So what the Trump administration wants (a) Nike to start manufacturing in America or (b) Americans to buy/own fewer sneakers?
Utter madness. Americans don't want to work in shoe factories, they don't want to pay the labour costs of American "middle class" wages input in their shoes and what's the point of just having American robots making them instead? You can already buy proudly US made New Balance shoes... at twice the price!
Assuming that America isn't going to have a Marxist awakening, offshoring non-essential manufacturing and issuing non-existent digital dollars for the goods was a golden scenario.
Is anyone honest about what these tariffs are actually going to achieve? Because I have seen a lot of discourse about "enrichment" but less about that enrichment taking the form of fewer material goods...
Neither. Treasury collects the 30-40% or so on common footwear, ie in a markedly regressive way, to offset the tax cuts for the upper crust. Key campaign promise. Same for many industries.
It's possible US goods trade become less imbalanced. What it does to economy, interest rates, forex, investment flows seems depends on inevitable follow up stabilization policy to put out all the resulting fires (especially FED), so very hard to predict. Hard to see current admin pulling it off TBH.
If the Trump administration wants to erase trade deficits, are they accepting that financial inflows that funded the trade & budget deficits will reverse, i.e. that US asset prices will deflate substantially (e.g. stock markets are already shrinking, but so too will crypto, bonds & real estate); that US interest rates will increase permanently which will negatively impact US housing markets not to mention credit driven consumption & venture capital built on cheap credit; that international companies may withdraw listings in the US; and reciprocal actions could target US dollar transactions (e.g. 1%-2% transaction tax for any forex in USD) &/ reimposition of capital controls especially wrt USD effectively an additional tax on US investments in foreign countries?
The FED can neutralize the effect on interest rates or inflation. But the reduction in investment flows will require convincing the other major central banks to deliberately have their respective countries "take one for the team", and make themselves unattractive relative to the US for investors. I think we can count on the ECB to do this, maybe BOJ. Maybe some of the captive LatAm's like Argentina. PBOC and Asean are out, they're done playing this game. It will be interesting.
Vietnam etc buy less because they are poor. Karl Polanyi pointed out that labor starts out cheap in these small peasant countries because the people have very little money and--importantly--they have little money because their important needs are not traditionally met through money transactions. Colonial powers change that by using taxes to force them into money-based economies. The adjustments and outcomes can be slow and brutal... oppression, revolution, etc. This is my understanding of a section of Polanyi's The Great Transformation.
today I read Tooze, but before that I had already read Paul Krugman who more or less said the same thing -- in fact Paul thought that perhaps the Trump guys used Chat GPT to come out with this --- what a shit show!
In fact the writer Gary Marcus has listed several references that showed four leading LLMs, when queried about expressing tariffs "easily", all came up with the same formula used by tRump: trade deficit in dollars divided by imports in dollars times 100 = % "ripoff"...so, yeah, it's a good bet that's the origin of the "formula".
This is a historic watershed moment. It is stronger countries that desire free trade, such as the US when it "opened Japan for trade", as the general term is, in the 1850s (already an imperial power then!). Now the US is practically officially reduced to a second rate power. Major powers usually just fade away, others make quite a mess of their own demise in their death throes. Currently there are three major crisis points which may trigger the end of the world at the hand of the US. Where is Lee Harvey Oswald when you really need him?
So sad. I hope the chaos opens pathways for rebuilding the productivity economy of the countries in which US policy catastrophe wrecks it's way along hurting as few people as possible.
Stupid question as I've NEVER seen this formulation before. Elasticity? Defined how? Based on what data? It sounds like a fudge factor. And the rate of tariff pass through would be by sector, by component and highly volatile given supply chains would it not? Am I totally off base?
Ideal tarrifs compare apples to apples, take into account long term trade data, should be assessed by sector and the relationship you have with the nation-state involved and considers domestic and security concerns. Some ideas/manufacturing should never be off shored.
Yeah it's BS. Just enough to hold off the CNN talking head types for a day or two.
Another super basic theoretical objections besides per-sector granularity, is that such supply/demand curve analysis using factors like elasticity, is good only for small enough changes that local linearization is meaningful... large swings hit hard nonlinearities, such as maxing out production capacity of the presumed substitute.
But also, the numbers in Trump's presentation look like they simply ignored the elasticity and price-feed-thru factors. They're not interested in actual justification, however thin, they're just deliberately creating a shock and hoping that they can use the aftermath to secure concessions, or justify even more obviously harmful policy like extreme Argentina style austerity.
There may also be an intention to do a massive devaluation (because USgov debt is spiraling out of control), and mitigate the resulting capital outflow by simultaneously causing even worse chaos in the economies of as many major trade partners as they can.
Sisowath Sirik Matak was a violent, extremist right wing anti-democratic Junta loving American tool bemoaning his lost of freedom to oppress others. Funny enough the Khmer Rouge was an American tool as well, but one that was better at making plans and knew the USA for what it was.. Sisowath Sirik Matak got discarded, just like a wife who either has grown old or lost control over her dowry. The Khmer Rouge continue to receive American protection until Vietnam had enough, they were the USA's Israel in South East Asia, but without the oil trade to threaten/control their genocide wasn't worth defending.
Excuse me, the Khmer Rouge was in many ways a product of the U.S. puppet regimes and its war in defense of them against the populations of Vietnam, Cambodia and Laos. No matter what one thinks of the crazed peasant Stalinists of the KR, we're supposed to feel sorrow for a Prince that was abandoned by the U.S.? Scratch a liberal and one finds a supporter of monarchy.
The argument here about U.S. corporate investment in SE Asia seems to support it. So Nike, for example, is heavily exploiting a lot of workers in Vietnam, and we're supposed to think that's a good thing, vs. Trump's shenanigans? It seems to me that the discussion should take off from Nike's deep involvement to address militant international labor organizing and solidarity against the practices of such companies, along with the abject failure of the U.S. AFL-CIO leadership to do that, whether in Vietnam or closer to or in the U.S.
I am reminded of the evergreen Kissinger quote, "The word will go out to the nations of the world that it may be dangerous to be America's enemy, but to be America's friend is fatal ..."
So what the Trump administration wants (a) Nike to start manufacturing in America or (b) Americans to buy/own fewer sneakers?
Utter madness. Americans don't want to work in shoe factories, they don't want to pay the labour costs of American "middle class" wages input in their shoes and what's the point of just having American robots making them instead? You can already buy proudly US made New Balance shoes... at twice the price!
Assuming that America isn't going to have a Marxist awakening, offshoring non-essential manufacturing and issuing non-existent digital dollars for the goods was a golden scenario.
Is anyone honest about what these tariffs are actually going to achieve? Because I have seen a lot of discourse about "enrichment" but less about that enrichment taking the form of fewer material goods...
Neither. Treasury collects the 30-40% or so on common footwear, ie in a markedly regressive way, to offset the tax cuts for the upper crust. Key campaign promise. Same for many industries.
It's possible US goods trade become less imbalanced. What it does to economy, interest rates, forex, investment flows seems depends on inevitable follow up stabilization policy to put out all the resulting fires (especially FED), so very hard to predict. Hard to see current admin pulling it off TBH.
It’s a brilliant job creation scheme for international distressed debt investors.
"The boss hates trade deficits and his team of willing sycophants came up with a formula, however idiotic, that ticked the box" writes Tooze
Isn't that how "great leaders" usually come up with their ideas and policies? From willing sycophants?
All day I've been remembering the line from All The President's Men: "These are not very bright guys, and things got out of hand."
If the Trump administration wants to erase trade deficits, are they accepting that financial inflows that funded the trade & budget deficits will reverse, i.e. that US asset prices will deflate substantially (e.g. stock markets are already shrinking, but so too will crypto, bonds & real estate); that US interest rates will increase permanently which will negatively impact US housing markets not to mention credit driven consumption & venture capital built on cheap credit; that international companies may withdraw listings in the US; and reciprocal actions could target US dollar transactions (e.g. 1%-2% transaction tax for any forex in USD) &/ reimposition of capital controls especially wrt USD effectively an additional tax on US investments in foreign countries?
The FED can neutralize the effect on interest rates or inflation. But the reduction in investment flows will require convincing the other major central banks to deliberately have their respective countries "take one for the team", and make themselves unattractive relative to the US for investors. I think we can count on the ECB to do this, maybe BOJ. Maybe some of the captive LatAm's like Argentina. PBOC and Asean are out, they're done playing this game. It will be interesting.
Vietnam etc buy less because they are poor. Karl Polanyi pointed out that labor starts out cheap in these small peasant countries because the people have very little money and--importantly--they have little money because their important needs are not traditionally met through money transactions. Colonial powers change that by using taxes to force them into money-based economies. The adjustments and outcomes can be slow and brutal... oppression, revolution, etc. This is my understanding of a section of Polanyi's The Great Transformation.
today I read Tooze, but before that I had already read Paul Krugman who more or less said the same thing -- in fact Paul thought that perhaps the Trump guys used Chat GPT to come out with this --- what a shit show!
In fact the writer Gary Marcus has listed several references that showed four leading LLMs, when queried about expressing tariffs "easily", all came up with the same formula used by tRump: trade deficit in dollars divided by imports in dollars times 100 = % "ripoff"...so, yeah, it's a good bet that's the origin of the "formula".
https://garymarcus.substack.com/p/did-an-llm-help-write-trumps-trade
jesus christ
This is a historic watershed moment. It is stronger countries that desire free trade, such as the US when it "opened Japan for trade", as the general term is, in the 1850s (already an imperial power then!). Now the US is practically officially reduced to a second rate power. Major powers usually just fade away, others make quite a mess of their own demise in their death throes. Currently there are three major crisis points which may trigger the end of the world at the hand of the US. Where is Lee Harvey Oswald when you really need him?
So sad. I hope the chaos opens pathways for rebuilding the productivity economy of the countries in which US policy catastrophe wrecks it's way along hurting as few people as possible.
Stupid question as I've NEVER seen this formulation before. Elasticity? Defined how? Based on what data? It sounds like a fudge factor. And the rate of tariff pass through would be by sector, by component and highly volatile given supply chains would it not? Am I totally off base?
Ideal tarrifs compare apples to apples, take into account long term trade data, should be assessed by sector and the relationship you have with the nation-state involved and considers domestic and security concerns. Some ideas/manufacturing should never be off shored.
https://www.intellinews.com/trump-s-tariff-formula-revealed-and-its-shockingly-simple-374848/?source=iran
Yeah it's BS. Just enough to hold off the CNN talking head types for a day or two.
Another super basic theoretical objections besides per-sector granularity, is that such supply/demand curve analysis using factors like elasticity, is good only for small enough changes that local linearization is meaningful... large swings hit hard nonlinearities, such as maxing out production capacity of the presumed substitute.
But also, the numbers in Trump's presentation look like they simply ignored the elasticity and price-feed-thru factors. They're not interested in actual justification, however thin, they're just deliberately creating a shock and hoping that they can use the aftermath to secure concessions, or justify even more obviously harmful policy like extreme Argentina style austerity.
There may also be an intention to do a massive devaluation (because USgov debt is spiraling out of control), and mitigate the resulting capital outflow by simultaneously causing even worse chaos in the economies of as many major trade partners as they can.
It's looking pretty bad.
I appreciate the clarification. That aligns with my thoughts. 🙏
Has global warming just been solved?
(given the nature of your comment, I'm probably preaching to the converted, but for those who haven't dug into it:)
I discovered some years ago that recessions are visible in the MLO CO2 data. https://judithcurry.com/2011/09/06/detection-of-global-economic-fluctuations-in-the-atmospheric-co2-record/ (to be sure, the signal is at the edge of noise level in the data. But recessions do typically improve air quality https://www.chicagobooth.edu/review/upside-recessions-cleaner-air)
Thanks for this excellent analysis!
Getting ripped off sounds pretty good right now.
Sisowath Sirik Matak was a violent, extremist right wing anti-democratic Junta loving American tool bemoaning his lost of freedom to oppress others. Funny enough the Khmer Rouge was an American tool as well, but one that was better at making plans and knew the USA for what it was.. Sisowath Sirik Matak got discarded, just like a wife who either has grown old or lost control over her dowry. The Khmer Rouge continue to receive American protection until Vietnam had enough, they were the USA's Israel in South East Asia, but without the oil trade to threaten/control their genocide wasn't worth defending.
Excuse me, the Khmer Rouge was in many ways a product of the U.S. puppet regimes and its war in defense of them against the populations of Vietnam, Cambodia and Laos. No matter what one thinks of the crazed peasant Stalinists of the KR, we're supposed to feel sorrow for a Prince that was abandoned by the U.S.? Scratch a liberal and one finds a supporter of monarchy.
The argument here about U.S. corporate investment in SE Asia seems to support it. So Nike, for example, is heavily exploiting a lot of workers in Vietnam, and we're supposed to think that's a good thing, vs. Trump's shenanigans? It seems to me that the discussion should take off from Nike's deep involvement to address militant international labor organizing and solidarity against the practices of such companies, along with the abject failure of the U.S. AFL-CIO leadership to do that, whether in Vietnam or closer to or in the U.S.
I am reminded of the evergreen Kissinger quote, "The word will go out to the nations of the world that it may be dangerous to be America's enemy, but to be America's friend is fatal ..."
Great piece. Thanks, Prof. T!