Trade is great for countries provided it's reciprocal. It hasn't been for America been since the early nineties. There are complex reasons for this shift, everything from a strong dollar to a savings-investment imbalance to the introduction of global integrated supply chains and an American regularity environment which pushed American companies to offshore.
Trump seems to be using tariffs to push for trade deals which negotiate a marginally better deal than existed before, as well as using the disruptions and fears of companies to push inward investment into America. That's a good thing, although it's painful in the short-term. Critics and opponents of Trump will use the global depression which is coming to argue that Trump's policies were bad, just as they argued that Liz Truss was responsible for the UK economy blowing up under her watch. But just as the British toxic LDI bubble had grown to epic proportions before Truss became PM, the seismic and monumental flaws in China's economy were apparent to more than casual China observers, long before Trump introduced his tariffs.
Chinese people don't spend their earnings. It's that simple. US disposal income saving is below 5%, in the OECD the average is between 5-10%. Chinese households save between 30-45% of their disposal incomes. Consumer spending is 68% of the American economy. China has been trying to boost their economy by pushing extreme export surplus, which was always going to have limits as an economic strategy. The Chinese government needs to find a way to incentivise its citizens to spend more and save less. It really is that simple. Put simply, the Chinese propensity to save excessively is making their domestic, internal economy a third weaker than it needs to be.
Perhaps an increase in some forms of taxes with a generous rebate for consumer spending is the answer. Perhaps the rebate could employ nudge economics to auto-invest the rebate in future healthcare provision/insurance. One of the major reasons why Chinese people save so much is because of limited social safety nets to cover healthcare in later life. Chinese households often bear 30-50% of medical costs directly. Ironically, China needs to find a way for its citizens to both spend and save and at the same time. It is possible, but only in really weird ways. Tax-advantaged healthcare accounts which can only be 'unlocked' through consumer spending tax rebates is probably the answer, although admittedly it's a really contorted method. I'm open to suggestions.
GDP is not a perfect measure of prosperity, non of those imperfections are relevant to tariffs. Tariffs hurt don’t hurt non-GDP prosperity any less than they hurt GDP.
Tariffs are a consumption tax. Not much different than a VAT or sales tax. It seems to me that Trump is settling in on 10% world, 30% china. This would amount to 1.5% of gdp if trade remains at pre tariff levels, which doesn’t sound too outrageous.
For reference, Europe raises 7.2% of GDP in VAT revenues.
The additional tariff revenue would offset the costs of extending trumps tax cuts.
Personally, I think paying slightly more for China junk (which don’t even buy when I can avoid it) in exchange for lower income taxes is a good tradeoff.
A point in my never-published draft on this subject:
The idiot thinks that if another country tariffs America, then America can cancel that out by tariffing back. That's not how it works. The tariffs don't cancel, they stack.
Mutual tariffs mean that we lose money to a government when we buy AND when we sell, instead of only one or the other.
Comparative advantage only applies if capital and labor mobility are restricted between nations. Neither of those are the case with many nations today, so there is no formula that guarantees that trade will be mutually beneficial to both nations.
It's not true that comparative advantage only applies when capital and labor are not mobile. For example, New York is better for finance than Wyoming, because that's where all the other financiers are. Geography matters as well.
Taken in isolation, that seems like an instance of absolute advantage, not comparative.
However, I agree that comparative advantage can apply sometimes because of restrictions such as geography. My point is that when capital and labor are mobile it does not necessarily apply so it cannot be assumed. It has to be demonstrated for the individual instance.
Buying cheap agricultural products overseas can be advantageous for both countries, but if capital chases cheap labor out of the country, there isn’t an economic theorem that guarantees it will be beneficial for all parties in the same way comparative advantage operates. There can be winners and losers in cases of absolute advantage.
Yes, Tariffs are a tax. The Econ 101 argument is that they are taxing and thus decrease the enjoyment between the consenting parties, thus retarding the economy.
“Boo to taxes!”, I say, but everyone knows that Econ 102 is about how to manipulate the economy through policy to get particular benefits. “This tax and that tax will help save the dolphins!”
Even Libertarians have their favored taxes once they are asked to get pragmatic: Luxuries and Usage Fees.
Trump’s Tariffs are a Tax scheme mixed with Foreign Policy. Nothing more. Protectionists believes that some retardation about trade will let the government run and keep the economy well for the deserving.
agreed good post!
Trade is great for countries provided it's reciprocal. It hasn't been for America been since the early nineties. There are complex reasons for this shift, everything from a strong dollar to a savings-investment imbalance to the introduction of global integrated supply chains and an American regularity environment which pushed American companies to offshore.
Trump seems to be using tariffs to push for trade deals which negotiate a marginally better deal than existed before, as well as using the disruptions and fears of companies to push inward investment into America. That's a good thing, although it's painful in the short-term. Critics and opponents of Trump will use the global depression which is coming to argue that Trump's policies were bad, just as they argued that Liz Truss was responsible for the UK economy blowing up under her watch. But just as the British toxic LDI bubble had grown to epic proportions before Truss became PM, the seismic and monumental flaws in China's economy were apparent to more than casual China observers, long before Trump introduced his tariffs.
Chinese people don't spend their earnings. It's that simple. US disposal income saving is below 5%, in the OECD the average is between 5-10%. Chinese households save between 30-45% of their disposal incomes. Consumer spending is 68% of the American economy. China has been trying to boost their economy by pushing extreme export surplus, which was always going to have limits as an economic strategy. The Chinese government needs to find a way to incentivise its citizens to spend more and save less. It really is that simple. Put simply, the Chinese propensity to save excessively is making their domestic, internal economy a third weaker than it needs to be.
Perhaps an increase in some forms of taxes with a generous rebate for consumer spending is the answer. Perhaps the rebate could employ nudge economics to auto-invest the rebate in future healthcare provision/insurance. One of the major reasons why Chinese people save so much is because of limited social safety nets to cover healthcare in later life. Chinese households often bear 30-50% of medical costs directly. Ironically, China needs to find a way for its citizens to both spend and save and at the same time. It is possible, but only in really weird ways. Tax-advantaged healthcare accounts which can only be 'unlocked' through consumer spending tax rebates is probably the answer, although admittedly it's a really contorted method. I'm open to suggestions.
Tariffs will be bad for GDP. Should the role of the US government generally be maximizing GDP?
GDP is not a perfect measure of prosperity, non of those imperfections are relevant to tariffs. Tariffs hurt don’t hurt non-GDP prosperity any less than they hurt GDP.
When prosperity comes at the expense of human capital and human character, which should the government prioritize?
Character and human capital are part of prosperity. Tariffs hurt both of them.
There are legitimate criticisms of GDP maximalism. The protectionist argument isn't one of them.
Tariffs are a consumption tax. Not much different than a VAT or sales tax. It seems to me that Trump is settling in on 10% world, 30% china. This would amount to 1.5% of gdp if trade remains at pre tariff levels, which doesn’t sound too outrageous.
For reference, Europe raises 7.2% of GDP in VAT revenues.
The additional tariff revenue would offset the costs of extending trumps tax cuts.
Personally, I think paying slightly more for China junk (which don’t even buy when I can avoid it) in exchange for lower income taxes is a good tradeoff.
A point in my never-published draft on this subject:
The idiot thinks that if another country tariffs America, then America can cancel that out by tariffing back. That's not how it works. The tariffs don't cancel, they stack.
Mutual tariffs mean that we lose money to a government when we buy AND when we sell, instead of only one or the other.
I can't agree that Democrats are "coming to sanity", as their anti-Trump-for-anti-Trump's-sake rhetoric is not sincerely held.
Comparative advantage only applies if capital and labor mobility are restricted between nations. Neither of those are the case with many nations today, so there is no formula that guarantees that trade will be mutually beneficial to both nations.
It's not true that comparative advantage only applies when capital and labor are not mobile. For example, New York is better for finance than Wyoming, because that's where all the other financiers are. Geography matters as well.
That is not how comparative advantage works.
Comparing New York and Wyoming, New York has a comparative advantage in finance
Taken in isolation, that seems like an instance of absolute advantage, not comparative.
However, I agree that comparative advantage can apply sometimes because of restrictions such as geography. My point is that when capital and labor are mobile it does not necessarily apply so it cannot be assumed. It has to be demonstrated for the individual instance.
Buying cheap agricultural products overseas can be advantageous for both countries, but if capital chases cheap labor out of the country, there isn’t an economic theorem that guarantees it will be beneficial for all parties in the same way comparative advantage operates. There can be winners and losers in cases of absolute advantage.
Yes, Tariffs are a tax. The Econ 101 argument is that they are taxing and thus decrease the enjoyment between the consenting parties, thus retarding the economy.
“Boo to taxes!”, I say, but everyone knows that Econ 102 is about how to manipulate the economy through policy to get particular benefits. “This tax and that tax will help save the dolphins!”
Even Libertarians have their favored taxes once they are asked to get pragmatic: Luxuries and Usage Fees.
Trump’s Tariffs are a Tax scheme mixed with Foreign Policy. Nothing more. Protectionists believes that some retardation about trade will let the government run and keep the economy well for the deserving.