America’s Misunderstood Trade Deficit

[KenH]

"The causal link between investment flows, exchange rates, and the balance of trade explains why protectionism cannot cure a trade deficit. In his 1997 book, One World, Ready or Not, Washington journalist William Greider proposes an “emergency tariff” of 10 or 15 percent to reduce the U.S. trade deficit. If Congress were to implement that awful idea, American imports would probably decline as intended. But fewer imports would mean fewer dollars flowing into the international currency markets, raising the value of the dollar relative to other currencies. The stronger dollar would make U.S. exports more expensive for foreign consumers and imports more attractive to Americans. Exports would fall and imports would rise until the trade balance matched the savings and investment balance.

Without a change in aggregate levels of savings and investment, the trade deficit would remain largely unaffected. All the new tariff barriers would accomplish would be to reduce the volume of both imports and exports, leaving Americans poorer by depriving them of additional gains from the specialization that accompanies expanding international trade."

America's Misunderstood Trade Deficit

 

[Reynolds]

"The causal link between investment flows, exchange rates, and the balance of trade explains why protectionism cannot cure a trade deficit. In his 1997 book, One World, Ready or Not, Washington journalist William Greider proposes an “emergency tariff” of 10 or 15 percent to reduce the U.S. trade deficit. If Congress were to implement that awful idea, American imports would probably decline as intended. But fewer imports would mean fewer dollars flowing into the international currency markets, raising the value of the dollar relative to other currencies. The stronger dollar would make U.S. exports more expensive for foreign consumers and imports more attractive to Americans. Exports would fall and imports would rise until the trade balance matched the savings and investment balance.

Without a change in aggregate levels of savings and investment, the trade deficit would remain largely unaffected. All the new tariff barriers would accomplish would be to reduce the volume of both imports and exports, leaving Americans poorer by depriving them of additional gains from the specialization that accompanies expanding international trade."

America's Misunderstood Trade Deficit

The purpose of tariffs in the modern economy are to deal a short term economic blow hard enough to cause the nation you imposed the tariff on to modify their behavior.

Tariffs can work long term. China's economy has grown exponentially under their umbrella of protective tariffs. China is proof that economic theory and economic reality do not always align.

 

[KenH]

China operates under state capitalism. State capitalism will eventually lose to free market capitalism, just as communism lost to western democracy, even though at times it appeared to be making headway.

'One of Mr. Bremmer’s insights is that state capitalism lacks any positive appeal. It will, he observes, “never match the hold that communism once had on the popular imagination, because it isn’t really a response to social or economic injustice.” Indeed, the very purpose of state capitalism is to entrench ruling elites, not liberate oppressed masses.

Rather like fascism, state capitalism tends to be nationalistic. So international cooperation is difficult. Countries usually act against something (particularly the United States) rather than for something. Most of the countries practicing state capitalism also have domestic political challenges to deal with — it’s one of the reasons they have adopted this strategy. So domestic constraints will limit the reach of such systems.

The challenge posed by state capitalism is obviously real. But Mr. Bremmer believes real capitalism will win out. He writes: “Free markets will probably outlast state capitalism as it is now practiced in China, Russia, the Gulf states, and elsewhere — just as they bested Soviet-style communism.” '

State Capitalism Versus Free Markets

 

[InTheLight]

William Greider proposes an “emergency tariff” of 10 or 15 percent to reduce the U.S. trade deficit. If Congress were to implement that awful idea, American imports would probably decline as intended. But fewer imports would mean fewer dollars flowing into the international currency markets, raising the value of the dollar relative to other currencies. The stronger dollar would make U.S. exports more expensive for foreign consumers and imports more attractive to Americans. Exports would fall and imports would rise until the trade balance matched the savings and investment balance.

Let's look at this, shall we?

*The US imposes a 15% tariff on imports.

*This makes the dollar stronger (debateable)

*Foreign imports to the US would rise because the exchange rate of the stronger dollar would make imports cheaper.

Yeah... Maybe.

The problem is there is a built-in barrier of a 15% tariff on foreign imports. The value of the dollar would have to rise at least 15% vs other currencies for imports to become cheaper than they were before the tariffs. In a short time frame, say a year or two, that's happened... never.





Sent from my Pixel 2 XL

 

[carpro]

Funny how the countries that preach "free trade" also charge fairly large tarriffs on some American products.

That's not "free trade".

President Trump is right. Real "free trade" would be no tarriffs by anyone on anything.

Right now, it's a one way street and he's doing what he can to correct it. Good for him.

 

[carpro]

 

[KenH]

"When a tariff is increased, domestic prices also go up. The price may simply be passed along to consumers, or a decline in foreign competition could put less downward pressure on the price of domestic goods. Take, for instance, the light-truck tariff known as the "chicken tax," which has protected American-made trucks from German imports for more than 50 years. (The U.S. originally introduced the tax in retaliation for a German duty on U.S. poultry imports.) When was the last time you saw a European pickup truck on the road?

Either way, the final cost of the tariff tends to fall on American consumers. For that reason, tariffs are often considered a regressive tax, since price increases tend to hit low-income Americans the hardest.

So if the current tariff load comes out to a little more than $100 per citizen, we can do a similar back-of-the-envelope calculation to determine how much tariff increases put in place against countries like China or Mexico would increase prices. If we raised tariffs on China from around 3 percent to 45 percent and Mexico from close to zero to 35 percent, that would cost companies importing goods from abroad a little more than $300 billion a year, assuming all else was equal.

If that price was passed on to consumers, that's almost $1,000 for every person in America (other analyses have suggested a similar amount or even higher) assuming the amount of Chinese and Mexican imports to the United States remained the same."

Here are the countries that already get slapped with the US highest tariffs

 

[Revmitchell]

Post # 7 is an example of missing the point.

 

[InTheLight]

"When a tariff is increased, domestic prices also go up. The price may simply be passed along to consumers, or a decline in foreign competition could put less downward pressure on the price of domestic goods. Take, for instance, the light-truck tariff known as the "chicken tax," which has protected American-made trucks from German imports for more than 50 years. (The U.S. originally introduced the tax in retaliation for a German duty on U.S. poultry imports.) When was the last time you saw a European pickup truck on the road?

You're kidding, right? This is s terrible example. There are virtually no European pickup trucks seen in the US because there are virtually no European made pickup trucks. It has nothing to do with the"chicken tax". I dare you to find a European made pickup truck that sells in Europe. They just flat out don't like pickup trucks in Europe.

Either way, the final cost of the tariff tends to fall on American consumers. For that reason, tariffs are often considered a regressive tax, since price increases tend to hit low-income Americans the hardest.

Wow, what insight. Price increases affect the poor the most. Who knew?

So if the current tariff load comes out to a little more than $100 per citizen, we can do a similar back-of-the-envelope calculation to determine how much tariff increases put in place against countries like China or Mexico would increase prices. If we raised tariffs on China from around 3 percent to 45 percent and Mexico from close to zero to 35 percent, that would cost companies importing goods from abroad a little more than $300 billion a year, assuming all else was equal.

No one is talking about a 45% tariff.

If that price was passed on to consumers, that's almost $1,000 for every person in America (other analyses have suggested a similar amount or even higher) assuming the amount of Chinese and Mexican imports to the United States remained the same."

Wow. So tariffs are going to increase to 45%, raising prices proportionately, yet Americans are going to merrily continue to buy them? What planet's economy is being described here? You can't have it both ways.



Sent from my Pixel 2 XL

 

[KenH]

"For more than 80 years going back to Franklin D. Roosevelt, American presidents viewed trade as a win-win proposition, fostering mutual economic growth and better relations among nations. Those presidents supported the rules and institutions that helped reduce protectionism and made trade more affordable, seamless and predictable. Between 1947 and 2006, average global tariffs fell to 4 percent from 40 percent in developed countries, trade flourished, and economies expanded rapidly.

Mr. Trump’s actions risk reversing these gains."

Republicans, Don’t Let Trump Bully You on Tariffs

 

[KenH]

From a radio address in 1986 by President Ronald Reagan:

"What doesn't bring results is the sort of destructionist legislation now before the House of Representatives. Next week the House will vote on whether to override my veto of a textile trade bill, and I'm hopeful this won't happen. My Council of Economic Advisers estimates this bill would cost you, the consumer, $44 billion over the next 5 years: $70,000 for every job saved, jobs that pay about $13,000 on average. Even worse, these temporarily protected jobs would be more than offset by the loss of thousands of other jobs—jobs in retail, marketing, and finance and jobs directly related to importing, such as dockworkers and transportation workers. And then there are all those who would be thrown out of work as we began to feel the effects of foreign retaliation, and you can bet there would be retaliation. I'm thinking, especially, of our struggling agricultural sector and its many connected industries. At a time when we're trying to increase agricultural exports, let's remember that some of the first victims of retaliation would be our farmers—kicking them when they're already down."

Ronald Reagan: Radio Address to the Nation on Free and Fair Trade

 

[InTheLight]

One of Reagan's first acts was to put tariffs on Japanese autos. He also put tariffs on Japanese made computer chips. And Japanese motorcycles.

Generally speaking, I oppose tariffs. They raise prices and lower competition. They give the appearance of the government picking winners and losers. But targeted tariffs can be used as leverage in negotiations. And they need not be long-lived.

Sent from my Pixel 2 XL