Your advocacy of prudent entanglement with China, which I thoroughly endorse, is an example of applying the perrineal wisdom of doux commerce. Montesquieu was a clever sort.
The whole point being for all authors mentioned that increased commerce between Nations is smart, we all benefit, and good because it encourages an openness to strangers that could become less strange
Isn't there a little bit of conflict between these two sentences:
"Furthermore, protectionism reduces the cost of military aggression, by making countries less susceptible to economic sanctions. Protectionism also leads to greater animosity. US economic sanctions were a significant factor in Japan’s attack on Pearl Harbor."
The first sentence is fine, but then the second sentence takes what the first sentence considers a justifiable use of trade restriction and applies the label of "protectionism" to refer to applying sanctions to a rival nation in order to degrade its ability to conduct foreign policy we dislike (in this case, Japan's expansionist aggression in the Pacific and war with our friend, Britain).
Those oil sanctions were a major motivator for Japan to attack the US, but it was basically a foregone conclusion that if Japan wanted to control the Pacific that we would eventually have to go to war. Giving the Japanese navy all the oil it needed would have not made things better.
Those are reasonable views, but I'm not sure that Japan wanted to "control the Pacific". They certainly wished to control East Asia, and I view that as a very bad thing, just as it was bad for Britain and France and Belgium to control much of Africa and South Asia. But did the US have to go to war over the issue? I'm not sure.
With China, the risk of war is vastly greater, now that we are in the nuclear age. (And I continue to say that even if there's only a 10% chance that a future war would turn nuclear--it would be that bad.)
Pre-war sanctions always involve a difficult choice. They increase the risk of war, but reduce the severity of it when it does occur. But by how much? I'd guess our sanctions on Japan increased the risk of war by far more than they reduced the severity of it when it actually occurred.
When war actually does break out (as in Ukraine), then sanctions are an obvious choice.
The fact that Japan was willing to attack the US--a vastly superior foe--because we were contesting through economic means their ability to militarily control whatever part of the East Asia-Pacific we can agree they were trying to control is pretty damn good evidence their risk appetite and ambition were effectively unlimited. In the end, we defeated them quite easily, given how few of our resources we put there vs. the European theater. The US did *not* "have to go to war over the issue," but "the enemy gets a vote" and Japan "voted" to attack us for refusing to trade with them. If you, like me, are a big fan of freedom of association, then refusal to associate it a pretty key part of that right for individuals and countries. Keep in mind we weren't putting "secondary sanctions" on Japan--as we now do for e.g. Iran and Russia--we just wouldn't sell them our oil. As we had every right not to.
"When war actually does break out (as in Ukraine), then sanctions are an obvious choice."
Scott, come on, you're doing it again--contradicting yourself. War *actually had broken out* in East Asia/Pacific with Japan as the clear aggressor against both native and colonial powers there, including against countries we were friendly with.
Sanctions against Japan *were* the "obvious choice," unless you want to argue we should have been fine with Japan's agenda (which included taking the Philippines, an American protectorate, the invasion of which began concurrently with the attack on Peal Harbor). What was not obvious was that Japan would be willing to gamble on a surprise attack against the US Navy and bet that we would not be able to fight successfully on two separate fronts.
Also, the fact that Germany declared war on the US following the Peal Harbor attack is pretty conclusive evidence the Axis Powers thought war with the US was a foregone conclusion. (Hitler apparently had no foreknowledge of the attack, but was quite happy about it: https://time.com/6124125/pearl-harbor-attack-aftermath-world-war-ii/)
To nitpick, the "risk" of war in the nuclear age in terms of occurrence is lower--but the risk of potential impact is higher. Deterring potential Chinese military aggression--noting China is a far smarter opponent than Nazi Germany and Imperial Japan--is a hard problem where I'm definitely more hawkish than you. The Taiwan situation is a mess for many reasons--including the lack of effort by the Taiwanese to fortify themselves--and frankly I do see the logic of just pulling a Hong Kong with it instead of risking WWIII.
Separate issue--I finally got around to reading your book and it was excellent. So much so that now I do not understand why macro / monetary policy isn't a solved problem and why e.g. you and Tyler Cowen have the differences you do. (I need to go back and reread the last exchange you had with my newfound expertise.)
I don't fully agree, although you make good arguments. To begin with, this article makes a pretty good case that Japan did not wish to go to war with the US:
Perhaps I'm wrong about Japanese intentions, history is not my area of expertise. Maybe they were dumber than I thought. I certainly agree that the US should not have accepted a Japanese takeover of Philippines.
You are correct that my Ukraine view seems to conflict with my view of Japanese sanctions, but these comparisons are always inexact. For instance, was Japan's colonization of China more like Britain's colonization of India, or more like Russia's colonization of Ukraine. No single comparison is exact.
One reason I worry so much about Russia is that they have 4000 nuclear weapons. In the 1930s, I would not have worried about a nuclear war with Japan. (Although in retrospect, perhaps we should have been more concerned.)
You said: "The Taiwan situation is a mess for many reasons--including the lack of effort by the Taiwanese to fortify themselves--and frankly I do see the logic of just pulling a Hong Kong with it instead of risking WWIII."
I'm more hawkish than this, but more dovish than the US foreign policy blob. I'd support giving Taiwan the weapons it needs to defend itself, and I'd support sanctions on China if they did invade (although I understand the latter would not do much to deter China.) In other words, my view on Taiwan is similar to my view on Ukraine. My fear is that we plan to go to war over Taiwan. If the Chinese expect that, or even if our intentions are ambiguous, they might do a Pearl Harbor style attack on Okinawa to inhibit our ability to respond, which would obviously be a total disaster. Indeed a worse disaster than the armchair hawks in DC even realize.
In the 1930s, we were in an essentially lawless world, where even allies like Britain and France routinely conquered and annexed developing countries. In my view, the post-WWII world is different. It is important to establish the principle that countries cannot just take over foreign countries (And yes, that applies to Trump's refusal to disavow force on Greenland, which is outrageous. In practical terms, a Taiwan invasion would be worse, but in strictly legal terms, a Greenland invasion would be even more lawless.)
Thanks for the kind words on my book, I greatly appreciate that. FWIW, my book on the Depression is much better than The Money Illusion, albeit perhaps not as much of interest to modern readers.
I agree that money/macro is a solved problem, which is why I do less posting on the issue. But other predictions of "the end of history" have proved premature, so I expect (worry?) that I'll be back in the not too distant future. I hope not.
Re: "the end of history"--I'm obligated to point out that the essay and book in question asserted that liberal democracy had "solved" the question of optimal governmental systems, not that humans would thereafter make wise geopolitical decisions leading to world peace. (Perhaps the worst title choice of all time, since many think he was idiotically wrong, when he was not.) Fukuyama even wrote at the end of his book: "Perhaps this very prospect of centuries of boredom at the end of history will serve to get history started once again." I think Trump and Putin, among others, are fulfilling that prediction.
Similarly, you believe NGDP targeting has "solved" macro policy as a theoretical problem and no other real alternative exists, but by no means do you assert that monetary policy is solved in terms of what policies central bankers and politicians will actually pursue.
I'll grant that you could distinguish between pre- and post-WWII geopolitics in terms of how you view certain decisions to be involved, or not, on moral grounds. I would say that as far as I know the British colonialism in India was far less bad than that of the Japanese in Manchuria, particularly given that the major bloodshed was long since over with in India (and indeed bloodshed would become very bad because the British left).
On realist grounds, however (and I mean actual realism, not the BS version that advocates for isolationism and preemptive surrender), Japan wanted to control an entire region of the world where the US already had conflicting interests and security obligations. So, sure, Japan didn't "want" to go to war with the US, but it had to in order to fulfill its ambitions. Even absent any oil issue, either Japan or the US would have had to give up their interest in the Philippines, among other issues.
Not being an APAC expert (my career has been focused on our disasters in the Middle East), my understanding is that the risk of a preemptive strike by China against the US is pretty unlikely, because that risks WWIII right off the bat (and would be basically impossible to conceal). Far better to either swiftly take Taiwan such that it becomes too late for the US to stop the foregone conclusion, or to pursue strangulation via a naval blockade, where China gives the US the option to not involve itself militarily. If there is direct, but swift and limited, military conflict between China and the US IVO Taiwan, a clear victor might emerge such that the losing side backs off, without escalating to attacks on strategic sites/assets and employing nuclear weapons. It's an open question, for example, just how well US and Chinese missiles and aircraft and ships will actually fair in a direct confrontation. One side might wipe the floor with the other. (Note, for example, that it was surprising just how completely militarily ineffective Iran's and Hezbollah's drones/missiles were--a threat that was previously extremely concerning to Israel--and how easily Israel completely wrecked Iran's advanced air defenses. China, of course, is a far more advanced opponent than Iran.)
Russian-Ukraine is very much its own thing in terms of US involvement, because we've never taken any concrete steps to even pretend to go to war over its territorial integrity, as we have with Taiwan. And there's the recent history of the Soviet Union, Putin's proven willingness to bully and invade his neighbors, NATO allies being very nearby, and the fact there's no ocean. If we wanted to resolve the ambiguity around Taiwan, we could reestablish a US military presence on Taiwan as a tripwire (as we have in South Korea), or simply give 'em a nuke or two.
After a "century of humiliation", I fear that China would not back off, even if losing the first round. Otherwise, I don't have much problem with your claims here.
On the Philippines, I'd always been under the impression that Japan's attack was a consequence of Pearl Harbor, and that their actual goal was Indonesia's oil. But maybe that's wrong.
As an aside, I suppose you are right about the British being "less bad", but as I'm sure you know that's NOT why we didn't go to war with Britain. Belgium was just as bad a colonial power as Japan, and we didn't fight Belgium. But as you say, it was more about Japan's control of East Asia than human rights in China. On that point I agree.
Apparently Japan's goal for regional dominance included the Philippines. So taking it right after taking a bite out of the US Navy at Peal Harbor made operational sense.
Luckily for Belgium, the US did not have any particular interest in Africa and was not yet running a foreign policy strongly morally driven to oppose colonialism/imperialism. (We of course put a ton of pressure on the British to give up their empire after WWII when we did have morally driven foreign policy.)
As an aside, in the past I've advocated the Hong Kong solution for Taiwan, with the important difference that Taiwan be allowed maintain its military for 50 years, to prevent the sort of premature takeover seen in Hong Kong. For Taiwan, it's a gamble that China will be a more reasonable place in 50 years, and for Xi Jinping it allows a big PR victory without the worry of an invasion that might go badly in all sorts of ways.
And if in 50 years China turns into Nazi Germany, the Taiwanese could always go back on the deal. I don't see where they have much to lose.
The motto of the Navarro/Trump trade policy should be: "to get poor is glorious." And I bet that MAGA world would actually buy bumper stickers that say that because they're invested in the belief that reduced product choice and higher prices would be a short term condition. Or worse, they would claim that a destruction of trade is a virtuous good that can be sustained for the long term.
Jack Welch once noted that he didn't want GE selling toaster ovens; he wanted to be selling CAT scanners.
It is hard to know _which_ right wing economic policy is worse: deficits, immigration restrictions, or import restrictions. Put together they are a recipe for permanent stagnation.
Yes, all three are quite bad, and I'd add the surge in activist regulation as well. During the first Trump administration, conservatives could say, "At least he has some good economic policies."
interesting point about EU-Russia trade entanglement (gas): while it may have failed to deter Russia from invading Ukraine, it wasn't a mistake but an honest effort to get Russia to become more peaceful internationally, through trade. As that failed, it still was not a fatal EU security risk either because EU quickly found other resources to re-diversify. And Russia probably suffers more from the EU precision manufacturing embargo than the EU suffers from buying less Russian gas. Even better if it were better enforced and not bypassed via 3rd country trade.
Wider points on trade: The national security argument for trade as the better way has always been thus: if goods can't cross borders, then armies soon will. But only some if this benefit is due to positive entanglement or the goodwill and cultural exchange engendered by trade (well... a bit of it is). The real reasons are simple mechanics. Resource distribution is lumpy on the planet. So if you want resources you don't have, it's either trade. Or war. Larger countries have it better in that respect because they have more internal resource diversity so they are less trade dependent than smaller nations. Hence the EU. Hence Trump wants Canada to make a North American block.
What's the cheapest t-shirt in America? You guys can probably buy one on Amazon for maybe $20 directly shipped from china, right? I went to Arizona once; you're t-shirts at Walmart were like $45 minimum. In my country, you can buy a t-shirt for about $3. Cheaper if you buy in bulk.
So let's say Nike produces for $3-$5 abroad, a very conservative estimate (probably cheaper). They use high quality cotton, so let's say $3-5 just to be on the safe side. Now, your claim is a simple one: if Americans increase tariffs to 150%, Nike will raise their prices.
Now, I'm not an expert, but let's use our common sense. If you produce for $3-$5, and the landing cost at port after shipping is about $2.50 per shirt, so we'll say landing cost $7.50 (again, very conservative). And then, you turn around and deliver that to retailers across the country, another $2.50 per shirt due to expensive transportation costs in America, that's $10 by the time it gets to the retailer. Then, the retailer, owned by Nike too, although some might be franchised, will sell for $60 to a $100. that's pretty high profit margin.
Now if you add tariffs, the landing price will increase to $20, maybe even $25. Their profit margin is still healthy. Making in America might drop that to $15, increasing their profit margin by $5-$10 per shirt.
My guess is that Nike's profit margins will be reduced, and prices will remain the same. There is really no need to increase the price. The profit margins are so insane from outsourcing that they'll absorb the increased cost. Most industries are identical.
In a perfectly competiive marklet these insane profit margins would not exist, but most industries are oligopolies so that's why tariffs are an equalizer. It will reduce inequality for sure.
I understand why this is a tempting argument, but it's wrong. The problem here is that if this argument were correct, then Chinese exports to America in dollar terms would be relatively low. But then no one would worry about a big trade deficit with China! In fact, the US imports $440 billion from China. Put a 125% tariff on that and it's a fairly big deal.
I'm not saying it would tank the economy (I don't think it would be a disaster, by itself), but it would be very noticeable. Having said that, I think Trump will back off, and indeed he's already starting backing off on iPhones, etc. Time will tell.
That may play a role, but I suspect that factors such as education and affluence play a bigger role. Back in the 1980s, China was a mostly poor and uneducated place, and now most young Chinese people go to college (about 60%). They also are increasingly aware of cultural practices in other advanced places like Japan, Korea, Europe and the US.
BTW, I think that video slightly overstates the speed of change, but I've noticed the same broad trends on my recent visits to China.
Yeah, the guy in the video seemed to have a real negative view of the US economic situation over the past 5 years. It doesn't track with my experience, so I didn't know how much to trust his view of China. Unfortunately, it seems most analysis these days is polluted with political bias.
What's your opinion of the social credit system? The little that I know about it makes it seem horrifying.
I also thought he overstated the decline of the US. But again, I noticed the same sort of cultural changes in China--that part was not made up.
On social credit, all I know is what I read, so I won't comment. AI Overview has a reasonable description of the pros and cons. As with almost everything else in modern China, there are pros and cons to the changes that we see.
I think it's a mistake to focus too much on any one aspect of Chinese society, especially when looking from the outside. Many Chinese people watch news about the US and find all our gun crime, homelessness, etc., to be horrifying, but you and I know that for most Americans it's not much of a problem at all. Not saying social credit is analogous, it's just that I don't ever recall Chinese people speaking about it as a big issue---they tend to have other complaints like Covid lockdowns and unemployment.
1. Tariffs have absolutely nothing to do with technological innovation. America has been a world leader in innovation since since at last the 1880's (high tariffs). Tesla, Edison, leading the way, Ford, Wozniack, Musk, Gates, all in an era with high tariffs. You also woefully underestimate innovators. If we need chips, we'll make them here.
2. Workers are NOT hurt by import tariffs. If manufacturing comes back, in the way that Trump hopes it will, YOU WON"T HAVE TO IMPORT daily items. What part of that don't you understand? If you are "affluent", and you want to buy a persian rug, go ahead, I won't stop you. If you're so rich you can pay the import tax, then great. That's a rich persons problem. It's not a blue collar problem. Joe and Jane don't care about a persian rug. They are mostly focused on practical things, like, buying milk, a decent suit, and whether there will be any jobs for them at all, especially with the advent of AI. Your service based, paper pushing economy, is not going to survive the AI and blockchain era.
And for the love of god, will you stop trying to subsidize everything. Why do you feel the need to send my money (taxes) to Boing. I don't care about Boing. I hope it makes great products, but if it doesn't make great products let it die.
1. That's not how we do causal inference. We can succeed in innovation despite tariffs, doesn't mean that tariffs don't harm innovation or it wouldn't be higher in the counterfactual. Can you think of maybe other reasons the US succeeded in innovation? I can!
2. None of this is an argument against why Sumner said it hurts US workers.
We have empirical evidence that tariffs hurt innovation, and empirical evidence tariffs are regressive taxes that hurt US industries, especially those that use intermediate goods or the ones targeted by retaliation.
boeing is subsidized by the state, and produces the worst planes on the market.
adding a 10% tax on imports, and reducing income tax by 10% has no effect on prices. You are blindly leaving other variables constant. economic nationalism does work. china is a good example of economic nationalism. 10% growth.
India has high tariffs. high growth.
Philippines has high tariffs. high growth.
A major trade war throwing monetary policy of course - really...that's the best you got. That's it. Just continue doing the same thing, despite the fact that 90% of the world doesn't benefit. But continue because you're concerned about the bubble popping. Get a grip dude. C'mon. You're 70 and out of touch brother.
One could argue IRAs and 401ks were a meaningful step but I'm skeptical they made much difference. Either way, what step would increase savings by a meaningful amount?
A smaller budget deficit would help, as would removing the cap for 401k and IRA contributions. But for reasons explained in another recent post I would not expect the US trade deficit to go to zero---we are too rich.
With the exception of the US, the rest of the world economies have been practicing protectionism since 1919 (end of WWI) and it hasn't seemed to hurt them.
Yes, but there's no sign they're persuadable anyway.
Many comments remind me of the great Barney Frank quote, “Trying to have a conversation with you would be like trying to argue with a dining room table."
I suppose there is some truth in what you say but I was taken aback by the other half of his statement. How much of the world is doing as well economically as the US?
I get that there are many reason US is generally doing better besides freer trade than most but why would one think protectionism hasn't hurt numerous countries?
OK. Subsidies vs tariffs for Natsec, which is the only bit that concerns me. We need our supply chains to be independent of China and other rivals. Does that mean you support Biden's subsidies for chips, etc?
Interesting that tariffs are the closest thing to a consumption tax that I've seen lately. We clearly need to shift towards investment and away from consumption. If that happens, it may be Trump's only positive contribution to econ policy.
Thanks for noticing. I meant consumption tax in the sense that (in its own inept way) it was hitting consumption rather than income, assets, or other activities.
Sorry for the inexact phrasing. I meant the China independence to apply only to natsec stuff.
I'm curious Scott as to what you think of the current problem with US billionaires. That is not to say that most of them are a problem, but it does seem clear that some of them are huge problems. I'm referring to Trump, Musk, and at least a handful of others. They are, with support of many wealthy worshiping Americans, obviously bending policy and even the system itself to their will, seemingly without accountability. I use the word "worshiping" here very intentionally, as the cults around these figures are similar to those around the prosperity gospel TV evangelists.
One might say that the problem is with the system, the voters, etc., but can any system tolerate the influence of billionaires, some proportion of which become drunk on their own power and privilege and increasingly think they should run the world? I don't know what portion of billionaires becomes infected by such a "mind virus", but right now it is certainly not a trivial force.
There's clear evidence that, at least in some very important cases, wealth and power really do corrupt.
I agree with your view of Trump and Musk, but I'm not sure it makes sense to generalize from those two cases. My general impression of billionaires is that recent events have shown them to be every bit as cowardly as most ordinary people. Great wealth doesn't make one brave.
How about Thiel, Andressen, Ellison, Sacks, Palihapitiya, etc. All of these are in Musks inner circle, and have publicly supported Musk and Trump in what they're doing. Thiel has long favored discarding democracy.
Rightly, as an economist, you are addressing policymakers, but was this a case of an elected government pursuing counterproductive policy, or a case of a population electing a government to implement their preferred policies? If it's the latter, there will always be candidates willing to run and execute whatever horrendous policy the electorate would demand.
Another way of posing the question is what should administrations of the last few decades have done or said to lead to a different outcome?
I don't think it's meaningful to speak of public opinion on complex issues, as it depends on how the question is framed. Thus the public may support tariffs in the abstract, but oppose them if told they will raise prices. Trump ran on tariffs, but also ran on a platform of bring high prices back down. He's doing one but not the other.
Your advocacy of prudent entanglement with China, which I thoroughly endorse, is an example of applying the perrineal wisdom of doux commerce. Montesquieu was a clever sort.
Didn't Adam Smith also make that argument?
Yes,
But Montesquieu had priority:
Spirit of the Laws(1748)
The Theory of Moral Sentiments(1776)-Smith
Both, obviously great works, emphasizing different aspects of the idea
And as to be expected Hume was a bridge between those different aspects
Correction The Theory of Moral Sentiments 1759.
The whole point being for all authors mentioned that increased commerce between Nations is smart, we all benefit, and good because it encourages an openness to strangers that could become less strange
Isn't there a little bit of conflict between these two sentences:
"Furthermore, protectionism reduces the cost of military aggression, by making countries less susceptible to economic sanctions. Protectionism also leads to greater animosity. US economic sanctions were a significant factor in Japan’s attack on Pearl Harbor."
The first sentence is fine, but then the second sentence takes what the first sentence considers a justifiable use of trade restriction and applies the label of "protectionism" to refer to applying sanctions to a rival nation in order to degrade its ability to conduct foreign policy we dislike (in this case, Japan's expansionist aggression in the Pacific and war with our friend, Britain).
Those oil sanctions were a major motivator for Japan to attack the US, but it was basically a foregone conclusion that if Japan wanted to control the Pacific that we would eventually have to go to war. Giving the Japanese navy all the oil it needed would have not made things better.
Those are reasonable views, but I'm not sure that Japan wanted to "control the Pacific". They certainly wished to control East Asia, and I view that as a very bad thing, just as it was bad for Britain and France and Belgium to control much of Africa and South Asia. But did the US have to go to war over the issue? I'm not sure.
With China, the risk of war is vastly greater, now that we are in the nuclear age. (And I continue to say that even if there's only a 10% chance that a future war would turn nuclear--it would be that bad.)
Pre-war sanctions always involve a difficult choice. They increase the risk of war, but reduce the severity of it when it does occur. But by how much? I'd guess our sanctions on Japan increased the risk of war by far more than they reduced the severity of it when it actually occurred.
When war actually does break out (as in Ukraine), then sanctions are an obvious choice.
The fact that Japan was willing to attack the US--a vastly superior foe--because we were contesting through economic means their ability to militarily control whatever part of the East Asia-Pacific we can agree they were trying to control is pretty damn good evidence their risk appetite and ambition were effectively unlimited. In the end, we defeated them quite easily, given how few of our resources we put there vs. the European theater. The US did *not* "have to go to war over the issue," but "the enemy gets a vote" and Japan "voted" to attack us for refusing to trade with them. If you, like me, are a big fan of freedom of association, then refusal to associate it a pretty key part of that right for individuals and countries. Keep in mind we weren't putting "secondary sanctions" on Japan--as we now do for e.g. Iran and Russia--we just wouldn't sell them our oil. As we had every right not to.
"When war actually does break out (as in Ukraine), then sanctions are an obvious choice."
Scott, come on, you're doing it again--contradicting yourself. War *actually had broken out* in East Asia/Pacific with Japan as the clear aggressor against both native and colonial powers there, including against countries we were friendly with.
Sanctions against Japan *were* the "obvious choice," unless you want to argue we should have been fine with Japan's agenda (which included taking the Philippines, an American protectorate, the invasion of which began concurrently with the attack on Peal Harbor). What was not obvious was that Japan would be willing to gamble on a surprise attack against the US Navy and bet that we would not be able to fight successfully on two separate fronts.
Also, the fact that Germany declared war on the US following the Peal Harbor attack is pretty conclusive evidence the Axis Powers thought war with the US was a foregone conclusion. (Hitler apparently had no foreknowledge of the attack, but was quite happy about it: https://time.com/6124125/pearl-harbor-attack-aftermath-world-war-ii/)
To nitpick, the "risk" of war in the nuclear age in terms of occurrence is lower--but the risk of potential impact is higher. Deterring potential Chinese military aggression--noting China is a far smarter opponent than Nazi Germany and Imperial Japan--is a hard problem where I'm definitely more hawkish than you. The Taiwan situation is a mess for many reasons--including the lack of effort by the Taiwanese to fortify themselves--and frankly I do see the logic of just pulling a Hong Kong with it instead of risking WWIII.
Separate issue--I finally got around to reading your book and it was excellent. So much so that now I do not understand why macro / monetary policy isn't a solved problem and why e.g. you and Tyler Cowen have the differences you do. (I need to go back and reread the last exchange you had with my newfound expertise.)
I don't fully agree, although you make good arguments. To begin with, this article makes a pretty good case that Japan did not wish to go to war with the US:
https://www.chinatalk.media/p/how-the-drive-for-autarchy-caused
Perhaps I'm wrong about Japanese intentions, history is not my area of expertise. Maybe they were dumber than I thought. I certainly agree that the US should not have accepted a Japanese takeover of Philippines.
You are correct that my Ukraine view seems to conflict with my view of Japanese sanctions, but these comparisons are always inexact. For instance, was Japan's colonization of China more like Britain's colonization of India, or more like Russia's colonization of Ukraine. No single comparison is exact.
One reason I worry so much about Russia is that they have 4000 nuclear weapons. In the 1930s, I would not have worried about a nuclear war with Japan. (Although in retrospect, perhaps we should have been more concerned.)
You said: "The Taiwan situation is a mess for many reasons--including the lack of effort by the Taiwanese to fortify themselves--and frankly I do see the logic of just pulling a Hong Kong with it instead of risking WWIII."
I'm more hawkish than this, but more dovish than the US foreign policy blob. I'd support giving Taiwan the weapons it needs to defend itself, and I'd support sanctions on China if they did invade (although I understand the latter would not do much to deter China.) In other words, my view on Taiwan is similar to my view on Ukraine. My fear is that we plan to go to war over Taiwan. If the Chinese expect that, or even if our intentions are ambiguous, they might do a Pearl Harbor style attack on Okinawa to inhibit our ability to respond, which would obviously be a total disaster. Indeed a worse disaster than the armchair hawks in DC even realize.
In the 1930s, we were in an essentially lawless world, where even allies like Britain and France routinely conquered and annexed developing countries. In my view, the post-WWII world is different. It is important to establish the principle that countries cannot just take over foreign countries (And yes, that applies to Trump's refusal to disavow force on Greenland, which is outrageous. In practical terms, a Taiwan invasion would be worse, but in strictly legal terms, a Greenland invasion would be even more lawless.)
Thanks for the kind words on my book, I greatly appreciate that. FWIW, my book on the Depression is much better than The Money Illusion, albeit perhaps not as much of interest to modern readers.
I agree that money/macro is a solved problem, which is why I do less posting on the issue. But other predictions of "the end of history" have proved premature, so I expect (worry?) that I'll be back in the not too distant future. I hope not.
Re: "the end of history"--I'm obligated to point out that the essay and book in question asserted that liberal democracy had "solved" the question of optimal governmental systems, not that humans would thereafter make wise geopolitical decisions leading to world peace. (Perhaps the worst title choice of all time, since many think he was idiotically wrong, when he was not.) Fukuyama even wrote at the end of his book: "Perhaps this very prospect of centuries of boredom at the end of history will serve to get history started once again." I think Trump and Putin, among others, are fulfilling that prediction.
https://newrepublic.com/article/189218/francis-fukuyama-right-liberal-democracy
Similarly, you believe NGDP targeting has "solved" macro policy as a theoretical problem and no other real alternative exists, but by no means do you assert that monetary policy is solved in terms of what policies central bankers and politicians will actually pursue.
Yes, I agree with both points.
I'll grant that you could distinguish between pre- and post-WWII geopolitics in terms of how you view certain decisions to be involved, or not, on moral grounds. I would say that as far as I know the British colonialism in India was far less bad than that of the Japanese in Manchuria, particularly given that the major bloodshed was long since over with in India (and indeed bloodshed would become very bad because the British left).
On realist grounds, however (and I mean actual realism, not the BS version that advocates for isolationism and preemptive surrender), Japan wanted to control an entire region of the world where the US already had conflicting interests and security obligations. So, sure, Japan didn't "want" to go to war with the US, but it had to in order to fulfill its ambitions. Even absent any oil issue, either Japan or the US would have had to give up their interest in the Philippines, among other issues.
Not being an APAC expert (my career has been focused on our disasters in the Middle East), my understanding is that the risk of a preemptive strike by China against the US is pretty unlikely, because that risks WWIII right off the bat (and would be basically impossible to conceal). Far better to either swiftly take Taiwan such that it becomes too late for the US to stop the foregone conclusion, or to pursue strangulation via a naval blockade, where China gives the US the option to not involve itself militarily. If there is direct, but swift and limited, military conflict between China and the US IVO Taiwan, a clear victor might emerge such that the losing side backs off, without escalating to attacks on strategic sites/assets and employing nuclear weapons. It's an open question, for example, just how well US and Chinese missiles and aircraft and ships will actually fair in a direct confrontation. One side might wipe the floor with the other. (Note, for example, that it was surprising just how completely militarily ineffective Iran's and Hezbollah's drones/missiles were--a threat that was previously extremely concerning to Israel--and how easily Israel completely wrecked Iran's advanced air defenses. China, of course, is a far more advanced opponent than Iran.)
Russian-Ukraine is very much its own thing in terms of US involvement, because we've never taken any concrete steps to even pretend to go to war over its territorial integrity, as we have with Taiwan. And there's the recent history of the Soviet Union, Putin's proven willingness to bully and invade his neighbors, NATO allies being very nearby, and the fact there's no ocean. If we wanted to resolve the ambiguity around Taiwan, we could reestablish a US military presence on Taiwan as a tripwire (as we have in South Korea), or simply give 'em a nuke or two.
After a "century of humiliation", I fear that China would not back off, even if losing the first round. Otherwise, I don't have much problem with your claims here.
On the Philippines, I'd always been under the impression that Japan's attack was a consequence of Pearl Harbor, and that their actual goal was Indonesia's oil. But maybe that's wrong.
As an aside, I suppose you are right about the British being "less bad", but as I'm sure you know that's NOT why we didn't go to war with Britain. Belgium was just as bad a colonial power as Japan, and we didn't fight Belgium. But as you say, it was more about Japan's control of East Asia than human rights in China. On that point I agree.
Apparently Japan's goal for regional dominance included the Philippines. So taking it right after taking a bite out of the US Navy at Peal Harbor made operational sense.
Luckily for Belgium, the US did not have any particular interest in Africa and was not yet running a foreign policy strongly morally driven to oppose colonialism/imperialism. (We of course put a ton of pressure on the British to give up their empire after WWII when we did have morally driven foreign policy.)
(read the next comment first)
As an aside, in the past I've advocated the Hong Kong solution for Taiwan, with the important difference that Taiwan be allowed maintain its military for 50 years, to prevent the sort of premature takeover seen in Hong Kong. For Taiwan, it's a gamble that China will be a more reasonable place in 50 years, and for Xi Jinping it allows a big PR victory without the worry of an invasion that might go badly in all sorts of ways.
And if in 50 years China turns into Nazi Germany, the Taiwanese could always go back on the deal. I don't see where they have much to lose.
An interesting compromise.
China's trajectory post Xi is a multi-trillion dollar question.
The motto of the Navarro/Trump trade policy should be: "to get poor is glorious." And I bet that MAGA world would actually buy bumper stickers that say that because they're invested in the belief that reduced product choice and higher prices would be a short term condition. Or worse, they would claim that a destruction of trade is a virtuous good that can be sustained for the long term.
Jack Welch once noted that he didn't want GE selling toaster ovens; he wanted to be selling CAT scanners.
It is hard to know _which_ right wing economic policy is worse: deficits, immigration restrictions, or import restrictions. Put together they are a recipe for permanent stagnation.
Yes, all three are quite bad, and I'd add the surge in activist regulation as well. During the first Trump administration, conservatives could say, "At least he has some good economic policies."
So I’ve heard, but they did not include the 2017 warn ups for the 2025 tax cuts and deficits, immigration, and trade disasters.
One question, what happens if China invades Tawain? Then what do we do?
Same as when Russia invaded Ukraine.
Scott,
-maybe Israel dominates because of its economic strength, maybe it dominates because they have the unconditional support of the US?
- the stock market is at pre liberation day levels, it doesn‘t seem to worry about trumps policies anymore…
- if I am not mistaken it was a Democrat who presided over the build of this gargantuan fiscal deficit…
1. I support mutual defense pacts. Trump opposes them (except Israel).
2. That silly argument is beneath you. Don't let politics rot your brain. Use it.
3. Trump is the president who put us on this path in 2017. Biden made it worse, and Trump's about to make it even worse.
Scott,
interesting point about EU-Russia trade entanglement (gas): while it may have failed to deter Russia from invading Ukraine, it wasn't a mistake but an honest effort to get Russia to become more peaceful internationally, through trade. As that failed, it still was not a fatal EU security risk either because EU quickly found other resources to re-diversify. And Russia probably suffers more from the EU precision manufacturing embargo than the EU suffers from buying less Russian gas. Even better if it were better enforced and not bypassed via 3rd country trade.
Wider points on trade: The national security argument for trade as the better way has always been thus: if goods can't cross borders, then armies soon will. But only some if this benefit is due to positive entanglement or the goodwill and cultural exchange engendered by trade (well... a bit of it is). The real reasons are simple mechanics. Resource distribution is lumpy on the planet. So if you want resources you don't have, it's either trade. Or war. Larger countries have it better in that respect because they have more internal resource diversity so they are less trade dependent than smaller nations. Hence the EU. Hence Trump wants Canada to make a North American block.
This got me into writing a larger piece on trade vs war on my substack here: https://tinyurl.com/bde5csrr
Good points, I agree. People overemphasize where trade failed to prevent war, and ignore the overall positive correlation between trade and peace.
What's the cheapest t-shirt in America? You guys can probably buy one on Amazon for maybe $20 directly shipped from china, right? I went to Arizona once; you're t-shirts at Walmart were like $45 minimum. In my country, you can buy a t-shirt for about $3. Cheaper if you buy in bulk.
So let's say Nike produces for $3-$5 abroad, a very conservative estimate (probably cheaper). They use high quality cotton, so let's say $3-5 just to be on the safe side. Now, your claim is a simple one: if Americans increase tariffs to 150%, Nike will raise their prices.
Now, I'm not an expert, but let's use our common sense. If you produce for $3-$5, and the landing cost at port after shipping is about $2.50 per shirt, so we'll say landing cost $7.50 (again, very conservative). And then, you turn around and deliver that to retailers across the country, another $2.50 per shirt due to expensive transportation costs in America, that's $10 by the time it gets to the retailer. Then, the retailer, owned by Nike too, although some might be franchised, will sell for $60 to a $100. that's pretty high profit margin.
Now if you add tariffs, the landing price will increase to $20, maybe even $25. Their profit margin is still healthy. Making in America might drop that to $15, increasing their profit margin by $5-$10 per shirt.
My guess is that Nike's profit margins will be reduced, and prices will remain the same. There is really no need to increase the price. The profit margins are so insane from outsourcing that they'll absorb the increased cost. Most industries are identical.
In a perfectly competiive marklet these insane profit margins would not exist, but most industries are oligopolies so that's why tariffs are an equalizer. It will reduce inequality for sure.
I understand why this is a tempting argument, but it's wrong. The problem here is that if this argument were correct, then Chinese exports to America in dollar terms would be relatively low. But then no one would worry about a big trade deficit with China! In fact, the US imports $440 billion from China. Put a 125% tariff on that and it's a fairly big deal.
I'm not saying it would tank the economy (I don't think it would be a disaster, by itself), but it would be very noticeable. Having said that, I think Trump will back off, and indeed he's already starting backing off on iPhones, etc. Time will tell.
I wonder if the (supposed) Japanification of China is due to the social credit system.
That may play a role, but I suspect that factors such as education and affluence play a bigger role. Back in the 1980s, China was a mostly poor and uneducated place, and now most young Chinese people go to college (about 60%). They also are increasingly aware of cultural practices in other advanced places like Japan, Korea, Europe and the US.
BTW, I think that video slightly overstates the speed of change, but I've noticed the same broad trends on my recent visits to China.
Yeah, the guy in the video seemed to have a real negative view of the US economic situation over the past 5 years. It doesn't track with my experience, so I didn't know how much to trust his view of China. Unfortunately, it seems most analysis these days is polluted with political bias.
What's your opinion of the social credit system? The little that I know about it makes it seem horrifying.
I also thought he overstated the decline of the US. But again, I noticed the same sort of cultural changes in China--that part was not made up.
On social credit, all I know is what I read, so I won't comment. AI Overview has a reasonable description of the pros and cons. As with almost everything else in modern China, there are pros and cons to the changes that we see.
I think it's a mistake to focus too much on any one aspect of Chinese society, especially when looking from the outside. Many Chinese people watch news about the US and find all our gun crime, homelessness, etc., to be horrifying, but you and I know that for most Americans it's not much of a problem at all. Not saying social credit is analogous, it's just that I don't ever recall Chinese people speaking about it as a big issue---they tend to have other complaints like Covid lockdowns and unemployment.
Arguments 3 and 4 are definetly wrong.
1. Tariffs have absolutely nothing to do with technological innovation. America has been a world leader in innovation since since at last the 1880's (high tariffs). Tesla, Edison, leading the way, Ford, Wozniack, Musk, Gates, all in an era with high tariffs. You also woefully underestimate innovators. If we need chips, we'll make them here.
2. Workers are NOT hurt by import tariffs. If manufacturing comes back, in the way that Trump hopes it will, YOU WON"T HAVE TO IMPORT daily items. What part of that don't you understand? If you are "affluent", and you want to buy a persian rug, go ahead, I won't stop you. If you're so rich you can pay the import tax, then great. That's a rich persons problem. It's not a blue collar problem. Joe and Jane don't care about a persian rug. They are mostly focused on practical things, like, buying milk, a decent suit, and whether there will be any jobs for them at all, especially with the advent of AI. Your service based, paper pushing economy, is not going to survive the AI and blockchain era.
And for the love of god, will you stop trying to subsidize everything. Why do you feel the need to send my money (taxes) to Boing. I don't care about Boing. I hope it makes great products, but if it doesn't make great products let it die.
"Your service based, paper pushing economy, is not going to survive the AI"
And you think assembly line jobs will?
Your other comments are nonsense.
1. That's not how we do causal inference. We can succeed in innovation despite tariffs, doesn't mean that tariffs don't harm innovation or it wouldn't be higher in the counterfactual. Can you think of maybe other reasons the US succeeded in innovation? I can!
2. None of this is an argument against why Sumner said it hurts US workers.
We have empirical evidence that tariffs hurt innovation, and empirical evidence tariffs are regressive taxes that hurt US industries, especially those that use intermediate goods or the ones targeted by retaliation.
boeing is subsidized by the state, and produces the worst planes on the market.
adding a 10% tax on imports, and reducing income tax by 10% has no effect on prices. You are blindly leaving other variables constant. economic nationalism does work. china is a good example of economic nationalism. 10% growth.
India has high tariffs. high growth.
Philippines has high tariffs. high growth.
A major trade war throwing monetary policy of course - really...that's the best you got. That's it. Just continue doing the same thing, despite the fact that 90% of the world doesn't benefit. But continue because you're concerned about the bubble popping. Get a grip dude. C'mon. You're 70 and out of touch brother.
"economic nationalism does work. . . . India has high tariffs. high growth."
Yes, I suppose you are correct. If we adopt economic nationalism we can become more like India.
There's no way you're citing India as an example of economic nationalism and tariffs working
"How many people in the Trump administration understand that low saving rates worsen trade deficits? Roughly zero?"
So you think few or zero understand that budget deficits make our trade balance worse?
Yes, or at least they aren't willing to take any meaningful steps to address the problem.
One could argue IRAs and 401ks were a meaningful step but I'm skeptical they made much difference. Either way, what step would increase savings by a meaningful amount?
A smaller budget deficit would help, as would removing the cap for 401k and IRA contributions. But for reasons explained in another recent post I would not expect the US trade deficit to go to zero---we are too rich.
With the exception of the US, the rest of the world economies have been practicing protectionism since 1919 (end of WWI) and it hasn't seemed to hurt them.
I feel like the entire political right in the US has suddenly become stupid. Where did you get such a silly idea? From Fox News?
You don't regard Europe's average tariff rate of 1.7% as protectionism?!?!?!?!
Isn't this the same political right which claims America is vastly superior to Europe?
Suddenly?
Good comment, but sarcasm will go right over their heads.
Yes, but there's no sign they're persuadable anyway.
Many comments remind me of the great Barney Frank quote, “Trying to have a conversation with you would be like trying to argue with a dining room table."
I suppose there is some truth in what you say but I was taken aback by the other half of his statement. How much of the world is doing as well economically as the US?
I get that there are many reason US is generally doing better besides freer trade than most but why would one think protectionism hasn't hurt numerous countries?
It has, but mostly places like Argentina and India, which are not our major trading partners.
OK. Subsidies vs tariffs for Natsec, which is the only bit that concerns me. We need our supply chains to be independent of China and other rivals. Does that mean you support Biden's subsidies for chips, etc?
Interesting that tariffs are the closest thing to a consumption tax that I've seen lately. We clearly need to shift towards investment and away from consumption. If that happens, it may be Trump's only positive contribution to econ policy.
No, tariffs are not a consumption tax. Not even close.
I don't know whether the Biden subsidies will be useful, but I'd certainly view them as the lesser of evils when compared to tariffs.
I strongly disagree with this: "We need our supply chains to be independent of China and other rivals." Doing this makes us much less safe.
Thanks for noticing. I meant consumption tax in the sense that (in its own inept way) it was hitting consumption rather than income, assets, or other activities.
Sorry for the inexact phrasing. I meant the China independence to apply only to natsec stuff.
I'm curious Scott as to what you think of the current problem with US billionaires. That is not to say that most of them are a problem, but it does seem clear that some of them are huge problems. I'm referring to Trump, Musk, and at least a handful of others. They are, with support of many wealthy worshiping Americans, obviously bending policy and even the system itself to their will, seemingly without accountability. I use the word "worshiping" here very intentionally, as the cults around these figures are similar to those around the prosperity gospel TV evangelists.
One might say that the problem is with the system, the voters, etc., but can any system tolerate the influence of billionaires, some proportion of which become drunk on their own power and privilege and increasingly think they should run the world? I don't know what portion of billionaires becomes infected by such a "mind virus", but right now it is certainly not a trivial force.
There's clear evidence that, at least in some very important cases, wealth and power really do corrupt.
I agree with your view of Trump and Musk, but I'm not sure it makes sense to generalize from those two cases. My general impression of billionaires is that recent events have shown them to be every bit as cowardly as most ordinary people. Great wealth doesn't make one brave.
How about Thiel, Andressen, Ellison, Sacks, Palihapitiya, etc. All of these are in Musks inner circle, and have publicly supported Musk and Trump in what they're doing. Thiel has long favored discarding democracy.
Sure, there are lots of billionaires with views I detest.
Rightly, as an economist, you are addressing policymakers, but was this a case of an elected government pursuing counterproductive policy, or a case of a population electing a government to implement their preferred policies? If it's the latter, there will always be candidates willing to run and execute whatever horrendous policy the electorate would demand.
Another way of posing the question is what should administrations of the last few decades have done or said to lead to a different outcome?
I don't think it's meaningful to speak of public opinion on complex issues, as it depends on how the question is framed. Thus the public may support tariffs in the abstract, but oppose them if told they will raise prices. Trump ran on tariffs, but also ran on a platform of bring high prices back down. He's doing one but not the other.