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Samizdata quote of the day – what’s so terrible about trade deficits anyway? What’s more, the imposition of punitive tariffs on poorer countries like Vietnam will simply impoverish rather than improve the potential importing power of these countries. Disrupting the economic development of poorer countries isn’t going to improve the chances of selling to them.
The irony is brutal. Trump’s fixation with trade-deficit “offenders” is punishing the very nations that could one day erase those deficits through development and prosperity. US consumers, businesses, and economic growth will all suffer as a result of the US president’s inability to grasp this elementary logic. There seems to be just one long-term strategy behind all this: unleash populism for immediate electoral returns, blame someone else for the problems that populism inevitably causes, and let someone else deal with the long-term consequences.
– Robert Johnson
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This SQotD starts very well, with the most cogent argument against tariffs *on small, relatively poor countries* that i have read to date. (Please note: I have no personal interest here.)
It is a pity that it immediately degenerates into sneering. How am i supposed to take seriously a twit like Robert Johnson, when he sneers at somebody of much greater achievement?
I do not expect respect for Trump: his Ego is big enough as it is, and it could perhaps be taken down a peg or two, profitably.
What i expect is modesty. I make an effort to be modest (and trust me, it is a big effort for me). Why can’t Robert Johnson?
It amazes me that Ukraine choose to fight back against Russia. There’s just no financial profit in it.
The hammer blow to places such as Vietnam is even more heinous when you consider the rather major impact that the US had on that country mire than half a century ago. The least the US can do is not to impede Vietnam’s recovery.
Snorri: there is no sneering. Trump’s tariff policy is a grave mistake. Period. The author of the quote accurately sees where this is going to lead.
Vietnam hasn’t attacked the US. A trade imbalance, especially between a richer nation and a poorer one, is not war. It is not even a trade war.
Is Trump’s tariff policy is a grave mistake? Maybe yes, maybe no. It depends on what Trump is trying to achieve (and not necessarily what a hyperventilating Press think he is trying to achieve).
I recall that more than 50 years ago the UK ‘Trade Gap’ was regularly in the news as a ‘failure’ of Government. I do wonder if we were pitchforked into the EU as a means of hiding the dirty washing. And yet… we are still here.
“…unleash populism for immediate electoral returns, blame someone else for the problems that populism inevitably causes, and let someone else deal with the long-term consequences.”
Shouldn’t the word populism read socialism here? That does seem to be an accurate description of the thing that socialist governments have always done. Also, anyone who uses the word populism instantly loses all credibility for me.
Schrodinger’s trade balances: a trade surplus is simultaneously good for one set of countries (Vietnam et al) and terrible for another (the US, UK etc).The determination is just down to the political viewpoint of the observer.
If trade deficits are so good, why doesn’t everyone want one?
It’s neither good nor bad, Jim, that really should be obvious. This is basic stuff.
Discovered Joys wrote:
‘It depends on what Trump is trying to achieve (and not necessarily what a hyperventilating Press think he is trying to achieve).’
Nominate for SQOTD.
llater,
llamas
It’s interesting that Johnson has completely ignored that Trump has explicitly disavowed the idea that his job has anything to do with Vietnam’s interests.
Jonathan Pearce (on behalf of many hyperventilators and pearl-clutchers):
So far it has led to reassessment and renegotiation of trade arrangements and assumptions dating back to the Post War/Cold War era, and overtaken by reality. It is already leading to *bilateral* reduction of tariffs – which all the egghead perfessers confirm is best for consumers.
Jim is on target with:
Indeed.
Citing Vietnam is a giveaway that class-based politically correct victimhood politics has leached into the discussion.
But Trump is not the president of Vietnam.
He was not elected by self-effacing, pearl-clutching Euroweenie bureaucrats and elitist academics – or their American doppelgangers.
In fact, he is dismantling their sinecures to mounting voter approval.
Trump is the president of the USA and sees financial, social, and security benefits to restoring America’s resource independence and its manufacturing base.
So do we who voted for him.
He and we see that the one-sided Free Trade of the neocons has not delivered the promised results.
He and we see that more sinister forces have occupied the vacuum created by Western policies of self-abnegation – and for those who care about the Vietnams and Nigerias of the world, this has not benefited 1st OR 3rd worlds.
Many, many Americans voted for exactly what he is doing.
We are gratified to discover that Team MAGA spent the years out of power doing their homework, identifying exactly what levers to act upon to maximize change.
We are happy to see Team MAGA continue to act instead of reacting, preventing the Left and the corrupt establishment from defining the narrative (Greenland? What Leftie Journalist thought they would be writing about Greenland…)
The tariff issue exemplifies this – it came out of nowhere while the Establishment was paralyzed by DOGE revelations, while Dems beclowned themselves with identity politics. But on a moment’s reflection it is an incredibly germane and clever fulcrum for the realignments Trump wants to enact, the conversation he wants to start with Europe.
We were $15 trillion in debt before Covid and lack critical industries for a pandemic or fighting a war.
It’s cute that you think you can shame and guilt us into keeping the current world order going.
The main problem with the US trade deficit is that it is financed by debt. The US issues bonds to finance pensions and social spending. A fair chunk of that is used to buy goods from China. In effect, China uses the dollars it receives from the sales of those goods to buy that debt.
The US benefits from the USD being the world’s reserve currency. The US can print money without causing as much inflation domestically as they deserve to receive. It won’t be long now until the USD loses its reserve currency status and we see a run on US Treasuries.
Yet more of these posts.
The American trade deficit is not about buying machine tools and what not, for future production. It is mostly of consumption goods – Americans borrowing to consume.
If you really do not understand why that is a bad thing – I can not help you.
And if anyone thinks this fiat money and Credit Bubble system is what Sir Dudley North, or Adam Smith, or A.L. Perry (or any of the great economists) meant by “Free Trade” – well you are WRONG.
“It’s neither good nor bad, Jim, that really should be obvious. This is basic stuff.”
So why is the author of the linked piece moaning that Vietnam is going to lose their trade surplus then? He obviously thinks that Vietnam losing its trade surplus will impoverish them. Have you told him the good news, trade surpluses don’t make you richer so losing it won’t make you poorer?
If trade deficits are so good, why doesn’t everyone want one?
As Perry dH said, they are neither good nor bad. They just are: the US has a deficit on manufactured goods, a net inflow of capital as people from overseas invest into the country (well, they have been doing so…) and a surplus on services. Americans don’t save much at all. As I noted by linking to this WSJ article here, there are reasons for certain imbalances. Some are the fault of bad policy (subsidies for consumption and inducement to taking on debt – as is seen with student loans and state-backing of mortgages, as well as entitlement spending), and some is the result of encouragement of production and suppression of consumption by countries such as China.
China has different sorts of problems: huge malinvestment, such as ghost cities, etc.
If Trump keeps up with his hectoring of the Fed and demand for lower interest rates (he seems to only like interest rate cuts, ignoring the plight of savers), this will weaken the dollar, reduce the appeal of holding dollar-denominated assets, and chip away at the status of the dollar as a reserve currency. The adjustment will be painful: a sharp fall in consumer spending in the US, a significant fall in real incomes as prices rise because of import taxes (tariffs) and a hope that in time, the US supply side will somehow come around. I don’t see any realistic prospect of this working as intended and there is a great deal that can go wrong.
Hundreds of US and other economists are arguing that the tariff policy, to the extent that it is a coherent one at all, is a big mistake. And for those around here who like to shrug it off as a sideshow, that is a mistake.
Back to interest rates: Trump’s ignoring of the damaging impact of ultra-low interest rates shows a weak understanding of economics. Such low rates encourage corporate “zombies”, pump up asset prices, increase inequalities of wealth, discourage the health “creative destruction” of capitalism, and remove pressure on politicians to rein in debt. I recommend Edward Chancellor’s The Price of Time. https://www.amazon.co.uk/Price-Time-Real-Story-Interest/dp/0241569168
Economist here. Doesn’t he understand that it’s been known since Smith and Ricardo’s time that tariffs are bad ackshually?” 100% correct. But perhaps beside the point.
What if the US has
– a trade motive: foreign country which imposes tariffs on us, you had better remove them.
– a non tariff trade motive: currency manipulator, give it up.
– recognised that tariffs are indeed bad on aggregate, but helping Main Street even at the expense of Wall Street is A Good Thing At This Point
– had enough of a country which has been welshing on its NATO obligations, and laughing about it in the UNGA during my first term, you had better buck up your ideas.
– a peer rival called China which gains more from free trade than is good for us for geopolitical reasons.
These all seem legitimate uses of tariffs to me. Unwise, maybe. Counterproductive, possibly. Definitely self harming, in an ideal world. But legitimate, and not crazy. And not even much about economics, or trade.
And we should also be apologizing for interfering with Germany’s and Japan’s plans back in WW2, right?
What does that have to do with trade deficits? Making tee-shirt from Vietnam more expensive for Yanks isn’t going to make China’s shipbuilding capacity any smaller 😀
By all means don’t, just don’t be surprised if it doesn’t work out the way you think.
Well, thank you for clearing that up!
We’d never have figured it out without you!
I apologize for the heavy sarcasm, but it was just too tempting a target.
Fair is fair. I claimed that, on the evidence of the SQotD, Robert Johnson is a twit, and i stand by that.
But he did not lament the loss of Vietnam’s trade surplus — and i did not say that he did.
He simply said that Vietnam, and other small, relatively poor countries, stands to lose from the Trump tariffs, with no obvious gain (and a likely long-term loss) to the US. Sounds reasonable to me.
Is Trump’s tariff policy is a grave mistake? Maybe yes, maybe no. It depends on what Trump is trying to achieve (and not necessarily what a hyperventilating Press think he is trying to achieve).
Ah, the old “4-D chess” line. Frankly, it is beyond embarrassing to watch apologists for Trump’s mercantalist views to keep doing this.
There are, depending on whom one talks to, broadly four reasons I see for the tariffs:
They raise revenue, possibly replacing a federal income tax (implausible, given that such tariffs would have to be massive);
They can be used as threats against countries to do what the US wants (which is thuggish and stupid when used vs allies, and not necessarily a threat that works more than once);
They “save” or “create” jobs in certain sectors (debatable, and have costs on other, less politically favoured sectors, such as intermediate manufacturers);
They protect key sectors that are needed on national security grounds, such as steel (if so, it is surely cheaper to stockpile steel, keep plants on standby, work with friendly countries to supply the stuff, other).
Many of these objectives are in conflict with each other. If tariffs are raised to high levels, they reduce inflows, and therefore the more effective they are in hammering imports, the less, not more, revenue they raise. In a way, this is the tariff version of the Laffer Curve effect (taxes, above a certain point, reduce revenues, rather than raise them). Tariffs, particularly if they are disruptive, also hurt the global economy, reduce the market for US goods and services, and reduce specialisation, discourage movement into higher-value goods/services, and other bad outcomes.
The justification for tariffs I have seen these past few weeks have changed by the hour. Contradictory, often seemingly based on emotion (a lot of it plain aggressive and willfully stupid). It has been a terrible example of how a policy is framed and justified. It unravels some, if not all, of the potential positive force of the Trump admin on issues such as deregulation, energy policy, etc.
Ben David:
Up to a point, but what to do when the tariffs that the “eggheads” in the Trump admin calculate the rate by looking at trade deficits (ignoring capital flows, services) to come up with a figure that they probably pulled out of their arses, as we Brits say?
Wrong. It means that when an immensely rich country such as the US decides to hit Vietnam, a country that has been ravaged by war and has been recovering in a spectacular way, with a tariff as high as 46 per cent, people are going to be concerned. And yes, being concerned about a poor, but rising country, is not about “class” or being “politically correct”, and even if it is, I am happy to stand charged of the label. Being an ignorant bully does not make you a bold fighter against PC. It makes you an ignorant bully.
But slamming Vietnam/other countries with such tariffs will have an indirect impact on the US because of the effect on the global economy. Deciding to trash a country, based on dipshit ideas about protectionism, makes it a problem to raise around here. Come to that, he’s not the president of Canada, Greenland or Panama, either, so he should shut his trap about those places.
As has been pointed out, such objectives, to the extent they are desirable, are unlikely to be fulfilled by tariffs. He should focus more on unleashing energy production, cutting red tape, and the like. So far, the jury is out on DOGE as a way to rein in the federal bureaucracy.
The US has a balance of payments surplus on services, so how does that fit in, or do you need to only focus on stuff you can hit with a hammer to count? Also, the US consumes a lot, does not save, and sucks in lots of foreign capital. The main problem is domestic policy, not trade.
And what is this with “neocons”?
Trump’s position is “we’ll beggar you and you better buy more stuff from us, but we’ll beggar you anyway”.
Thinking DOGE is great but this is moronic is just a sign of critical thinking
Whatever one might thinks of tariffs (and on the grounds of free association I am against, but I’m also against income tax so what do I know), the previous US trade policy is enriching China, the government of which is one of the most totalitarian this world has ever seen. Taking them down a peg or ten is definitely in the long term interests of global freedom.
The pearl clutching by Johnathan and his kind leaves me cold. I’ll start caring about Trump’s tariffs once the top ten items on my list of priorities have been addressed, starting with justice being administered against the Covid/lockdown mafia.
I’m past caring what the Trump tribalists thinks at this stage and just focused on diversifying for the aftermath. The global economy was due to crash anyway, I just didn’t expect it to be “controlled flight into terrain” with quite so many of the passengers cheering 😀
We live in a world where there are different unrelated issues that can be pondered as… different unrelated issues. Buy hey, who cares about the global economy that we’re all part of when we still don’t really know who killed JFK, right?
The pearl clutching by Johnathan and his kind leaves me cold. I’ll start caring about Trump’s tariffs once the top ten items on my list of priorities have been addressed, starting with justice being administered against the Covid/lockdown mafia.
One might as well claim that your concerns – which I partly share, by the way – about lockdowns and so on are also “pearl-clutching”. Just because tariffs are not on your priority list does not make them irrelevant, or minor.
The dismissal of concerns about a President, using emergency powers, to raise taxes so heavily (arguably in total breach of the Constitution) ought to make you “clutch your pearls” (which by the way, is becoming a bit dated).
Come on Perry, it was the CIA. We’ve known that since the 70s at least.
I don’t disagree with your last statement Johnathan, but I’m afraid we’re in ‘fire with fire’ territory now. For the avoidance of doubt that’s not a tariff related comment.
@Johnathan Pearce
Ah, the old “4-D chess” line. Frankly, it is beyond embarrassing to watch apologists for Trump’s mercantalist views to keep doing this.
I don’t think Trump is playing 4-D chess. I think it is self evident what he is doing. It is what he is always doing: making a deal.
Which is why I think your list omitted far and away the most important of the goals of his tariffs — making a deal to mutually lower tariffs. And if he can do that, that is a really good thing. You are focused on the self harm tariffs do to the country that imposes them, but seem to ignore the harm tariffs do to the country on whom they are imposed. If the US imposes a tariff on German cars, for sure Americans are hurt, but Americans are also hurt when Germany imposes a tariff on US exports of car parts. For sure part of Trump’s plan with tariffs is a mutual reduction, a short term pain for long term gain.
They protect key sectors that are needed on national security grounds, such as steel (if so, it is surely cheaper to stockpile steel, keep plants on standby, work with friendly countries to supply the stuff, other).
For sure working with friendly countries is one option — though today’s friend is not necessarily tomorrow’s friend and I’m not sure how getting it manufactured in, for example, the UK, is any different than in the USA, since, broadly speaking, the same things that make it hard to compete in the USA also apply in the UK. Stockpiling only works in the very short term and for a limited set of goods, the best you can hope for is smoothing supply shock. And keeping plants idle doesn’t work if you don’t have any plants or any of the trained workers to operate them.
I’m waiting to see what the tariffs will bring; you could be right, they could be a disaster. But I’m also hopeful that they might lead to a loosening of international trade. Call me Pollyanna if you like.
FWIW, I thought @David Wallace’s comment above was excellent.
That is why i think of Robert Johnson and Johnathan Pearce as twits: they are unable to figure out the difference between chess and poker. (Not sure that poker is the perfect analogy, but it beats chess.)
They remind me of some people with whom i negotiated the sales of a couple of flats, who tried to convince me that it is in my own interest to sell. Experience has taught me that the best tactic is to let them talk, until they are out of wind; then wait until the silence starts getting embarrassing to them. But if they insist on a price lower than i think reasonable, i have been known to hang up on them.
A: “2 + 2 equals 4!”
B: “Yes, but it’s also true that 3 + 3 equals 6.”
(pause)
A: “It’s obvious that 2 + 2 equals 4! Why can you not understand this?!”
Rinse and repeat . . . .
“He simply said that Vietnam, and other small, relatively poor countries, stands to lose from the Trump tariffs, with no obvious gain (and a likely long-term loss) to the US. Sounds reasonable to me.”
How can Vietnam ‘lose’ from Trumps tariffs, if having lots of exports to the US is an entirely neutral thing (as PdH tells us it is)? According to PdH Vietnam having a trade surplus or a trade deficit is an entirely neutral fact. So how exactly does them losing an export market make them poorer?
Don’t be obtuse, Jim. Trade balances are not intrinsically good or bad, because the good-or-badness is context specific. Specialisation is a thing, comparative advantage is a thing. This is really basic Econ 101 stuff.
Fraser:
I don’t think Trump is playing 4-D chess. I think it is self evident what he is doing. It is what he is always doing: making a deal.
Making a deal – to what end?
The justifications for tariffs keep changing, often contradicting each other – one minute we are told it is about getting all countries to reduce tariffs; the next, it is to boost revenues and replace a federal income tax.
Jim, what are we to do with you?
So how exactly does them losing an export market make them poorer?
Vietnam is shut out of exporting to the US, so it has to find other markets and in ways that are more difficult than otherwise (since if that were not the case, it would be exporting to other places already). Vietnam is still, relatively, a poor, if rapidly emerging country. Hopefully over time, as its people become more affluent, and can save and invest, it will build a momentum of its own and its GDP reliance on exports will decline, other things being equal. But for the moment, tariffs are a blow to Vietnam’s exporters, because it does not, yet, have other major ways of earning a living, although over time that will change.
Oh and what Perry said. Vietnam’s main competitive edge, for a while anyway, has been relatively cheap labour. As its income rises and real wages rise, so gradually jobs become more about value-added qualities, and eventually, that will shift.
Please read up some basic economics. Thomas Sowell’s Basic Economics is good, as is Henry Hazlitt’s Economics in One Lesson.
In the abstract, i can agree on this. The devil is in the details — and i have not worked out the details in my mind, but i hope that we can agree on a couple of things:
* a trade deficit with China is a bad thing for most (perhaps not all) countries;
* a trade deficit with Vietnam is not a bad thing, except possibly for its weaker neighbors: Laos and Cambodia.
We might also agree that it can be a bad thing for Vietnam to have a trade surplus with China, because there is no guarantee that Vietnam is going to get a return on investment.
Incidentally, i am slowly working my way through Robert Graboyes’ substack post on the basics of trade.
@Johnathan Pearce
The justifications for tariffs keep changing, often contradicting each other – one minute we are told it is about getting all countries to reduce tariffs; the next, it is to boost revenues and replace a federal income tax.
But more than one thing can be true at once. In fact I think a lot of the analysis of this suffers from an excessively narrow focus. Whereas if you actually look at what Trump does his “deals” are always a complex nest of interrelated parts. It is a highly dynamic situation and moreover a negotiation so of course things are changing. And since it is a negotiation, of course there is a lot of posturing, and “what you see is not what you get”. This isn’t 4-D chess, it is a larger version of what you do when you are trying to negotiate a car purchase down the local car dealership. It’s not magic, it is just business.
I think in the next few weeks we will see a lot of trade deals, and so we will know where we are going to end up. China is a completely different story. I really don’t know what is going to happen there.
Regarding narrow focus, I’d refer you again to @David Wallace’s excellent comment above. (I really should learn how to find a link for comments.)
“Trade balances are not intrinsically good or bad, because the good-or-badness is context specific”
So, like I said, Schrodinger’s trade surplus: its good and bad, depending on who you are and where you’re looking from.
“But for the moment, tariffs are a blow to Vietnam’s exporters, because it does not, yet, have other major ways of earning a living”
Ah, so now exporting is a way of a country earning a living! Does that not apply to the US as well then? Or does it not need to earn a living, or can live on tick forever?
This may come as a shock Jim but countries do different things better, so if Vietnam exports tee shirts to USA & USA exports movies to Vietnam, it doesn’t actually matter which is more valuable as both are better off.
“so if Vietnam exports tee shirts to USA & USA exports movies to Vietnam, it doesn’t actually matter which is more valuable as both are better off”
If that were actually true it would make sense. Except that I doubt a single penny of whatever the Vietnamese spend on watching US movies actually makes it back to Hollywood, because its all pirated. This is part of the problem – you can’t pirate stuff, because making something is making something. You can only pirate ideas and concepts. And most of these Asian countries pirate the Wests ideas and copyrights hand over fist. So how is that ‘free trade’? I sell you cheap goods because I’m good at that, but I’ll steal all the things you’re good at?
To be honest that would be my line of attack if I was Trump – you stop nicking our ideas and creative products, and we’ll let your goods in. Until then, no dice.
Fraser: Whereas if you actually look at what Trump does his “deals” are always a complex nest of interrelated parts.
Really?
So tariffs are necessary to raise oodles of revenue, which is one of Trump’s claims, and possibly replace, or partly, the federal income tax (which he has also spoken of). But if the tariffs choke off foreign imports to boost domestic production (which is another of his goals), which is supposed to be the idea, they won’t raise much money. And he also says he is willing to use the tariffs as a club to force foreigner countries to cut theirs, so we end up with lower tariffs, or maybe none at all. But where does that leave the aforementioned goals of raising revenues by tariffs?
So this is not about a “complex nest of interrelated parts”. It resembles the mess on the pavement that I nearly put my foot in during my morning walk today.
I get it that some of you are seeing works of Isaac Newton-like genius in all this, and much joy may it bring, but I cannot. You need to see what is in front of you, not what you want to see, Frazer.
By the way, the price of gold is more than $3,500 per ounce.