I’m having some trouble with the premise that Trump would do tariffs to reduce the trade deficit. For a normal president, you may give the benefit of the doubt that something is done for the...
I’m having some trouble with the premise that Trump would do tariffs to reduce the trade deficit. For a normal president, you may give the benefit of the doubt that something is done for the stated purpose and to with good intentions. Based on his past behavior, I cannot give this kind of trust to Trump. Therefore, I must assume that the only intended side effect is to somehow benefit himself or his associates.
So in my opinion, Trump and/or his advisors intend to personally benefit from harming the economy. I don’t think it is much of a conspiracy theory to assume it is to cause yet another wealth transfer to the super rich.
I guess it’s possible that Trump cares about his legacy and thinks this is a brilliant idea. It more likely he’s been told that economic chaos leads to fire sales that Musk, Thiel, and others can take advantage of.
I don't know about motivations, but he's long promoted higher tariffs, and assuming that happens, perhaps the rest of Krugman's economic analysis still applies? It's all speculation about the...
I don't know about motivations, but he's long promoted higher tariffs, and assuming that happens, perhaps the rest of Krugman's economic analysis still applies?
It's all speculation about the future, though, not something I take too seriously.
Agreed, the article doesn’t consider motivations, but I was getting distracted because the summary talked about how Trump would be disappointed in the results of the thing all the experts told him...
Agreed, the article doesn’t consider motivations, but I was getting distracted because the summary talked about how Trump would be disappointed in the results of the thing all the experts told him not to do.
Trump has long been obsessed with tariffs, in large part because he believes that America’s trade deficit means that we’re a victim. Never mind all the reasons that’s a bad diagnosis: can/will Trump’s policies actually reduce the trade deficit?
Conventional wisdom among economists says no, for very good reasons. But some aspects of that conventional wisdom have been nagging at me. In what follows I’ll argue that Trumpism may indeed reduce the U.S. trade deficit, but not for reasons Trump will like. Mainly, the U.S. trade deficit is the counterpart of large capital inflows into the United States, and barriers to trade in goods also end up impeding the mobility of capital. So Trump’s policies may crater international capital flows, sharply reducing foreign investment in the United States, and the counterpart of that reduced inflow will be a smaller trade deficit.
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[M]aybe I can help a bit with the intuition, starting with a reductio ad absurdum.
Imagine that there were a thriving economy with well-developed capital markets on Mars. Alas, there wouldn’t be much scope for productive trade with that economy: the costs of transporting goods back and forth would be prohibitive. But sending strings of ones and zeroes — which is basically what money is in the modern economy — wouldn’t be all that hard. So couldn’t capital flow from Earth to Mars, or vice versa?
No. Net capital flows are the counterpart of imbalances in physical trade. We can only meaningfully transfer capital to Mars if it lets the Martians buy something real from us, which they can’t. And if Earth investors somehow managed to take ownership of Martian assets, they would eventually want to convert those assets into real goods they can consume back on Earth, which they couldn’t. No trade in goods means no trade in capital.
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Again, in my Martian example, where nothing is tradable, no level of the exchange rate can accommodate capital flows. We’re not going all the way there, but a tariff-ridden world with much less trade than we currently have would also be a world with much smaller capital flows. And because the U.S. trade deficit is the counterpart of large capital flows, a global trade war probably would reduce that deficit — not by helping U.S. firms compete with foreigners, but by largely shutting down international movements of capital.
It still seems likely that Trump will be sorely disappointed in his efforts to reduce the trade deficit. But to the extent that he succeeds, it will be for bad, economically destructive reasons: damaging the world trading system will also greatly damage international capital markets.
I’m having some trouble with the premise that Trump would do tariffs to reduce the trade deficit. For a normal president, you may give the benefit of the doubt that something is done for the stated purpose and to with good intentions. Based on his past behavior, I cannot give this kind of trust to Trump. Therefore, I must assume that the only intended side effect is to somehow benefit himself or his associates.
So in my opinion, Trump and/or his advisors intend to personally benefit from harming the economy. I don’t think it is much of a conspiracy theory to assume it is to cause yet another wealth transfer to the super rich.
I guess it’s possible that Trump cares about his legacy and thinks this is a brilliant idea. It more likely he’s been told that economic chaos leads to fire sales that Musk, Thiel, and others can take advantage of.
I don't know about motivations, but he's long promoted higher tariffs, and assuming that happens, perhaps the rest of Krugman's economic analysis still applies?
It's all speculation about the future, though, not something I take too seriously.
Agreed, the article doesn’t consider motivations, but I was getting distracted because the summary talked about how Trump would be disappointed in the results of the thing all the experts told him not to do.
From the article:
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