Great job. Thanks. My God the theory of comparative advantage is 200 years old and since then many of our greatest economists including JS Mills have identified numerous risks and failure modes including distributional effects, bad actor risks, specialization traps, the resource curse and so on. I don’t have the answers but this much I know: it is unbecoming of any serious thinker, let alone economist, to portray free trade as an unmitigated universal good. There is simply no excuse and this kind of binary thinking tarnishes the entire concept of specialized expertise. The institutions that tolerate and even reward this kind of behavior from prominent intellectuals have a lot to answer for.
In Oren’s piece on Commonplace, he states that “Much productive investment would have been on hold during the negotiations anyway; now, many of the associated disruptions of large and immediate tariffs can be avoided.”
I think this is incredibly misguided. If Trump had implemented tariffs according to the recommendation that Oren lays out, I think it’s entirely plausible that he would be correct here. But it’s insane to suggest that by simply “course correcting” the associated disruptions will simply be avoided. In my opinion, the damage done by liberation day to the confidence and outlook of business leaders has been extreme, and not something that can be hand-waved away through a 90-day pause.
This speaks to the core problem with Trump. He’s a narcissist and a loose cannon, and as a result he is incapable of implementing policy in a coherent manner. He will do what he thinks is best, even in the face of his closest advisors telling him not to.
Oren do you know anything about the Smoot Hawley tariff? It’s been widely studied and it’s why Summers and Furman have such confidence this won’t work. You just point to employment numbers and act like every manufacturing job is a good job, but as Gary Cohn told Trump during his first term, jn the JOLTS report manufacturing jobs showed the most voluntary quits of any sector because many of the jobs suck. The Washington Post had a great cover story a number of weeks ago on an Alabama lumber mill, where the safety practices were atrocious and multiple employees had been maimed or killed over the years. That’s an extreme example, but people who work in manufacturing do dangerous work and are on their feet all day. They often are risking permanent disability and a retirement filled with pain. Many manufacturers in the US in fact say they often can’t get enough people to work in their plants because of that and the often highly technical skills American manufacturing now requires. These tariffs are on everything, even things we cannot make here like bananas and coffee. Those are just price risers and when someone charges a higher price people use less. The tariffs on China that might produce resourcing are being done so fast as to invite shortages that our own manufacturing sector will find challenging to navigate. China shocked us with how quickly they flooded our market with goods. So maybe we shouldn’t be shocked now if they beat us at a trade war. They’re ready in talk with Europeans to get them to drop their tariffs on their cars. The world won’t wait for us.
Thomas, Smoot Hawley was done for show. At that time the USA was an isolationist country, self-supporting and really didn't do a lot of overseas trade relative to today. We made stuff then and really didn't interact with the world except to get dragged into WWI. Smoot Hawley is overused by the "Free Traders" to argue their economics.
Manufacturing jobs? A lot of people here think manufacturing is in a dirty noisy plant? Some is but very little today. Manufacturing plants today are robots' automation and computer driven. You have to be a smart hard-working person to work in these plants.
Making stuff just gives synergy to an economy and the spin offs from making stuff and producing people in your society with this mind set is parabolic in money and good jobs and growing healthy communities.
Jeff, my great grandfather, who owned a grain elevator, foreclosed on farmers who couldn’t sell their crops because of the tariff you claim was for show. And the US does manufacture a lot of stuff right now. That’s another reason these tariffs are bad. One thing you need for manufacturing is different kinds of input, some of which we simply don’t make in the US or have enough of. But the costs of all of those inputs have now gone up, making our manufacturing less competitive. That’s why Smoot Hawley is instructive. It was the last time the US did across the board tariffs.
Ok sorry to hear about your grandfather. Really, I am. I still stand by Smoot Hawley was overused and if one looks at all of the data it was minimal overall.
It contributed to the Great Depression. I don’t think that’s minimal. What Smoot Hawley teaches you is that across the board tariffs are bad. Tariffs that smartly protect key industries or rebalance for unfair trade practices make sense. But these tariffs are designed to address trade deficits without accounting for why those deficits exist in the first place, which is mostly that we’re rich and want to live like it. I’m from Ohio so I’ve seen how the loss of manufacturing jobs hollowed a lot of places out. But that’s because the pace of change was simply too fast for them to transition. These tariffs are also too fast for people to transition and will caps the same type of pain in reverse.
Unfortunately, all the tariffs in the world won't help OUR manufacturing development. If we can’t afford to buy the goods we make because we have to pay OUR employees a living wage, OR end up using automated manufacturing we are literally cutting off our own nose to spite our face.
None of this is being “implemented” in any cogent way.
Forget the fact that these are not well thought out acts of our Congress, just the knee jerk swinging dick acts of a lunatic with a pen.
When someone, ANYONE, can explain the solutions to ALL the pitfalls and problems with this ridiculous idea of tariffs helping to, “bring manufacturing back”, or reduce our debt(to give BIG business and Billionaires continued breaks(, this is going down as one of the greatest economic disasters in our Country’s History.
What’s even more disturbing is the amount of supposedly “educated” economists who won’t simply ask the tough questions, and the pretend “thinkers” who seem to “think” they don’t need to provide the answers.
French highlights Oren, among others, in the “stop the world I wanna get off” movement. It’s been quite a start to the deft reconstruction of the global economic and security order:) Perhaps one good thing about Don touching the stove is it reminds folks what tariffs in practice are really like. I wish Oren well as he defends Don…
The paywall stopped me from getting to the FT article but if the dollar weren't the reserve currency, we couldn't export inflation and would have to get the debt under control. Short term pain and long-term gain.
Do you think Pettis’ position at a Chinese university raises questions about potential bias in his view that the US should give up the dollar’s status as reserve currency?
No not at all. It actually in my opinion enhances his effectiveness. Gives him a better understanding. In actuality no one else wants to be the reserve currency. History has proven it is really a curse. It's a fake illusory power one thinks they have but is really a detriment. It makes a society lazy, fat, and corrupt. We need to stand on our own. Exorbitant privilege for who? Not most of us. We give up good jobs and our communities for this so-called privilege.
I question his objectivity. Reserve currency status is called exorbitant privilege for a reason. I imagine China lusts after it. It gives the possessor unprecedented, godlike power to create money (which is power) out of thin air.
I take your points about the moral hazard involved, but don't think voluntarily relinquishing such power is the answer. “Great” Britain and the Roman Empire are examples of the fate of great powers that lose their privilege; it’s impossible to argue they benefitted.
I’m all for increasing the number of good paying, manufacturing jobs in America. How does a 10% tariff imposed on all our trading partners do that?
First, tariffs increases costs on agricultural products/goods we don’t and never will produce. Second, they increase the cost of those imports from countries that realistically aren’t able to significantly increase their purchases of U.S. exports.
Third, our tariffs, on average, are 2 or 3%, and the tariffs imposed by most of our important trading partners are, on average, the same. Inevitably, they’ll raise their tariffs to match ours. Fourth, reshoring jobs is a long-term project, taking 3-10 years. And reshoring will likely require substantial federal and state government support. Most economists say it’s impractical to take an across the board approach. Instead, focusing on one industry, such as automobile manufacturing, is more realistic.
Fifth, the costs to exporters (and their employees) have to be factored in. Finally, there’s been no national discussion of what manufacturing jobs we want to create. Realistically, we need to have a national consensus if we are to create those jobs using a tariffs strategy. Manufacturers aren’t going to invest the sums needed to create those jobs unless they’re confident both Democrats and Republicans will continue to support the policy.
One other point I’d make is that while high tech hardware is manufactured in Asia, nearly all of the software comes from the US. Is that a good or service to an economist? I can never tell because most of you rarely talk about the services side. Making *things* might not be important as they were, especially as we move to making those things more and more capable. Automation is still the leading cause of manufacturing job loss, and the last I saw, gross manufacturing volume was up. All I hear you talk about is manufacturing jobs. Big disconnect that needs to be tied together.
Plenty... but both the jobs and the automation will be in third countries, not the US.
Neither finance-bros nor the geopolitical-hawks can contemplate barriers vs all the other efficient-industry competitors at the same time. Finance wants permanent BoP deficits because they flow into stocks/funds from which they get a cut. Hawks recognize on some level that not even the US can successfully threaten and alienate everyone, not at the same time anyway. Without the all-around barrier, you're just shifting production from China or Vietnam to the next most efficient place, which sure ain't the US.
So for political reasons the whole reshoring argument is moot, whatever the merits of the economic theory. We might yet see attempts to corral third countries into an anti China coalition. By the looks of it will do more harm than good to typical US families.
If an automated factory in China, moves to the US, there is a gain in jobs. All of the jobs that were in China at that factory, become jobs in the US. It is a much higher number than zero.
“(Also somewhat amusingly, Furman tries denying free trade’s impact on manufacturing altogether on the grounds that “Billy Joel sang ‘We’re living here in Allentown and they’re closing all the factories down’ in 1982, long before NAFTA or the rise of China,” which, I mean, great song and all, but I’d rather use Bureau of Labor Statistics data if that’s OK.)”
Gotta stop you there. While not hard data, it does reflect what a wide swath of the country was feeling. The movie Norma Rae came out on the 70s, indicating this malaise goes embark even further. That is reality, no matter what the data say, although I doubt they say things were rosy in 1982.
This past week demonstrated some limits to the Trump economic team's grandiose ideas. Taking on the whole world at once? Too much. Going for a full speed decoupling joust vs China? Nope.
Yes George, agree. Let's try Trumponomics first and adjust from there. He has put together some smart guys so we will see? I do like Bessent. He knows the markets better than anyone and is the smartest and best bond trader with bond knowledge in the world. I don't think anyone will be selling Bessent any BS or wolf tickets on markets especially bond markets. He lived mostly in the real world, a little academia but mostly living by his wits and surviving in the real world. He knows how the game is played. Hell, he played them! ha made billions.
I'm rooting for them. Has to be better than the smoke and mirrors economy we been doing.
Bessent said, Wall St has been profiting for the last 40 years, now it's Main St's turn. wow that's powerful if he meant it and if he can. They are going against a lot of big deep pocketed monied interests. They got their work definitely cut out for them. Going against a media these big interests own too. We'll see?
Great job. Thanks. My God the theory of comparative advantage is 200 years old and since then many of our greatest economists including JS Mills have identified numerous risks and failure modes including distributional effects, bad actor risks, specialization traps, the resource curse and so on. I don’t have the answers but this much I know: it is unbecoming of any serious thinker, let alone economist, to portray free trade as an unmitigated universal good. There is simply no excuse and this kind of binary thinking tarnishes the entire concept of specialized expertise. The institutions that tolerate and even reward this kind of behavior from prominent intellectuals have a lot to answer for.
Don’t miss David French’s piece in the NYT this week as well.
In Oren’s piece on Commonplace, he states that “Much productive investment would have been on hold during the negotiations anyway; now, many of the associated disruptions of large and immediate tariffs can be avoided.”
I think this is incredibly misguided. If Trump had implemented tariffs according to the recommendation that Oren lays out, I think it’s entirely plausible that he would be correct here. But it’s insane to suggest that by simply “course correcting” the associated disruptions will simply be avoided. In my opinion, the damage done by liberation day to the confidence and outlook of business leaders has been extreme, and not something that can be hand-waved away through a 90-day pause.
This speaks to the core problem with Trump. He’s a narcissist and a loose cannon, and as a result he is incapable of implementing policy in a coherent manner. He will do what he thinks is best, even in the face of his closest advisors telling him not to.
Oren do you know anything about the Smoot Hawley tariff? It’s been widely studied and it’s why Summers and Furman have such confidence this won’t work. You just point to employment numbers and act like every manufacturing job is a good job, but as Gary Cohn told Trump during his first term, jn the JOLTS report manufacturing jobs showed the most voluntary quits of any sector because many of the jobs suck. The Washington Post had a great cover story a number of weeks ago on an Alabama lumber mill, where the safety practices were atrocious and multiple employees had been maimed or killed over the years. That’s an extreme example, but people who work in manufacturing do dangerous work and are on their feet all day. They often are risking permanent disability and a retirement filled with pain. Many manufacturers in the US in fact say they often can’t get enough people to work in their plants because of that and the often highly technical skills American manufacturing now requires. These tariffs are on everything, even things we cannot make here like bananas and coffee. Those are just price risers and when someone charges a higher price people use less. The tariffs on China that might produce resourcing are being done so fast as to invite shortages that our own manufacturing sector will find challenging to navigate. China shocked us with how quickly they flooded our market with goods. So maybe we shouldn’t be shocked now if they beat us at a trade war. They’re ready in talk with Europeans to get them to drop their tariffs on their cars. The world won’t wait for us.
Thomas, Smoot Hawley was done for show. At that time the USA was an isolationist country, self-supporting and really didn't do a lot of overseas trade relative to today. We made stuff then and really didn't interact with the world except to get dragged into WWI. Smoot Hawley is overused by the "Free Traders" to argue their economics.
Manufacturing jobs? A lot of people here think manufacturing is in a dirty noisy plant? Some is but very little today. Manufacturing plants today are robots' automation and computer driven. You have to be a smart hard-working person to work in these plants.
Making stuff just gives synergy to an economy and the spin offs from making stuff and producing people in your society with this mind set is parabolic in money and good jobs and growing healthy communities.
Jeff, my great grandfather, who owned a grain elevator, foreclosed on farmers who couldn’t sell their crops because of the tariff you claim was for show. And the US does manufacture a lot of stuff right now. That’s another reason these tariffs are bad. One thing you need for manufacturing is different kinds of input, some of which we simply don’t make in the US or have enough of. But the costs of all of those inputs have now gone up, making our manufacturing less competitive. That’s why Smoot Hawley is instructive. It was the last time the US did across the board tariffs.
Ok sorry to hear about your grandfather. Really, I am. I still stand by Smoot Hawley was overused and if one looks at all of the data it was minimal overall.
It contributed to the Great Depression. I don’t think that’s minimal. What Smoot Hawley teaches you is that across the board tariffs are bad. Tariffs that smartly protect key industries or rebalance for unfair trade practices make sense. But these tariffs are designed to address trade deficits without accounting for why those deficits exist in the first place, which is mostly that we’re rich and want to live like it. I’m from Ohio so I’ve seen how the loss of manufacturing jobs hollowed a lot of places out. But that’s because the pace of change was simply too fast for them to transition. These tariffs are also too fast for people to transition and will caps the same type of pain in reverse.
Unfortunately, all the tariffs in the world won't help OUR manufacturing development. If we can’t afford to buy the goods we make because we have to pay OUR employees a living wage, OR end up using automated manufacturing we are literally cutting off our own nose to spite our face.
None of this is being “implemented” in any cogent way.
Forget the fact that these are not well thought out acts of our Congress, just the knee jerk swinging dick acts of a lunatic with a pen.
When someone, ANYONE, can explain the solutions to ALL the pitfalls and problems with this ridiculous idea of tariffs helping to, “bring manufacturing back”, or reduce our debt(to give BIG business and Billionaires continued breaks(, this is going down as one of the greatest economic disasters in our Country’s History.
What’s even more disturbing is the amount of supposedly “educated” economists who won’t simply ask the tough questions, and the pretend “thinkers” who seem to “think” they don’t need to provide the answers.
French highlights Oren, among others, in the “stop the world I wanna get off” movement. It’s been quite a start to the deft reconstruction of the global economic and security order:) Perhaps one good thing about Don touching the stove is it reminds folks what tariffs in practice are really like. I wish Oren well as he defends Don…
The paywall stopped me from getting to the FT article but if the dollar weren't the reserve currency, we couldn't export inflation and would have to get the debt under control. Short term pain and long-term gain.
Do you think Pettis’ position at a Chinese university raises questions about potential bias in his view that the US should give up the dollar’s status as reserve currency?
No not at all. It actually in my opinion enhances his effectiveness. Gives him a better understanding. In actuality no one else wants to be the reserve currency. History has proven it is really a curse. It's a fake illusory power one thinks they have but is really a detriment. It makes a society lazy, fat, and corrupt. We need to stand on our own. Exorbitant privilege for who? Not most of us. We give up good jobs and our communities for this so-called privilege.
I question his objectivity. Reserve currency status is called exorbitant privilege for a reason. I imagine China lusts after it. It gives the possessor unprecedented, godlike power to create money (which is power) out of thin air.
I take your points about the moral hazard involved, but don't think voluntarily relinquishing such power is the answer. “Great” Britain and the Roman Empire are examples of the fate of great powers that lose their privilege; it’s impossible to argue they benefitted.
Trumponomics is a better path.
I’m all for increasing the number of good paying, manufacturing jobs in America. How does a 10% tariff imposed on all our trading partners do that?
First, tariffs increases costs on agricultural products/goods we don’t and never will produce. Second, they increase the cost of those imports from countries that realistically aren’t able to significantly increase their purchases of U.S. exports.
Third, our tariffs, on average, are 2 or 3%, and the tariffs imposed by most of our important trading partners are, on average, the same. Inevitably, they’ll raise their tariffs to match ours. Fourth, reshoring jobs is a long-term project, taking 3-10 years. And reshoring will likely require substantial federal and state government support. Most economists say it’s impractical to take an across the board approach. Instead, focusing on one industry, such as automobile manufacturing, is more realistic.
Fifth, the costs to exporters (and their employees) have to be factored in. Finally, there’s been no national discussion of what manufacturing jobs we want to create. Realistically, we need to have a national consensus if we are to create those jobs using a tariffs strategy. Manufacturers aren’t going to invest the sums needed to create those jobs unless they’re confident both Democrats and Republicans will continue to support the policy.
One other point I’d make is that while high tech hardware is manufactured in Asia, nearly all of the software comes from the US. Is that a good or service to an economist? I can never tell because most of you rarely talk about the services side. Making *things* might not be important as they were, especially as we move to making those things more and more capable. Automation is still the leading cause of manufacturing job loss, and the last I saw, gross manufacturing volume was up. All I hear you talk about is manufacturing jobs. Big disconnect that needs to be tied together.
Given automation how many industrial jobs could tariffs produce?
Plenty... but both the jobs and the automation will be in third countries, not the US.
Neither finance-bros nor the geopolitical-hawks can contemplate barriers vs all the other efficient-industry competitors at the same time. Finance wants permanent BoP deficits because they flow into stocks/funds from which they get a cut. Hawks recognize on some level that not even the US can successfully threaten and alienate everyone, not at the same time anyway. Without the all-around barrier, you're just shifting production from China or Vietnam to the next most efficient place, which sure ain't the US.
So for political reasons the whole reshoring argument is moot, whatever the merits of the economic theory. We might yet see attempts to corral third countries into an anti China coalition. By the looks of it will do more harm than good to typical US families.
If an automated factory in China, moves to the US, there is a gain in jobs. All of the jobs that were in China at that factory, become jobs in the US. It is a much higher number than zero.
E-X-A-C-T-L-Y. It’s an act of lunacy to think it’s worth it. Yet, they can’t find solutions so they destroy what we do have!!!!
Summers kinda took Cass to school
“(Also somewhat amusingly, Furman tries denying free trade’s impact on manufacturing altogether on the grounds that “Billy Joel sang ‘We’re living here in Allentown and they’re closing all the factories down’ in 1982, long before NAFTA or the rise of China,” which, I mean, great song and all, but I’d rather use Bureau of Labor Statistics data if that’s OK.)”
Gotta stop you there. While not hard data, it does reflect what a wide swath of the country was feeling. The movie Norma Rae came out on the 70s, indicating this malaise goes embark even further. That is reality, no matter what the data say, although I doubt they say things were rosy in 1982.
You’re the best, Oren! Thanks for all your work pal.
This past week demonstrated some limits to the Trump economic team's grandiose ideas. Taking on the whole world at once? Too much. Going for a full speed decoupling joust vs China? Nope.
Probably a useful reality check.
Yes George, agree. Let's try Trumponomics first and adjust from there. He has put together some smart guys so we will see? I do like Bessent. He knows the markets better than anyone and is the smartest and best bond trader with bond knowledge in the world. I don't think anyone will be selling Bessent any BS or wolf tickets on markets especially bond markets. He lived mostly in the real world, a little academia but mostly living by his wits and surviving in the real world. He knows how the game is played. Hell, he played them! ha made billions.
I'm rooting for them. Has to be better than the smoke and mirrors economy we been doing.
Bessent said, Wall St has been profiting for the last 40 years, now it's Main St's turn. wow that's powerful if he meant it and if he can. They are going against a lot of big deep pocketed monied interests. They got their work definitely cut out for them. Going against a media these big interests own too. We'll see?