Trumponomics - what is it good for?
I posted on this in other thread, but I thought it would be better to have it's own thread so I've reposted below.
In a recent interview, Trump has once again demonstrated his woeful ignorance on economics.
https://www.business-standard.com/wo...0900027_1.html
"I’m a big believer in tariffs. I think tariffs are the most beautiful word. I think they’re beautiful. It’s going to make us rich. We’re subsidizing Canada to the tune over $100 billion a year. We’re subsidizing Mexico for almost $300 billion. We shouldn’t be — why are we subsidizing these countries? If we’re going to subsidize them, let them become a state. We’re subsidizing Mexico and we’re subsidizing Canada and we’re subsidizing many countries all over the world."
The US government isn't paying subsidies to Canada or Mexico, so he appears to be referring to the trade deficit, although the actual numbers for the latest year are $68 billion and $152 billion.
1. A trade deficit is obviously not a subsidy, because the US receives imported goods in return for its payments.
2. Balance of payment accounting means that the overall trade deficit must be equal to net capital inflow into the US. Trump also wants more foreign investment into the US, but it's impossible to have more capital inflow and reduce the trade deficit.
3. The trade balance isn't something that can be controlled with tariffs because it depends on saving and investment decisions across the economy. Trump's tariffs in his first term did not reduce the trade deficit. That can happen only if Americans spend and borrow less and save more.
He went on to say this:
"They cost Americans nothing. They made a great economy for us. They also solve another problem. If we were going to have problems having to do with wars and having to do with other things, tariffs — I have stopped wars with tariffs by saying, “You guys want to fight, it’s great. But both of you are going to pay tariffs to the United States at 100%.” And — they have many purposes, tariffs, if properly used. I don’t say you use them like a madman. I say properly used."
Which wars were stopped with tariffs? This seems to be pure fiction.
Obviously, there is a cost to Americans because importers will pass the cost onto their customers as much as they can. Even if American goods are substituted, they will be more expensive because that's why goods were imported in the first place.
Re: Trumponomics - what is it good for?
Here's a recent blog post by Paul Krugman that covers similar ground.
https://paulkrugman.substack.com/p/f...-to-invincible
An additional point he makes is that even if you could reduce the trade deficit with some countries through tariffs, this cannot increase GDP if the economy is already close to full employment. What will happen is that other parts of GDP will fall, due to things like higher import prices, higher exchange rates and higher interest rates. So the claim by his advisors that lower trade deficits must increase GDP is bogus.
As Krugman concludes:
So, does it matter that Trump is invincibly ignorant about trade, his signature issue? I think so. He imagines that other countries are taking advantage of America and will meekly comply with his demands that they stop; that’s not how they see it, and he’s going to face ugly retaliation — those “subsidized” Canadians are already talking about export taxes on oil and uranium. You’d like to think that when everything goes wrong — when his demands that foreigners both invest in America and stop running trade surpluses aren’t met, because that’s arithmetically impossible — he’ll back off and take advice from the adults in the room. But there won’t be any adults in the room. And I have no idea what comes next.
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