There's a fetishization of "mavericks" and "contrarians" that abounds on the internet. People demand that we take contrarians seriously because going against the grain is viewed as some sign of unusual brilliance. Same thing here-- there are mountains of self-proclaimed "serious" defenders of Trump pulling out all kinds of Emperor's New Clothes justifications for his incoherent policy claims.
Reality is, the conventional wisdom is, boringly, correct the vast majority of the time. And the vast majority of those that get celebrated for making big, profitable, contrarian bets proceed to make lots of big, disastrous, contrarian bets. John Paulson was famously feted for making billions shorting housing in 2007-2008. He proceeded to find all kinds of brilliant and creative ways to lose money for a decade after that. Turns out, the vast majority of these brilliant contrarians are just people who bet big on 33 on the roulette wheel. Those who are consistently correct in contrarian ways are almost always just lucky.
Yes, very occasionally, someone will reinvent a field with their brilliance. Those people come along, I dunno, once a century? There's really only been one Keynes in economics-- everyone else since then has stood on his shoulders in some way or other. And even he wasn't unique; Hicks was getting to the same conclusions, but was far less charismatic.
So I think the obvious and boring answer is that we should listen to the consensus. If 95% of economists believe something, odds are they're not missing some brilliant insight that the other 5% grasp; the other 5% are just doofuses.
Matt Taibbi has a different point of view. Not the contrarian view, but that of an outsider... interesting.
Taibbi: "From NPR this morning:
'But, by the end of the day, Trump apparently had reached his threshold of market pain. He reversed course, ditching some of the tariffs, because, he said, people “were getting a little bit yippy, a little bit afraid.
The market rallied Wednesday, but with Trump increasing tariffs to 145% on China, by Thursday, the Dow was down again. And, remember, China has leverage, too, because it buys a lot of U.S. government debt, and they seem to have every intention of using it.'
Translation: a serial trade and human-rights violator (China) that with the help of decades of corrupt politicians from both parties polluted, price-dumped, and stole its way to a generation of American jobs and revenue, now owns so much of our debt that we must put up with its shit indefinitely. That’s the point of view of our own federal news agency. We have officially cucked ourselves past the point of no return.
Trump or no Trump, the international trade system needs to be blown to hell."
---30---
The globalists have always been a bit too glib about the true nature of China, its decades of increasingly authoritarian, imperialist and nationalist rule, and its claims now on the entire South China Sea, various border regions in India, and Taiwan---even Tibet used to be regarded as an independent region (now being Han-ified, btw).
Latest news is China soldiers showing up in Ukraine, adding to soldiers from the Beijing vassal state North Korea, and that without China supplies, Russia might not even be able to sustain the ghastly carnage in Ukraine.
We see what Russia did with its wealth gained through trade, largely with Western Europe: It declared war on Eastern Europe.
Yeahhh that’s basically just him spouting incoherence. China owning a lot of US debt doesn’t give them some special leverage. They could dump that debt, or refuse to buy more. But… there’s never been a shortage of buyers of US debt, including… the Federal Reserve, which is a slightly important buyer of last resort.
Taibbi and ignoramuses of his ilk seem to think that China is exercising some nefarious leverage because it can… dump US debt at a loss to themselves. That’s not the kind of thing you write if you either: (1) understand anything; or (2) have the humility not to write about things you don’t understand.
We have heard talk about the "bond vigilantes returning."
With a little assist from PR, who knows what Beijing could bring about. But in fact, Beijing's holding of US Treasuries are not as impressive as a few years back.
I am actually a fan of the Fed building its balance sheet. You mention an excellent idea.
Not on general principle, but as a practical reality.
1. The US Congress/President will never balance the budget, so the US will borrow about $1 trillion a year (I would prefer smaller outlays and a balanced budget in normal peacetime. So what? Everyone says the same thing). US taxpayers already pay $1 trillion a year in interest.
2. The Fed can likely buy some large fraction annual federal borrowing every year, without disrupting too much, especially as it pertains to inflation. See the Bank of Indonesia or Bank of Japan for real-world (not theoretical) examples.
3. Maybe let inflation run a little hotter, to 3%. This effectively deleverages taxpayers.
It may be possible to slowly deleverage America.
My take is tariffs within more moderate ranges are no big deal, but anything that shifts taxes away from productive behavior (working) and onto property or imports is better than not.
Matt Taibbi is a smart fellow, btw. He may have different views than you.
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Actually, housing is the No. 1 economic issue facing Americans today. Tariffs and moderate inflation are not much to worry about.
The US should double the amount of housing it builds. Maybe more.
But back on topic, I have said 100 times, sure balance a smaller federal budget, run a moderate monetary ship. I have also farted at the moon, to same effect.
What are the odds the President and the Congress will run a balanced budget?
I guess not entirely impossible, after all the Clinton Presidency managed it in some years. Seems like a different lifetime now
Inflation at $3% annually would "deflate away" about $1 trillion every year. (0.03 times $30 trillion). A rough wash with deficits. US Taxpayers would not become more indebted every year.
If the Fed would add $500 billion annually to its balance sheet, we might actually start reducing debt to GDP ratios.
Perhaps my proposals are only pragmatic resignation to what is. Don't worry; even my family disregards my advice, usually in default mode.
Yes, there is a mainstream view promulgated by a handful of academics, but that has nothing to do with conventional wisdom. It's a narrow view of a handleful of men, with no claim to fame (shout-out to Heilbroner).
Conventional wisdom comes from crowds. Chatgpt provides two examples: "“Time heals all wounds” and “Crime increases during a full moon.” The former is probably true, the latter untrue. Nevertheless, both are conventional wisdom.
You mention Keynes in passing, but yet fail to provide any substance. Did you read Keynes seminal work? "The General Theory of Employment, Interest and Money" is mostly word salad.
The book can be summarized as please intervene in the market, create artificial demand, and who cares about the long run because we're all dead.
Did you know that many economists never actually read Keynes? ITo get an A in economics, one only needs to understand the textbook examples. Then, in graduate school, there is more advanced discussion around the main principles and a dissertation in a very narrow area. One can achieve a Ph.D, and never read Keynes. Uneblievable, right? Well, believe it, because that's the state of our academy today.
Context also matters. Keynes lost a fortune in 29, and instead of blaming the Fed, like Mises, he blamed the market, advocating for more intervention.
A lot of geniuses argued against Keynes. Friedman, Mises, all of the libertarians at the time, and, of course, the old right led by folks like Garett Garrett and Rose Wilder Lane ( I bet you didn't read their work either). the list is rather long.
This is not a discussion about flat-earthers. We're not talking about some "doofuses" as you put it, who argue we're bing controlled by Lizard aliens.
Furthermore, disagreeing with the mainstream view does not make one a doofus.
Peter Navarro is not a doofus. Likewise, Robert Malone and Peter McCullough, who argued in favor of the Great Barrington Declaration, as did other scientists, are not "doofuses".
More importantly, it's not a handful of academics who should be determining the direction of our country. It's the people. The people want tariffs. It's popular.
either wittingly or unwittingly, you are arguing in favor of Plato's philosopher kings.
And it's not just you. We see the same rhetoric from other neocons like Douglas Murray, and neolibs like Hillary Clinton. They're afraid of the new generation, the new intellectual class who disagrees with their establishment views (at least Douglas is a good person and cool guy).
All you have to offer is word salad and petulant remarks like "doofus", trumpista" (scotts favorite one), and "hard-right". But none of these epithets will win in the marketplace of ideas.
Uhhhhh yes, the mainstream view is the conventional wisdom. It's what's taught in the vast majority of graduate schools. You have robust debates within the profession. But that debate is around the margins. When it comes to intellectual framework, there isn't a huge amount of daylight between, say, Sumner and Krugman.
Yes, I read Keynes, but it's pretty clear that you didn't. Or at least I hope you didn't, because your description is entirely wrong, on every dimension. I'm not gonna bother going into it, because literally every single thing is completely wrong. Just to start with, you completely and utterly butcher your retelling of the "General Theory." Like, I would say you read a blurb, but even a blurb might have some accuracy to it. To start with, "in the long run we're all dead" is... not an exhortation to ignore the long run. It's a criticism of the prevailing view of economists before him that observing that the economy restores itself to an equilibrium in the long run is meaningless because... yes, in the long run we're all dead.
And yes, Peter Navarro is in fact a doofus. Doofus is being generous. Peter Navarro doesn't appear to grasp basic accounting identities that you learn as a college freshman in macroeconomics. He's out there declaring that imports subtract from GDP and that foreign countries pay for tariffs. That's not just wrong; it's, again, freshman macro level wrong.
So yes, it's important to understand policy and to deeply grasp economics. What "the people" want matters on a broad level. On a policy level, it's irrelevant. "The people" might want price controls, but policymakers should be responsible stewards who actually grasp policy and its implications in a way that "the people" don't.
Now, we won't be getting into a policy debate here because you've demonstrated that you have less than no understanding of basic economics. Your description of Keynes is... entirely incoherent and wrong across every count. So there's no utility to discussing, but you should know that, if you want to discuss something, it's helpful to actually have something resembling a grasp of it.
I think someone who wishes to be epistemically humble would first recognize that with Trump it is important to not take everything he takes literally, and thus to take a wait-and-see approach regarding what the outcome of his actions will be. If, for instance, the purpose of these tariffs is to force other countries to lower their trade barriers (of which there are early signs that this could happen - but again: wait and see), then it doesn't make sense to impose them without making other countries believe that you are serious and will not easily back down. But this is just one possibility, of course.
"with Trump it is important to not take everything he takes literally"
I take nothing he says literally. On the negotiation issue, it's a myth that our major trading partners have major trade barriers against our exports. They have some, but so we do we. These barriers have almost nothing to do with our trade deficit, which is why Trump typically opposes free trade treaties. We had a treaty with Canada and Mexico, which Trump negotiated. He tore it up.
Peter Navarro has a Ph.D from Harvard. Where is your Ph.D. from?
Scott Bessent is a Billionaire hedge fund investor that traded internationally. What's the name of your hedge fund?
Marco Rubio is a talented Lawyer, turned politician, and was one of the most gifted senators before becoming secretary of state. Did you ever win the vote of a single American? Yet, you want to dictate policy? Who the hell are you?
J.D. Vance has a law degree from yale, and owns a venture capital firm. Where is your venture capital firm?
Trump is an international real estate developer, with global properties. Where is your real estate development company? Have you ever employed someone?
In your blog post, you didn't actually discuss any of the arguments Navarro or Bessent made. Indeed, you start with "I sense", but nobody cares about your senses. The only fact you presented was that most economists disagree with him.
So what. Bad argument.
Galileo was fringe. Einstein was fringe. Michio Kaku is fringe.
Why don't you actually make a worthy argument other than your proposal to continue with the status quo, which Americans mostly reject.
"Peter Navarro has a Ph.D from Harvard. Where is your Ph.D. from?"
An economics program with far more Nobel Prize winners than Harvard's program. In any case, a few minutes ago Trump basically admitted his critics were right.
As an aside, I never made any of the arguments that you claim I made. Reading comprehension doesn't seem to be your forte.
"In your blog post, you didn't actually discuss any of the arguments Navarro or Bessent made. Indeed, you start with "I sense", but nobody cares about your senses. The only fact you presented was that most economists disagree with him.
So what. Bad argument.
Galileo was fringe. Einstein was fringe. Michio Kaku is fringe."
Galileo wasn't "fringe" at all, in the scientific community. His heliocentric view conflicted with the Catholic Church's view, but catholicism is religion (i.e., faith), not science.
Einstein wasn't fringe, after Eddington Experiments in 1919. And it was only four years between Einstein's 1915 (revised) prediction of light deflection during an eclipse, as predicted by his General Theory of Relativity, and confirmation by the Eddington Experiments in 1919.
Michio Kaku...well, it seems to me that Michio Kaku is best known as a popularizer of science. What "fringe" scientific position do you think he's had, that has later been confirmed?
"Peter Navarro has a Ph.D from Harvard. Where is your Ph.D. from?"
The matter isn't between Peter Navarro's PhD and Scott Sumner's PhD.
The matter is between the wisdom of Peter Navarro's PhD and the entire crowd of economists who have economics PhDs. (Probably including the vast majority of other economists who have PhDs from Harvard.) And in that situation, I'd bet against Peter Navarro's from Harvard, anytime.
P.S. In fact, I've already done so, with respect to betting against Peter Navarro, and his Harvard PhD. I've pulled essentially all of my retirement money out of stocks *and* bonds, and put it in money market funds.
I can understand how it drives people nuts that Trump says all kinds of crazy things, and we are left guessing what it all really means. There may be a benefit to playing this kind of strategy, especially for a strong country like the US. But, one can take it too far, for sure. Trump is not alone is terms of the crazy, however. For instance, I have seen serious economists stating that you have a trade deficit with your grocery store if you buy from them but never sell your goods/services to them. This is incorrect - you'd have a trade deficit if you borrowed from the store to pay for your purchases. Maybe silliness is contagious?
Nope, a bilateral trade deficit with an individual country has nothing to do with debt. The example you call "silly" is exactly correct. It's the mercantilists that are silly.
The overall trade deficit with the entire world may relate to debt, but it also may involve exchanging equity for goods. And of course there's also services, which the Trump administration ignores.
I believe you stated that the example of someone buying milk from the grocery store, and paying the full amount, is economically equivalent to someone having a trade deficit with that grocery store. I only see there as being a trade deficit if someone gets the milk, but does not pay until a later point in time.
The narrative that Trump doesn't always mean what he says is very slippery. Because then when he actually does what he says (this tariff nonsense, for example), people say, "why are you surprised? He said that he would do this."
Trump clearly stated that he would use tariffs as leverage to get better deals. He's been saying that since the 80's. Americans voted for it. We all knew he was going to do this. When he says, "I will keep them forever", while onboard airforce one, well, that's just the negotiator speaking. That's his poker face. You're incapable of reading inbetween the lines. Not to mention, you're panicking. China has no leverage. They're the creditor. We're the debtor. They need us more than we need them. Sumner may want China to win, but they won't.
Trump has no idea what he wants; assume all nations that run a trade surplus with the US said ok, we take off all tariffs and you do the same. Were Trump to agree to that, and i would suggest he would have pressure to do so, the US would still run trade deficits with many countries becasue we are a rich nation.
Look. He has also said repeatedly that (1) he will use tariffs to reduce our reliance on income taxes and pay down the national debt, and (2) that he will save $10,000 per American via DOGE efficiency savings with $5,000 going back to each American, and (3) that there will be no Medicaid cuts. Which of those are negotiating points and which does he "mean?"
"By the way, if ‘we all knew he was going to do this,’ why has the stock market dropped so sharply?"
Yes, the stock market has dropped sharply, because nobody really knew what he was going to do.
For example, when he said he was going to impose "reciprocal tariffs", ***I*** thought he meant...reciprocal tariffs! (Silly me, for not realizing Donald Trump's--aka, Humpty Dumpty's--words really mean just whatever he chooses them to mean.)
Then why did he impose steep tariffs on Israel after it preemptively eliminated tariffs on US goods? Why is he rejecting deals with countries offering to eliminate tariffs explicitly on the basis that they wouldn’t eliminate bilateral trade deficits?
The only coherent explanation for the tariffs is that Trump really actually believed eliminating all bilateral trade deficits is desirable.
At a certain point Occam’s razor requires us to accept that he’s not just acting stupid as a negotiating tactic but really is just that stupid.
this still isnt a coherent explanation because he seems to want to incentivize foreign investment and put tariffs on all countries, not just ones with trade surpluses
Uh, no. Other than possibly the national security angle wrt to China, none of the justifications for the administration's policy makes any sense since there are no significant trade barriers against us among our other major trading partners. This notion that we are getting ripped off somehow by the rest of the world (with the possible exception of China) is just BS. How is it that we have performed so well relative to the rest of the developed world: Japan, EU, Canada since 2008 if they have been robbing us all along? You are giving Trump too much credit. He has a mercantilist mindset and now has surrounded himself with folks who are either too ignorant or too cowardly to tell him the truth. This is going to end badly. The only question is how bad.
But maybe you're right and Vietnam will agree to start paying tribute to the US Treasury. I will stand corrected if Trump manages to pull that off.
P.S. And in the case of China, they very deliberately engaged in a strategy of tech transfer for market access that many western firms found impossible to resist. You can get away with that when you are behind. I will leave it to others to determine whether it was ethical or not. But if I were the Chinese, I wouldn't feel too badly about it. All they have to do is remember the 19th century, starting with the Opium wars.
And of course we stole our intellectual capital from Britain in the 1800s, and Europe stole its intellectual capital from China (gunpowder, the compass, paper, the printing press, etc.)
I hate the tariffs and agree completely with Scott’s post. But is it really true that there are no significant trade barriers against us? Some of the barriers in this chart seemed significant, but maybe it’s inaccurate.
Our trading partners have low average tariffs against us, just like we do.
Our trading partners have some individual tariffs and quotas and are quite restrictive, so do we.
My point is that there not much difference among the major countries. The highly protective countries mostly tend to be poor third world countries, where we do little trade.
Even under 100% free trade worldwide, the US would run about the same size trade deficits.
Does that mean the chart is inaccurate? In the chart the US has the lowest barriers and some of our major trading partners have significantly larger barriers (Canada, China, Europe). Are their barriers just directed at other countries and not against us or are their overall barriers substantially lower than the chart suggests?
Some of those seem highly implausible, such as the UK's non-tariff barriers. I'd like to see the computation. Also, we have free trade agreement with Mexico, Canada, South Korea, etc. which those don't show.
Our average tariff rate is about the same as the EU, the UK, Canada, Japan, Australia, etc. I will concede that China's tariffs are a bit higher, but that's not what limits our exports to China. Developing countries like India and Argentina have high tariffs, but aren't major trading partners.
In any case, unilateral free trade is good. There'a reason why places like Singapore and Switzerland are rich, they choose to have very low barriers, even with countries with high barriers.
"Are their barriers just directed at other countries and not against us or are their overall barriers substantially lower than the chart suggests?"
As with Scott, I have no idea how the computation was performed. But take something like "regulation", which was part of the "non-tariff trade barriers":
Suppose Canada and Europe have regulations against genetically modified organisms (GMOs) in foods, or against certain pesticides in foods Are those "non-tariff trade barriers"? Conversely, suppose the U.S. has automobile emissions or air bag regulations that various Chinese auto manufacturers can't meet. Are those also a "non-tariff trade barrier"? And if all of those are indeed "non-tariff trade barriers" how would they be calculated in a manner that they can be presented on a single graph?
Good point. If the regulations apply to both domestic and imported goods, then it's not clear it's a trade barrier. In the end, these things are highly subjective.
It's like the VAT--which also applies to both types of goods.
Trump’s tariff moves are idiotic. Any defense of them feels like a rerun of the 4D chess delusion from his first term. Simply put, he’s out of his depth, surrounded by yes men, and propped up by supporters tied to him through jobs, pride, or cognitive dissonance. What started as empty rhetoric and culture wars is now hitting people economically. Meanwhile, the rise of platforms like AliExpress and Temu is exposing the fragility of brand power—big players like Bezos are panicking as consumers realize the same products exist unbranded at a fraction of the price.
Trump seems to regard trade deficits as a problem that needs a solution. If he's spending all this political capital to solve a problem that's not actually all that problematic then the outcome doesn't matter all that much, right?
"If he's spending all this political capital to solve a problem that's not actually all that problematic then the outcome doesn't matter all that much, right?"
If a patient has bellyache from eating green apples, and the doctor prescribes such a massive dose of chemotherapy (those are references for "All in the Family" fans ;-)) that the patient dies, would it be appropriate to say, "then the outcome doesn't matter all that much"?
This does seem to be Trump's stategy. What's really troubling is that the author goes insofar to tell other nations to collectively thwart the presidents attempt to negotiate better deals. That's borderline treason.
Not only is it not treason, it's the only patriotic approach. America will only do well if Trump fails to achieve his mercantilist goals. We need to do everything possible to make his attempt fail. It's also worth noting that Trump's actions are probably illegal. There is no Congressional authorization for this.
Let's hope that foreign nations pressure him to back down.
On point 4: Brexit was not a mistake. The mistake was in not using the freedom provided by Brexit to immediately arrange universal free trade with both the EU and the rest of the world and to deregulate. Shucking off that multi-national layer of bureaucracy was a sensible thing to do. The idiot politicians failed to make good use of Brexit.
Switzerland does just fine without being in the EU as do several other countries.
Negotiating anything resembling free trade with the EU means agreeing to their rules and regulations while having no voice in them - ie giving up the sovereignty they allegedly voted for. It's why the negotiations were so tricky and their outcome so disappointing.
British Labour MP Peter Kyle stated that "Norway shadows the ECJ, it pays more fees into EU countries as part of its settlement per capita than Britain currently does for full membership, and Norway is very honest about the downside of taking rules whilst having little influence over their making."[7]
They pay more and take regulations without a voice in their creation.
They have the autonomy to easily leave if they so desire, but that seems useless if your economies are so tightly coupled it's essentially shooting yourself in the foot.
Brexit was essentially one thing -- getting free from from the EU bureaucracy. Voting for Trump was voting for many things. (Whether or not the latter was a mistake (a) depends on whether you see the alternative as worse, as I did and do, and (b) how things turn out. It's much too soon to say.)
Oh, please. Speaking to a dozen different pro-Brexit voters, one received a dozen different answers on why Brexit was a good idea. YOU may have voted to get free from the EU bureaucracy (which doesn't really make sense, but okay), but don't pretend that was why everyone voted for it.
That was the mistake. But it was going to happen because there was no reason to believe that the UK would maintain the political consensus to enact policies to avoid it
lol. the american people certaintly understand hardship.
you don't, because you grew up in a middleclass family, and then worked for Bentley for 40 years.
the bottom 50% of Americans are in debt. they have no savings, and many who are working full time jobs still live at a their car, rent, and some, even have to rely on food stamps despite being fully employed.
None of your arguments make any sense. if you don't want to pay the tax, make your product in America. It's that easy.
You're just angry because your stocks are going down. I don't care. I hope they crash. I hope you're broke. If babyboomers loses all their wealth after printing their way to wealth for 50 years, I'd jump up and down with joy. Nobody cares about your savings account. We really don't.
There was an academic paper in 2018, NBER, written by Mary Amiti that shows producers mostly absorb tariffs.
Your advice to foreign nations to collectively thwart Donald Trump is borderline treason. You clearly do not want America to negotiate better deals. You want our country to lose.
Lim, I think you need more epistemic humility. I concede that I might be wrong about the tariffs, and I know far more economics than you do. Consider that you might be wrong before throwing out terms like "treason" against those you disagree with.
Are you talking about "The impact of the 2018 tariffs on prices and welfare" written in 2019 by Mary Amiti, Stephen J Redding, and David E Weinstein?
The one that says "In the wake of this increase in trade protection, the United States experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and the complete pass-through of the tariffs into domestic prices of imported goods. Therefore, the full incidence of the tariffs has fallen on domestic consumers and importers so far, and our estimates imply a reduction in aggregate US real income of $1.4 billion per month by the end of 2018."?
Don't spread misinformation on the Internet. And if producers mostly absorbed tariffs (they don't), then it really wouldn't complete the policy goals Trump wants, would it?
Thanks for checking that. Most of the studies I see show a lot of pass through to prices, and you'd expect even higher pass through when the whole world is affected, not just a single country.
I agree. It is a good example of epistemic humility. But why add all the complexity of Import Certificates(IC)? It seems the currency exchange market should achieve what Buffett is trying to achieve through the IC market. He even talks about the fact that he is buying foreign currencies today. If enough people start doing that, that will put downward pressure on the trade deficit. That's, of course, not the most pleasant way to do it. He hints at the best way to solve the problem when he calls us Squanderville. Our low savings rate is the real problem. We should focus on increasing incentives for saving both at the federal and individual level if we don't want to end up enthralled to creditors.
I don't think the trade deficit as a number is the problem. The problem is that economic optimizations results in unequal distribution of economic opportunity.
There are many vibrant, prosperous communities in America. The trade deficit doesn't hurt them because these communities have jobs that provide high incomes and this creates a virtuous cycle of property values and talented people and retail and so on. Poor communities in America fall into a doom cycle because as jobs leave, incomes fall and the talented people leave.
You don't need to send a factory to China to destroy an American community. You only have to send to it anywhere else. In the 1970s and 1980s, a lot of plants moved from the American Northeast to the American South. The US trade deficit wasn't impacted by this. But small towns in the Northeast were devastated.
I lived for 35 years in New England, which benefited greatly from the loss of factories to the South. New England has one of the highest standards of living in the entire world. A beautiful example of creative destruction making communities better off.
There is a possible silver lining to this trade war: the drop in commodity prices is severely hurting Russia’s economy even more than it already is. The Russian Central Bank issued a warning this morning that falling oil prices threaten the stability of the economy.
Unintentionally, Trump might have brought about the collapse of Russia’s war effort through his own stupidity.
I think the top priority of the Trump administration is to crush interest rates and allow the Fed to return to QE. This will lower borrowing costs and allow the government to keep spending levels high. That dampening economic activity lowers commodity prices serves multiple purpose.
We will have to wait to see if Trump actually succeeds in lowering tariffs for selling American goods overseas. Sure, Trump wants this but sometimes Trump is all talk.
"’d tell the president to do everything possible to boost the national savings rate, including sharply reducing the budget deficit and reducing the tax code’s bias against saving."
If the Dems could only shake the Warren/Sanders wealth tax wing, they could come up with a tax simplification plan that would make sense to the everyday American. Eliminate all the tax preferences including the use of debt used for financial engineering and one can get to a point where the median earner in the US would pay ZERO Federal income tax. Why should home buyers be subsidized over renters? Why should the SALT deduction even exist? Shouldn't we contribute to charity in the absence of a tax deduction? Why are capital gains taxed at a different rate? etc. etc. etc.
Move to tax simplification and the corporate tax rate could also be lowered as well. I would like to have a modest VAT but that may be a road too far. You can get a lot of revenue by doing simple things (and it would also put a lot of tax professionals out of work which is maybe a good thing).
"... "boost the national savings rate, including sharply reducing the budget deficit and reducing the tax code’s bias against saving."
If the Dems could only shake the Warren/Sanders wealth tax wing, they could come up with a tax simplification plan that would make sense to the everyday American."
Why not do both ? Just because you want to tax the wealthy more doesn't mean you can't simplify taxes, reduce the budget deficit and reduce the tax code's bias against saving.
I did not say 'not tax the wealthy.' I stated that the wealth tax proposal should be off the table. It is difficult to administer and will lead to new roads of tax avoidance. If you simplify things by removing preferences, you automatically reduce tax avoidance.
If you are talking about assessing various holding of wealthy people (multiple homes and other real estate holdings, art works, and a lot of other things, then the answer is no it is not easy. It's far better to clean up the tax code eliminate all the LLC abuses, prevent tax avoidance schemes and tax wealth transfers at death above a certain limit.
If you have an easier way to accomplish this please do tell and don't simply rehash the Warren/Sanders wealth tax stuff. That won't work.
No tax is perfect but they could keep it simple... see my reply below. But I 100% agree about cleaning up the tax code. We will never get that as long as tax law is literally written by tax attorneys that work for the wealthy. Seriously. Congress passes tax laws that no one in Congress understands. The actual text of the law is written for them.
Wealth is difficult to define, more difficult to measure, more difficult still to track. Even ignoring the economic problems with a wealth tax (which are plentiful and non-negligible), the practical problems are enough to warrant looking elsewhere.
No tax can be perfect but a wealth could still be kept simple and capture the lion's share. If just target publicly traded stocks, bonds, savings accounts, crypto and real estate.
"...that support this policy also supported Brexit, which the British public now overwhelmingly views as a mistake."
Sorry, while it is a true statement that the majority of the British public views Brexit as a mistake, it is completely false to use the term "overwhelmingly"
The anti-Brexit sentiment is somewhere between 54% and 65% and right now it is closer to the lower figure than the higher.
Even 65% is not "overwhelmingly". and the lower figures are not even close to overwhelming.
Of course I have little doubt that among the London intelligentsia the sentiment has always been overwhelmingly anti-Brexit.
But whether they were "correct" or not, that is a very different point from the false claim in this piece.
Agree completely. These tariffs are a big mistake. I do have one question for you Scott. The early 1920s was a very high tariff era. How would you judge those effects on the economy?
I don't understand trying to connect Peter Navarro to epistemic humility or lack thereof--isn't he obviously just lying in order to defend delusional Donnie?
You’ve said in the past that presidents only affect 3% of outcomes. Do you think Trump is breaking that rule or are we just seeing him maxing out with negative 3%?
So far it looks like he's breaking that rule. He may back off somewhat, but I'd still expect him to end up well above 3%. I underestimated his energy level, which was much lower in his first term.
The present tariff madness shows exactly why it's good that our Constitution gives congress, not the president, the power to "lay taxes."
If congress was figuring out appropriate tariffs, there's no way the tariffs would be so "arbitrary and capricious". Members of congress representing all areas of the country would research and weigh in on the various levels and the various countries. And congress wouldn't be putting on and taking off tariffs at times no one could predict.
Following the law...almost always a pretty good idea.
The best explanation for this mess is that the most profitable investment opportunities are for those who know in advance that a major market disturbance is coming and that it will correct (mostly). We just saw a spectacular example.
"Many of the same populists that support this policy also supported Brexit, which the British public now overwhelmingly views as a mistake." - this is a bit sloppy, Scott. 'Overwhelmingly' is hardly how anyone would characterise 55% of the British public (or 62% if I'm being generous). https://yougov.co.uk/politics/articles/51484-how-do-britons-feel-about-brexit-five-years-on
OK maybe a bit too strong on my part. But that 55% was from a 55% vs. 30% graph, which is a pretty wide margin. If Trump won an election 55% to 30%, would he describe it as close? (I'm kidding here.)
Find someone who considers brexit a success. Many original brexit supporters will comment that what they got is not "brexit" but that is of course a matter of semantics. The UK is no longer a member of the EU and it also does not have the benefits countries like Norway have. So in a material sense, brexit has happened. Did it bring tangible economic benefits for the median British voter? Probably not. Are the surviving brexit supporters (they tended to be somewhat older) having buyers' remorse? Apparently so. Did they "get their country back" Hard to tell, did they ever lose it? It is all a matter of sentiment. I guess if a referendum to rejoin were held, it would have a different result, but keep in mind that only a minority voted to exit the EU; about the same number (48-52) voted to stay in and over 15% of the eligibles did not vote at all. Very few professional economists consider it an economic success, rather a nationalistic folly. More or less the same as is happening in the US, except the US is destroying much more than brexit ever could.
There's a fetishization of "mavericks" and "contrarians" that abounds on the internet. People demand that we take contrarians seriously because going against the grain is viewed as some sign of unusual brilliance. Same thing here-- there are mountains of self-proclaimed "serious" defenders of Trump pulling out all kinds of Emperor's New Clothes justifications for his incoherent policy claims.
Reality is, the conventional wisdom is, boringly, correct the vast majority of the time. And the vast majority of those that get celebrated for making big, profitable, contrarian bets proceed to make lots of big, disastrous, contrarian bets. John Paulson was famously feted for making billions shorting housing in 2007-2008. He proceeded to find all kinds of brilliant and creative ways to lose money for a decade after that. Turns out, the vast majority of these brilliant contrarians are just people who bet big on 33 on the roulette wheel. Those who are consistently correct in contrarian ways are almost always just lucky.
Yes, very occasionally, someone will reinvent a field with their brilliance. Those people come along, I dunno, once a century? There's really only been one Keynes in economics-- everyone else since then has stood on his shoulders in some way or other. And even he wasn't unique; Hicks was getting to the same conclusions, but was far less charismatic.
So I think the obvious and boring answer is that we should listen to the consensus. If 95% of economists believe something, odds are they're not missing some brilliant insight that the other 5% grasp; the other 5% are just doofuses.
Great comment, those are my views as well.
Matt Taibbi has a different point of view. Not the contrarian view, but that of an outsider... interesting.
Taibbi: "From NPR this morning:
'But, by the end of the day, Trump apparently had reached his threshold of market pain. He reversed course, ditching some of the tariffs, because, he said, people “were getting a little bit yippy, a little bit afraid.
The market rallied Wednesday, but with Trump increasing tariffs to 145% on China, by Thursday, the Dow was down again. And, remember, China has leverage, too, because it buys a lot of U.S. government debt, and they seem to have every intention of using it.'
Translation: a serial trade and human-rights violator (China) that with the help of decades of corrupt politicians from both parties polluted, price-dumped, and stole its way to a generation of American jobs and revenue, now owns so much of our debt that we must put up with its shit indefinitely. That’s the point of view of our own federal news agency. We have officially cucked ourselves past the point of no return.
Trump or no Trump, the international trade system needs to be blown to hell."
---30---
The globalists have always been a bit too glib about the true nature of China, its decades of increasingly authoritarian, imperialist and nationalist rule, and its claims now on the entire South China Sea, various border regions in India, and Taiwan---even Tibet used to be regarded as an independent region (now being Han-ified, btw).
Latest news is China soldiers showing up in Ukraine, adding to soldiers from the Beijing vassal state North Korea, and that without China supplies, Russia might not even be able to sustain the ghastly carnage in Ukraine.
We see what Russia did with its wealth gained through trade, largely with Western Europe: It declared war on Eastern Europe.
History never repeats, but it does rhyme.
Free trade everyone?
Yeahhh that’s basically just him spouting incoherence. China owning a lot of US debt doesn’t give them some special leverage. They could dump that debt, or refuse to buy more. But… there’s never been a shortage of buyers of US debt, including… the Federal Reserve, which is a slightly important buyer of last resort.
Taibbi and ignoramuses of his ilk seem to think that China is exercising some nefarious leverage because it can… dump US debt at a loss to themselves. That’s not the kind of thing you write if you either: (1) understand anything; or (2) have the humility not to write about things you don’t understand.
Well, yes and no.
We have heard talk about the "bond vigilantes returning."
With a little assist from PR, who knows what Beijing could bring about. But in fact, Beijing's holding of US Treasuries are not as impressive as a few years back.
I am actually a fan of the Fed building its balance sheet. You mention an excellent idea.
Not on general principle, but as a practical reality.
1. The US Congress/President will never balance the budget, so the US will borrow about $1 trillion a year (I would prefer smaller outlays and a balanced budget in normal peacetime. So what? Everyone says the same thing). US taxpayers already pay $1 trillion a year in interest.
2. The Fed can likely buy some large fraction annual federal borrowing every year, without disrupting too much, especially as it pertains to inflation. See the Bank of Indonesia or Bank of Japan for real-world (not theoretical) examples.
3. Maybe let inflation run a little hotter, to 3%. This effectively deleverages taxpayers.
It may be possible to slowly deleverage America.
My take is tariffs within more moderate ranges are no big deal, but anything that shifts taxes away from productive behavior (working) and onto property or imports is better than not.
Matt Taibbi is a smart fellow, btw. He may have different views than you.
----
Actually, housing is the No. 1 economic issue facing Americans today. Tariffs and moderate inflation are not much to worry about.
"Maybe let inflation run a little hotter, to 3%."
Ben Cole's answer to every problem---create more inflation.
Well, not every problem.
The US should double the amount of housing it builds. Maybe more.
But back on topic, I have said 100 times, sure balance a smaller federal budget, run a moderate monetary ship. I have also farted at the moon, to same effect.
What are the odds the President and the Congress will run a balanced budget?
I guess not entirely impossible, after all the Clinton Presidency managed it in some years. Seems like a different lifetime now
Inflation at $3% annually would "deflate away" about $1 trillion every year. (0.03 times $30 trillion). A rough wash with deficits. US Taxpayers would not become more indebted every year.
If the Fed would add $500 billion annually to its balance sheet, we might actually start reducing debt to GDP ratios.
Perhaps my proposals are only pragmatic resignation to what is. Don't worry; even my family disregards my advice, usually in default mode.
So it goes.
Your comment is incoherent.
Yes, there is a mainstream view promulgated by a handful of academics, but that has nothing to do with conventional wisdom. It's a narrow view of a handleful of men, with no claim to fame (shout-out to Heilbroner).
Conventional wisdom comes from crowds. Chatgpt provides two examples: "“Time heals all wounds” and “Crime increases during a full moon.” The former is probably true, the latter untrue. Nevertheless, both are conventional wisdom.
You mention Keynes in passing, but yet fail to provide any substance. Did you read Keynes seminal work? "The General Theory of Employment, Interest and Money" is mostly word salad.
The book can be summarized as please intervene in the market, create artificial demand, and who cares about the long run because we're all dead.
Did you know that many economists never actually read Keynes? ITo get an A in economics, one only needs to understand the textbook examples. Then, in graduate school, there is more advanced discussion around the main principles and a dissertation in a very narrow area. One can achieve a Ph.D, and never read Keynes. Uneblievable, right? Well, believe it, because that's the state of our academy today.
Context also matters. Keynes lost a fortune in 29, and instead of blaming the Fed, like Mises, he blamed the market, advocating for more intervention.
A lot of geniuses argued against Keynes. Friedman, Mises, all of the libertarians at the time, and, of course, the old right led by folks like Garett Garrett and Rose Wilder Lane ( I bet you didn't read their work either). the list is rather long.
This is not a discussion about flat-earthers. We're not talking about some "doofuses" as you put it, who argue we're bing controlled by Lizard aliens.
Furthermore, disagreeing with the mainstream view does not make one a doofus.
Peter Navarro is not a doofus. Likewise, Robert Malone and Peter McCullough, who argued in favor of the Great Barrington Declaration, as did other scientists, are not "doofuses".
More importantly, it's not a handful of academics who should be determining the direction of our country. It's the people. The people want tariffs. It's popular.
either wittingly or unwittingly, you are arguing in favor of Plato's philosopher kings.
And it's not just you. We see the same rhetoric from other neocons like Douglas Murray, and neolibs like Hillary Clinton. They're afraid of the new generation, the new intellectual class who disagrees with their establishment views (at least Douglas is a good person and cool guy).
All you have to offer is word salad and petulant remarks like "doofus", trumpista" (scotts favorite one), and "hard-right". But none of these epithets will win in the marketplace of ideas.
Uhhhhh yes, the mainstream view is the conventional wisdom. It's what's taught in the vast majority of graduate schools. You have robust debates within the profession. But that debate is around the margins. When it comes to intellectual framework, there isn't a huge amount of daylight between, say, Sumner and Krugman.
Yes, I read Keynes, but it's pretty clear that you didn't. Or at least I hope you didn't, because your description is entirely wrong, on every dimension. I'm not gonna bother going into it, because literally every single thing is completely wrong. Just to start with, you completely and utterly butcher your retelling of the "General Theory." Like, I would say you read a blurb, but even a blurb might have some accuracy to it. To start with, "in the long run we're all dead" is... not an exhortation to ignore the long run. It's a criticism of the prevailing view of economists before him that observing that the economy restores itself to an equilibrium in the long run is meaningless because... yes, in the long run we're all dead.
And yes, Peter Navarro is in fact a doofus. Doofus is being generous. Peter Navarro doesn't appear to grasp basic accounting identities that you learn as a college freshman in macroeconomics. He's out there declaring that imports subtract from GDP and that foreign countries pay for tariffs. That's not just wrong; it's, again, freshman macro level wrong.
So yes, it's important to understand policy and to deeply grasp economics. What "the people" want matters on a broad level. On a policy level, it's irrelevant. "The people" might want price controls, but policymakers should be responsible stewards who actually grasp policy and its implications in a way that "the people" don't.
Now, we won't be getting into a policy debate here because you've demonstrated that you have less than no understanding of basic economics. Your description of Keynes is... entirely incoherent and wrong across every count. So there's no utility to discussing, but you should know that, if you want to discuss something, it's helpful to actually have something resembling a grasp of it.
I think someone who wishes to be epistemically humble would first recognize that with Trump it is important to not take everything he takes literally, and thus to take a wait-and-see approach regarding what the outcome of his actions will be. If, for instance, the purpose of these tariffs is to force other countries to lower their trade barriers (of which there are early signs that this could happen - but again: wait and see), then it doesn't make sense to impose them without making other countries believe that you are serious and will not easily back down. But this is just one possibility, of course.
"with Trump it is important to not take everything he takes literally"
I take nothing he says literally. On the negotiation issue, it's a myth that our major trading partners have major trade barriers against our exports. They have some, but so we do we. These barriers have almost nothing to do with our trade deficit, which is why Trump typically opposes free trade treaties. We had a treaty with Canada and Mexico, which Trump negotiated. He tore it up.
Peter Navarro has a Ph.D from Harvard. Where is your Ph.D. from?
Scott Bessent is a Billionaire hedge fund investor that traded internationally. What's the name of your hedge fund?
Marco Rubio is a talented Lawyer, turned politician, and was one of the most gifted senators before becoming secretary of state. Did you ever win the vote of a single American? Yet, you want to dictate policy? Who the hell are you?
J.D. Vance has a law degree from yale, and owns a venture capital firm. Where is your venture capital firm?
Trump is an international real estate developer, with global properties. Where is your real estate development company? Have you ever employed someone?
In your blog post, you didn't actually discuss any of the arguments Navarro or Bessent made. Indeed, you start with "I sense", but nobody cares about your senses. The only fact you presented was that most economists disagree with him.
So what. Bad argument.
Galileo was fringe. Einstein was fringe. Michio Kaku is fringe.
Why don't you actually make a worthy argument other than your proposal to continue with the status quo, which Americans mostly reject.
"Peter Navarro has a Ph.D from Harvard. Where is your Ph.D. from?"
An economics program with far more Nobel Prize winners than Harvard's program. In any case, a few minutes ago Trump basically admitted his critics were right.
As an aside, I never made any of the arguments that you claim I made. Reading comprehension doesn't seem to be your forte.
i think americans mostly prefer the previous status quo over recession
"In your blog post, you didn't actually discuss any of the arguments Navarro or Bessent made. Indeed, you start with "I sense", but nobody cares about your senses. The only fact you presented was that most economists disagree with him.
So what. Bad argument.
Galileo was fringe. Einstein was fringe. Michio Kaku is fringe."
Galileo wasn't "fringe" at all, in the scientific community. His heliocentric view conflicted with the Catholic Church's view, but catholicism is religion (i.e., faith), not science.
Einstein wasn't fringe, after Eddington Experiments in 1919. And it was only four years between Einstein's 1915 (revised) prediction of light deflection during an eclipse, as predicted by his General Theory of Relativity, and confirmation by the Eddington Experiments in 1919.
Michio Kaku...well, it seems to me that Michio Kaku is best known as a popularizer of science. What "fringe" scientific position do you think he's had, that has later been confirmed?
"Peter Navarro has a Ph.D from Harvard. Where is your Ph.D. from?"
The matter isn't between Peter Navarro's PhD and Scott Sumner's PhD.
The matter is between the wisdom of Peter Navarro's PhD and the entire crowd of economists who have economics PhDs. (Probably including the vast majority of other economists who have PhDs from Harvard.) And in that situation, I'd bet against Peter Navarro's from Harvard, anytime.
P.S. In fact, I've already done so, with respect to betting against Peter Navarro, and his Harvard PhD. I've pulled essentially all of my retirement money out of stocks *and* bonds, and put it in money market funds.
Your point about fringe people sometimes being right is valid, but I would add that trade and geopolitics involve trade-offs and unknowns.
No one has the right answer; they guess, which is the definition of epistemically humble.
I had to look up epistemically, so that shows where I'm at: awash in a world of unknowns.
I can understand how it drives people nuts that Trump says all kinds of crazy things, and we are left guessing what it all really means. There may be a benefit to playing this kind of strategy, especially for a strong country like the US. But, one can take it too far, for sure. Trump is not alone is terms of the crazy, however. For instance, I have seen serious economists stating that you have a trade deficit with your grocery store if you buy from them but never sell your goods/services to them. This is incorrect - you'd have a trade deficit if you borrowed from the store to pay for your purchases. Maybe silliness is contagious?
Nope, a bilateral trade deficit with an individual country has nothing to do with debt. The example you call "silly" is exactly correct. It's the mercantilists that are silly.
The overall trade deficit with the entire world may relate to debt, but it also may involve exchanging equity for goods. And of course there's also services, which the Trump administration ignores.
You don't need a double coincidence of wants (a barter economy) to have balanced trade. Last time I checked, Current Account + Capital Account = 0.
How does that relate to what I said?
I believe you stated that the example of someone buying milk from the grocery store, and paying the full amount, is economically equivalent to someone having a trade deficit with that grocery store. I only see there as being a trade deficit if someone gets the milk, but does not pay until a later point in time.
The narrative that Trump doesn't always mean what he says is very slippery. Because then when he actually does what he says (this tariff nonsense, for example), people say, "why are you surprised? He said that he would do this."
You seem to be incapable of nuance.
Trump clearly stated that he would use tariffs as leverage to get better deals. He's been saying that since the 80's. Americans voted for it. We all knew he was going to do this. When he says, "I will keep them forever", while onboard airforce one, well, that's just the negotiator speaking. That's his poker face. You're incapable of reading inbetween the lines. Not to mention, you're panicking. China has no leverage. They're the creditor. We're the debtor. They need us more than we need them. Sumner may want China to win, but they won't.
"Trump clearly stated that he would use tariffs as leverage to get better deals. He's been saying that since the 80's."
This is false, he opposes free trade deals. He likes the McKinley tariff approach.
Trump has no idea what he wants; assume all nations that run a trade surplus with the US said ok, we take off all tariffs and you do the same. Were Trump to agree to that, and i would suggest he would have pressure to do so, the US would still run trade deficits with many countries becasue we are a rich nation.
Look. He has also said repeatedly that (1) he will use tariffs to reduce our reliance on income taxes and pay down the national debt, and (2) that he will save $10,000 per American via DOGE efficiency savings with $5,000 going back to each American, and (3) that there will be no Medicaid cuts. Which of those are negotiating points and which does he "mean?"
Oh, okay, great argument, I hadn't considered that. By the way, if ‘we all knew he was going to do this,’ why has the stock market dropped so sharply?
"By the way, if ‘we all knew he was going to do this,’ why has the stock market dropped so sharply?"
Yes, the stock market has dropped sharply, because nobody really knew what he was going to do.
For example, when he said he was going to impose "reciprocal tariffs", ***I*** thought he meant...reciprocal tariffs! (Silly me, for not realizing Donald Trump's--aka, Humpty Dumpty's--words really mean just whatever he chooses them to mean.)
Then why did he impose steep tariffs on Israel after it preemptively eliminated tariffs on US goods? Why is he rejecting deals with countries offering to eliminate tariffs explicitly on the basis that they wouldn’t eliminate bilateral trade deficits?
The only coherent explanation for the tariffs is that Trump really actually believed eliminating all bilateral trade deficits is desirable.
At a certain point Occam’s razor requires us to accept that he’s not just acting stupid as a negotiating tactic but really is just that stupid.
this still isnt a coherent explanation because he seems to want to incentivize foreign investment and put tariffs on all countries, not just ones with trade surpluses
Uh, no. Other than possibly the national security angle wrt to China, none of the justifications for the administration's policy makes any sense since there are no significant trade barriers against us among our other major trading partners. This notion that we are getting ripped off somehow by the rest of the world (with the possible exception of China) is just BS. How is it that we have performed so well relative to the rest of the developed world: Japan, EU, Canada since 2008 if they have been robbing us all along? You are giving Trump too much credit. He has a mercantilist mindset and now has surrounded himself with folks who are either too ignorant or too cowardly to tell him the truth. This is going to end badly. The only question is how bad.
But maybe you're right and Vietnam will agree to start paying tribute to the US Treasury. I will stand corrected if Trump manages to pull that off.
P.S. And in the case of China, they very deliberately engaged in a strategy of tech transfer for market access that many western firms found impossible to resist. You can get away with that when you are behind. I will leave it to others to determine whether it was ethical or not. But if I were the Chinese, I wouldn't feel too badly about it. All they have to do is remember the 19th century, starting with the Opium wars.
And of course we stole our intellectual capital from Britain in the 1800s, and Europe stole its intellectual capital from China (gunpowder, the compass, paper, the printing press, etc.)
I hate the tariffs and agree completely with Scott’s post. But is it really true that there are no significant trade barriers against us? Some of the barriers in this chart seemed significant, but maybe it’s inaccurate.
https://substack.com/@ageofinfovores/note/c-107696228?r=1lmgqf&utm_medium=ios&utm_source=notes-share-action
A few points:
Our trading partners have low average tariffs against us, just like we do.
Our trading partners have some individual tariffs and quotas and are quite restrictive, so do we.
My point is that there not much difference among the major countries. The highly protective countries mostly tend to be poor third world countries, where we do little trade.
Even under 100% free trade worldwide, the US would run about the same size trade deficits.
Does that mean the chart is inaccurate? In the chart the US has the lowest barriers and some of our major trading partners have significantly larger barriers (Canada, China, Europe). Are their barriers just directed at other countries and not against us or are their overall barriers substantially lower than the chart suggests?
Some of those seem highly implausible, such as the UK's non-tariff barriers. I'd like to see the computation. Also, we have free trade agreement with Mexico, Canada, South Korea, etc. which those don't show.
Our average tariff rate is about the same as the EU, the UK, Canada, Japan, Australia, etc. I will concede that China's tariffs are a bit higher, but that's not what limits our exports to China. Developing countries like India and Argentina have high tariffs, but aren't major trading partners.
In any case, unilateral free trade is good. There'a reason why places like Singapore and Switzerland are rich, they choose to have very low barriers, even with countries with high barriers.
"Are their barriers just directed at other countries and not against us or are their overall barriers substantially lower than the chart suggests?"
As with Scott, I have no idea how the computation was performed. But take something like "regulation", which was part of the "non-tariff trade barriers":
Suppose Canada and Europe have regulations against genetically modified organisms (GMOs) in foods, or against certain pesticides in foods Are those "non-tariff trade barriers"? Conversely, suppose the U.S. has automobile emissions or air bag regulations that various Chinese auto manufacturers can't meet. Are those also a "non-tariff trade barrier"? And if all of those are indeed "non-tariff trade barriers" how would they be calculated in a manner that they can be presented on a single graph?
Good point. If the regulations apply to both domestic and imported goods, then it's not clear it's a trade barrier. In the end, these things are highly subjective.
It's like the VAT--which also applies to both types of goods.
Trump’s tariff moves are idiotic. Any defense of them feels like a rerun of the 4D chess delusion from his first term. Simply put, he’s out of his depth, surrounded by yes men, and propped up by supporters tied to him through jobs, pride, or cognitive dissonance. What started as empty rhetoric and culture wars is now hitting people economically. Meanwhile, the rise of platforms like AliExpress and Temu is exposing the fragility of brand power—big players like Bezos are panicking as consumers realize the same products exist unbranded at a fraction of the price.
Are the penguins reducing their trade barriers? Which exact steps have they proposed taking? No more tariffs on imported pebbles?
You're just another person arguing that this isn’t as dumb as it very clearly is.
Trump seems to regard trade deficits as a problem that needs a solution. If he's spending all this political capital to solve a problem that's not actually all that problematic then the outcome doesn't matter all that much, right?
"If he's spending all this political capital to solve a problem that's not actually all that problematic then the outcome doesn't matter all that much, right?"
If a patient has bellyache from eating green apples, and the doctor prescribes such a massive dose of chemotherapy (those are references for "All in the Family" fans ;-)) that the patient dies, would it be appropriate to say, "then the outcome doesn't matter all that much"?
This does seem to be Trump's stategy. What's really troubling is that the author goes insofar to tell other nations to collectively thwart the presidents attempt to negotiate better deals. That's borderline treason.
Not only is it not treason, it's the only patriotic approach. America will only do well if Trump fails to achieve his mercantilist goals. We need to do everything possible to make his attempt fail. It's also worth noting that Trump's actions are probably illegal. There is no Congressional authorization for this.
Let's hope that foreign nations pressure him to back down.
You don't know what treason is, do you?
Not treason, just good advice for nations that don't want to deal with an unreliable nation.
On point 4: Brexit was not a mistake. The mistake was in not using the freedom provided by Brexit to immediately arrange universal free trade with both the EU and the rest of the world and to deregulate. Shucking off that multi-national layer of bureaucracy was a sensible thing to do. The idiot politicians failed to make good use of Brexit.
Switzerland does just fine without being in the EU as do several other countries.
Negotiating anything resembling free trade with the EU means agreeing to their rules and regulations while having no voice in them - ie giving up the sovereignty they allegedly voted for. It's why the negotiations were so tricky and their outcome so disappointing.
Not really:
British Labour MP Peter Kyle stated that "Norway shadows the ECJ, it pays more fees into EU countries as part of its settlement per capita than Britain currently does for full membership, and Norway is very honest about the downside of taking rules whilst having little influence over their making."[7]
https://en.wikipedia.org/wiki/Norway-plus_model
They pay more and take regulations without a voice in their creation.
They have the autonomy to easily leave if they so desire, but that seems useless if your economies are so tightly coupled it's essentially shooting yourself in the foot.
Making Trump President was not a mistake by the voters. It’s (many of) the actions taken by Trump after being installed that are the mistakes!
Brexit was essentially one thing -- getting free from from the EU bureaucracy. Voting for Trump was voting for many things. (Whether or not the latter was a mistake (a) depends on whether you see the alternative as worse, as I did and do, and (b) how things turn out. It's much too soon to say.)
Oh, please. Speaking to a dozen different pro-Brexit voters, one received a dozen different answers on why Brexit was a good idea. YOU may have voted to get free from the EU bureaucracy (which doesn't really make sense, but okay), but don't pretend that was why everyone voted for it.
I don't live in Britain so I didn't vote either way.
That was the mistake. But it was going to happen because there was no reason to believe that the UK would maintain the political consensus to enact policies to avoid it
lol. the american people certaintly understand hardship.
you don't, because you grew up in a middleclass family, and then worked for Bentley for 40 years.
the bottom 50% of Americans are in debt. they have no savings, and many who are working full time jobs still live at a their car, rent, and some, even have to rely on food stamps despite being fully employed.
None of your arguments make any sense. if you don't want to pay the tax, make your product in America. It's that easy.
You're just angry because your stocks are going down. I don't care. I hope they crash. I hope you're broke. If babyboomers loses all their wealth after printing their way to wealth for 50 years, I'd jump up and down with joy. Nobody cares about your savings account. We really don't.
Wait, you are comparing American hardship with Chinese hardship?
In any case, Trump already blinked. The game's over.
Should the Trump tariffs be analyzed as a supply shock?
Good question. Yes, they are supply shocks. But trade wars can end up being deflationary, depending on how the monetary policymakers respond.
You're lying.
There was an academic paper in 2018, NBER, written by Mary Amiti that shows producers mostly absorb tariffs.
Your advice to foreign nations to collectively thwart Donald Trump is borderline treason. You clearly do not want America to negotiate better deals. You want our country to lose.
Lim, I think you need more epistemic humility. I concede that I might be wrong about the tariffs, and I know far more economics than you do. Consider that you might be wrong before throwing out terms like "treason" against those you disagree with.
Are you talking about "The impact of the 2018 tariffs on prices and welfare" written in 2019 by Mary Amiti, Stephen J Redding, and David E Weinstein?
The one that says "In the wake of this increase in trade protection, the United States experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and the complete pass-through of the tariffs into domestic prices of imported goods. Therefore, the full incidence of the tariffs has fallen on domestic consumers and importers so far, and our estimates imply a reduction in aggregate US real income of $1.4 billion per month by the end of 2018."?
Don't spread misinformation on the Internet. And if producers mostly absorbed tariffs (they don't), then it really wouldn't complete the policy goals Trump wants, would it?
Thanks for checking that. Most of the studies I see show a lot of pass through to prices, and you'd expect even higher pass through when the whole world is affected, not just a single country.
Speaking of MR, I saw this link posted in the comments there:
https://money.cnn.com/magazines/fortune/fortune_archive/2003/11/10/352872/index.htm
It's a great example of epistemic humility and maybe hints at why Buffett doesn't need to lie about his networth.
I agree. It is a good example of epistemic humility. But why add all the complexity of Import Certificates(IC)? It seems the currency exchange market should achieve what Buffett is trying to achieve through the IC market. He even talks about the fact that he is buying foreign currencies today. If enough people start doing that, that will put downward pressure on the trade deficit. That's, of course, not the most pleasant way to do it. He hints at the best way to solve the problem when he calls us Squanderville. Our low savings rate is the real problem. We should focus on increasing incentives for saving both at the federal and individual level if we don't want to end up enthralled to creditors.
I don't think the trade deficit as a number is the problem. The problem is that economic optimizations results in unequal distribution of economic opportunity.
There are many vibrant, prosperous communities in America. The trade deficit doesn't hurt them because these communities have jobs that provide high incomes and this creates a virtuous cycle of property values and talented people and retail and so on. Poor communities in America fall into a doom cycle because as jobs leave, incomes fall and the talented people leave.
You don't need to send a factory to China to destroy an American community. You only have to send to it anywhere else. In the 1970s and 1980s, a lot of plants moved from the American Northeast to the American South. The US trade deficit wasn't impacted by this. But small towns in the Northeast were devastated.
I lived for 35 years in New England, which benefited greatly from the loss of factories to the South. New England has one of the highest standards of living in the entire world. A beautiful example of creative destruction making communities better off.
There is a possible silver lining to this trade war: the drop in commodity prices is severely hurting Russia’s economy even more than it already is. The Russian Central Bank issued a warning this morning that falling oil prices threaten the stability of the economy.
Unintentionally, Trump might have brought about the collapse of Russia’s war effort through his own stupidity.
I think the top priority of the Trump administration is to crush interest rates and allow the Fed to return to QE. This will lower borrowing costs and allow the government to keep spending levels high. That dampening economic activity lowers commodity prices serves multiple purpose.
We will have to wait to see if Trump actually succeeds in lowering tariffs for selling American goods overseas. Sure, Trump wants this but sometimes Trump is all talk.
After falling briefly, interest rates spike up. And kinda stabilized after Trump reversed course.
It's worth it to hurt Russia, but when he was saying "drill baby drill" I thought, US is an exporter now; it can hurt us.
Anyway, it is always better to be lucky than good. Trump is one of the most fortunate and persistent people on planet Earth.
"’d tell the president to do everything possible to boost the national savings rate, including sharply reducing the budget deficit and reducing the tax code’s bias against saving."
If the Dems could only shake the Warren/Sanders wealth tax wing, they could come up with a tax simplification plan that would make sense to the everyday American. Eliminate all the tax preferences including the use of debt used for financial engineering and one can get to a point where the median earner in the US would pay ZERO Federal income tax. Why should home buyers be subsidized over renters? Why should the SALT deduction even exist? Shouldn't we contribute to charity in the absence of a tax deduction? Why are capital gains taxed at a different rate? etc. etc. etc.
Move to tax simplification and the corporate tax rate could also be lowered as well. I would like to have a modest VAT but that may be a road too far. You can get a lot of revenue by doing simple things (and it would also put a lot of tax professionals out of work which is maybe a good thing).
"... "boost the national savings rate, including sharply reducing the budget deficit and reducing the tax code’s bias against saving."
If the Dems could only shake the Warren/Sanders wealth tax wing, they could come up with a tax simplification plan that would make sense to the everyday American."
Why not do both ? Just because you want to tax the wealthy more doesn't mean you can't simplify taxes, reduce the budget deficit and reduce the tax code's bias against saving.
I did not say 'not tax the wealthy.' I stated that the wealth tax proposal should be off the table. It is difficult to administer and will lead to new roads of tax avoidance. If you simplify things by removing preferences, you automatically reduce tax avoidance.
A wealth tax can be as simple as any other tax.
If you are talking about assessing various holding of wealthy people (multiple homes and other real estate holdings, art works, and a lot of other things, then the answer is no it is not easy. It's far better to clean up the tax code eliminate all the LLC abuses, prevent tax avoidance schemes and tax wealth transfers at death above a certain limit.
If you have an easier way to accomplish this please do tell and don't simply rehash the Warren/Sanders wealth tax stuff. That won't work.
No tax is perfect but they could keep it simple... see my reply below. But I 100% agree about cleaning up the tax code. We will never get that as long as tax law is literally written by tax attorneys that work for the wealthy. Seriously. Congress passes tax laws that no one in Congress understands. The actual text of the law is written for them.
Wealth is difficult to define, more difficult to measure, more difficult still to track. Even ignoring the economic problems with a wealth tax (which are plentiful and non-negligible), the practical problems are enough to warrant looking elsewhere.
No tax can be perfect but a wealth could still be kept simple and capture the lion's share. If just target publicly traded stocks, bonds, savings accounts, crypto and real estate.
The best wealth tax is a consumption tax. Other wealth taxes are too complicated and discourage saving.
I don't have objections to real estate or crypto, but... savings accounts?! Equities and bonds also fraught with really bad disincentive effects.
"...that support this policy also supported Brexit, which the British public now overwhelmingly views as a mistake."
Sorry, while it is a true statement that the majority of the British public views Brexit as a mistake, it is completely false to use the term "overwhelmingly"
The anti-Brexit sentiment is somewhere between 54% and 65% and right now it is closer to the lower figure than the higher.
Even 65% is not "overwhelmingly". and the lower figures are not even close to overwhelming.
Of course I have little doubt that among the London intelligentsia the sentiment has always been overwhelmingly anti-Brexit.
But whether they were "correct" or not, that is a very different point from the false claim in this piece.
Agree completely. These tariffs are a big mistake. I do have one question for you Scott. The early 1920s was a very high tariff era. How would you judge those effects on the economy?
I don't understand trying to connect Peter Navarro to epistemic humility or lack thereof--isn't he obviously just lying in order to defend delusional Donnie?
Most of Trump's advisors are lying--Navarro is a true believer.
You’ve said in the past that presidents only affect 3% of outcomes. Do you think Trump is breaking that rule or are we just seeing him maxing out with negative 3%?
So far it looks like he's breaking that rule. He may back off somewhat, but I'd still expect him to end up well above 3%. I underestimated his energy level, which was much lower in his first term.
The present tariff madness shows exactly why it's good that our Constitution gives congress, not the president, the power to "lay taxes."
If congress was figuring out appropriate tariffs, there's no way the tariffs would be so "arbitrary and capricious". Members of congress representing all areas of the country would research and weigh in on the various levels and the various countries. And congress wouldn't be putting on and taking off tariffs at times no one could predict.
Following the law...almost always a pretty good idea.
The best explanation for this mess is that the most profitable investment opportunities are for those who know in advance that a major market disturbance is coming and that it will correct (mostly). We just saw a spectacular example.
"Many of the same populists that support this policy also supported Brexit, which the British public now overwhelmingly views as a mistake." - this is a bit sloppy, Scott. 'Overwhelmingly' is hardly how anyone would characterise 55% of the British public (or 62% if I'm being generous). https://yougov.co.uk/politics/articles/51484-how-do-britons-feel-about-brexit-five-years-on
OK maybe a bit too strong on my part. But that 55% was from a 55% vs. 30% graph, which is a pretty wide margin. If Trump won an election 55% to 30%, would he describe it as close? (I'm kidding here.)
Find someone who considers brexit a success. Many original brexit supporters will comment that what they got is not "brexit" but that is of course a matter of semantics. The UK is no longer a member of the EU and it also does not have the benefits countries like Norway have. So in a material sense, brexit has happened. Did it bring tangible economic benefits for the median British voter? Probably not. Are the surviving brexit supporters (they tended to be somewhat older) having buyers' remorse? Apparently so. Did they "get their country back" Hard to tell, did they ever lose it? It is all a matter of sentiment. I guess if a referendum to rejoin were held, it would have a different result, but keep in mind that only a minority voted to exit the EU; about the same number (48-52) voted to stay in and over 15% of the eligibles did not vote at all. Very few professional economists consider it an economic success, rather a nationalistic folly. More or less the same as is happening in the US, except the US is destroying much more than brexit ever could.