump’s logic, they’re cheating you. By common sense, they’re not. You don’t have to be an economist to see how stupid Trump’s belief is.
I was employed by a tech company. They paid me a salary — that is, they purchased my services as an engineer. I bought nothing from them, which means they were running a trade deficit with me. Should they have demanded that I use my entire salary to purchase chips from them, in order to eliminate the trade deficit? By Trump’s logic, I was ripping them off. By common sense, I was not. I provided labor in exchange for the salary they gave me. They got what they paid for. I wasn’t cheating them, despite the fact that they were running a bilateral trade deficit with me.
Please tell me that you understand this.
Trump’s claim that bilateral trade deficits are bad is the entire basis of his policy! His goal is to eliminate them. The claim has everything to do with the policy. A stupid belief has led to a stupid policy.
Do you understand the difference between bilateral trade deficits and the aggregate trade deficit? You’re expressing concern about the aggregate trade deficit, but do you see any reason why (referring to my OP) the bilateral US-Malawi trade deficit should be zero? Why on earth must our purchases of Malawian mangoes equal their purchases of American air conditioners? It’s inane.
That, ironically, is an assertion you’ve been unable to support.
We’ve been over this already, so I’ll just quote myself rather than reinventing the wheel:
The issue of short-term consumption versus long-term investment is orthogonal to whether we are running an aggregate trade deficit. The example I just gave shows that you can run a trade deficit without favoring consumption over investment. You can also have the opposite situation, where you’re running an aggregate trade surplus yet still favoring consumption over investment.
I’d love to see you support that claim.
The claims are relevant because they motivate the policy. If Trump understood that bilateral trade deficits aren’t the bogeymen he thinks they are, he would be pursuing a different policy.
keiths,
The aggregate trade deficit is of primary importance. I think we agree on this.
Well, I think you are wrong about the tax implications, but that very much depends on the nature of the (bilateral, heh) tax treaty. No matter, because the real problem is that you are displaying a beautiful example of “Trump-think”. You probably think immigrants lower your standard of living too. There is a reason I phrased my comment the way I did:
Here’s the thing: just because my brother is getting a nice dividend cheque from PFE does not mean that colewd is getting any less benefit. Economics is not restricted to zero-sum games. My brother is investing in PFE. You actually benefit from that investment.
I am glad to see that you agree with me. Although, that’s a really strange way of phrasing it. “hampered”? More accurate to say that US residents have historically been protected from the consequences of living beyond their means by the (admittedly self-serving) kindness of strangers. If the strangers change their mind, and Trump is really encouraging them to do so, then you (and I) are about to get royally fucked. I can afford the see my portfolio value drop 50%. Can you?
Allan Miller,
Depends on your perspective. Inside the echo chamber this article looks just fine 🙂
DNA_Jock,
The short term consumable has no long term ROi. The uk gets tax revenue well into the future from the dividends and capital gains if the stock is sold.
colewd:
Why then are you in support of Trump’s policy, which aims at the wrong target — bilateral trade deficits — and does massive damage in the process?
You don’t need to eliminate bilateral trade deficits in order to eliminate the aggregate trade deficit. You just need the sum of all the bilateral deficits to equal the sum of all the bilateral surpluses.
Toy example:
There are three countries in the world: the US, Malawi, and Portugal, and three products: mangoes, air conditioners, and wine.
The US buys $20 million of Malawian mangoes in a year.
Malawi buys $5 million of American air conditioners.
The trade deficit with Malawi is 20 – 5 = $15 million
The US buys $10 million of Portuguese wine.
Portugal buys $25 million of American air conditioners.
The trade surplus with Portugal is 25 – 10 = $15 million
Total US imports: 20 + 10 = $30 million
Total US exports: 5 + 25 = $30 million
Aggregate trade deficit: 30 – 30 = $0
You’ve achieved aggregate trade balance without badgering the Malawians to buy more air conditioners or volunteering to buy more Portuguese wine, either of which would be stupid.
keiths,
This all seems reasonable until you consider trading partners that account for 10% or more of all trade.
colewd:
What difference does that make? Math is math. If imports equal exports, then the trade deficit is zero. And in my example, each trading partner accounts for more than 10% of all trade. That doesn’t change anything. The trade deficit is still zero.
Trump, on Truth Social today:
Besides the generally moronic tone, this confirms that Trump still believes that our trade deficit with Canada amounts to a subsidy.
Not really in dispute: sane people are aware that there’s no RoI on that Made-in-China red hat that you bought.
I’ll say it again: I am not sure you understand the tax treatment of foreign investment — it’s immensely complex. By way of example, the US government currently credits me with a 100% tax credit for all the foreign tax I pay on foreign investment income. Were those foreign governments to decide “eff the USA” and quadruple the tax I pay, that would result in a direct transfer of cash flow from the US Treasury to those foreign governments. But that is a total sideshow: the unavoidable reality is that for decades Americans have been buying more stuff than they have been selling without paying for the difference, and they have gotten so used to that state of affairs that they think they are entitled to that standard of living. Trump’s “solution” is to punish them (the American consumer) for their lack of patriotism with a massive tax increase.
Your reaction is “let’s see how this plays out”. I, personally, am able to absorb the coming loss; are you?
I don’t think we need to wait that long but we’ll see.
The buying power of currency is self-regulating. When this happens is the question, not whether. The more worrying issue is how far Trump et al are prepared to go in usurping the rule of law and how fragile the system intended to preserve democracy has turned out to be. We do live in interesting times.
Perhaps you could point to one of the left-leaning biased parts? From where you sit absolutely not in an echo chamber?
Predictably, YOU are not skeptical of the Guardian article in any way. You are not pointing out a single statement in the article to be skeptical of.
I’m putting a paragraph from the article here. Do you find anything here that is untrue or inaccurate or that would appear from some perspective as if Trump has a plan or a clue or at least law on his side? Anything that could justify you to say that the article has bias or is “left” or indicative of “echo chamber” as opposed to true to facts?
Note that for every claim stated here there is a link to specific instances in the article. Nothing here is being said without backing it up. This is vastly different from your absolute disregard of facts.
At least Canadian voters have taken the hint.
O Canada
I’m not aware of any pro-Trump party in Canada, and the main issue on the ballot was exactly who is the strongest or most consistent opposing Trump’s tariffs. Colewd would say they are all Left(-leaning) and in anti-Trump echo bubble.
Erik,
Pierre Poilievre was portrayed in some quarters as Trump’s preferred choice.
Erik,
Only echo-chamber lefties are against such things.
Falsely. He is anti-immigrant and anti-woke for sure, but equally surely would start a war against any suggestion of becoming a 51st state of USA.
Politicians say and politicians do. In this case, I concede he has said
recently.
ETA I see Poilievre has lost his own election. Being endorsed by Trump didn’t turn out well for him in the end.
As politicians are public figures, both what they say and do are part of their public record. When they say contradictory things in close succession, it is part of their record. For example in Trump’s case, he said he’d end the Ukraine war in 24 hours even before taking office. Then he said he’d do it in his first day in office. Now he has tried and failed for a hundred days and also managed to say that the 24 hours were said in jest. Conclusion: The guy is fooling around with war and peace. It is all part of his record, promising stuff, failing at it and walking back promises. Anybody who thinks that Trump is a man of peace has no regard for Trump’s actual character whatsoever.
Another Trump’s phrase that reporters have caught on to is his “We are getting it done in two weeks” where the “two weeks” is a sure indicator that nobody has been assigned on this particular task with any kind of deadline. In earlier weavings of Trump, whenever he said that somebody came to him “with tears in his eyes and said Sir…” it was certain that the story was entirely made up, complete fiction.