Geez Oren, get a grip. I understand you want to argue with fellow elites about arcane economic concepts, but we’re in the middle of an authoritarian movement. How about some history about the economic performance of autocrats from the past? Or perhaps something modern day, say, Hungary? Is there an economy run by an authoritarian regime you’d like to hold up for us to emulate? I suspect not. Please, we all must speak up, and tell the truth. Oren, elites like you, who have a large platform, have a special responsibility to educate fellow citizens about what’s really at stake. Don cares not a whit about economic policy, tariffs included. For him, they’re a simple authoritarian tool to bring business to heel. Anyone notice how well it’s working? Please keep your eye on the ball.
Universal tariffs are the most useless of all possible ways to use tariffs
1) there is no reason to maintain incentives for _all_ production within the country - especially in the era of full employment. First of all, we must protect strategic and promising, high-tech industries. also, do not forget that for the development of production, subsidies are often a better answer than tariffs
2) a tariff on everything will simply lead to an overvaluation of the exchange rate and will not change the trade deficit. moreover, it will not incentivize honest players
A smarter policy would be targeted tariffs and also tariffs that target supply chains that are associated with dishonest practices (the use of cheap labor without the same level of protection as in the US, dirty production with standards lower than in the US, etc.)
Trying to figure out what Trump is up to is a difficult task. Generally, he is doing several things at once. He is famously transactional so he could be destabilizing things, getting inside the OODA loop of others and seeing what opportunities present themselves. I doubt that he is greatly concerned about the financial flows of trade balances, though some of his advisors probably are. I am sure those advisors are telling him that if the feared spiral of retaliatory tariffs does occur, that trade surplus nations are more vulnerable than trade deficit nations thus creating opportunities. If it doesn't, the USG gets revenue and consumers probably aren't worse off as currency valuation offsets the costs. Win-win is exactly the situation he loves.
It is also worth considering what I am pretty sure he does care about. Good middle class jobs. As ban nock notes, it is manufacturing that creates those jobs, not resource exports. After deriding Russia as a gas station with nukes, I don't think we want to put ourselves in that position. I think part of the motivation was to restore some portion of the autarky that the US once had. Free trade may be more efficient but autarky is safer. We have the agriculture and the energy resources but lack the manufacturing base. Remember the Arsenal of Democracy when the US was able to repurpose the civilian manufacturing base to outproduce the rest of the world put together. To take one example the M1 carbine was produced by GM, IBM, Underwood Typewriters and Rock-ola (juke boxes). If you have to rebuild the manufacturing base from scratch, it takes a lot longer. And finally, the globalists are insistent that advanced economies should be service economies. Big portions of those industries (finance, law, media, health care) are controlled by those who are enemies of Trump and his Deplorables.
Quote: "The United States will embrace free trade, in Trump’s framework, only to the extent its trading partners do too, and to the extent we get real, actual, honest to goodness trade as a result."
Reciprocity only works in trade between countries with similar wage levels. But in trade with a country like China, whose "comparative advantage" lies in its relative abundance of low-wage labor, only a "wage-price equalization tax" will level the playing field on which American workers compete.
This is standard textbook neoclassical trade theory. See, for example, the closing paragraphs in Stolper and Samuelson's classic paper, "Protection and Real Wages."
if the planetary economic and political structures of capital “G” Globalization break down, and several different things happen, for example , lets say Very Big British Finance loses control (to be fair its the Global system’s control, but their prime there) over the Congo’s cobalt, and, among other things, the LME no longer dominates its marketing, and other such things happen, well, those “several thousands” of people you mentioned may have to pay the piper for the multidecadal selling off of several of Britain’s several hundreds of years in the making civilizational legacies, and, well, I dont think they’ll be such fans of it all anymore. There’s a real chance that beneath the surface Globalization’s local controls systems are breaking down in countries around the so called “developing” world…..
Trump seems to be fixated on using tariffs to achieve balanced trade with each country on a bilateral basis. In arguing that bilateral trade is imbalanced, Trump focuses on US trade deficits in goods. In doing so , he conveniently ignores what are often US trade surpluses in services. Surely, the overall bilateral trade balance between the US and any other country needs to take into account trade in both goods and services. If this were done, it would show that US trade with many countries, such as Canada, is much more balanced than Trump makes it out to be.
In any event, it makes no sense to seek balanced trade between the US and every other country on a bilateral basis. There are some countries that produce large quantities of goods that the US wishes to import, but which do not have populations or economies that are large enough or rich enough to absorb an equal value of US goods and services. For example, as a result of huge oil deposits off its coast, Guyana is likely to soon be exporting large volumes of oil to the US. There is no way that tiny Guyana will be able to absorb imports of US goods and services equal to the value of Guyana’s oil exports to the US. Does this mean the US should be imposing huge tariffs on its imports of Guyanese oil to offset its trade deficit with Guyana? That seems absurd.
Reciprocity makes sense when it means countries committing to provide each other with equal access to their respective markets. That is the kind of reciprocity that is typically the core objective of free trade agreements. With some limited exceptions, that kind of reciprocity has already been achieved by the current free trade agreement among the US, Canada and Mexico, which was negotiated and signed by Trump in 2018. So, why does Trump now want to rip up that agreement by imposing punitive tariffs against Canada and Mexico?
Rather than imposing punitive tariffs on countries that, for the most part, already practice trade reciprocity vis-à-vis the US, Trump should be focusing his attention on countries with high tariff and non-tariff barriers to trade. He should be pressuring those countries to dismantle rules and policies that prevent market access on an equal footing. In the spirit of reciprocity (and subject to reasonable national security restrictions), Trump should be prepared to dismantle such rules and policies on the US side as well.
Anyone who wants a serious academic treatment of intl trade, I recommend Global Trade and Conflicting National Interests by Gomory an Baumol. It was written about 25 years ago, pre Trump, during the heyday of the free-trade-at-all-costs consensus among economists.
The book lays out the extension of Ricardo's 2-country, 2-product trade theory (that we all learned and that Oren mentions here) to dozens of countries and thousands of products, and demonstrates (incl mathematically for those who want it) that hundreds of stable equilibria are possible under such circumstances. Industrial and trade policy is about shorting the actual equilibrium toward one of those that is more favorable to your own side.
It's a great book if you want to go more in dept with this topic.
This is an important issue and I'm not at all convinced that tariffs are the answer. Balanced trade makes sense and I agree with that. That's the aim concerning trade. My concern is tariffs only have indirect influence on shaping the economy. They may not achieve what Oren has written about in the past which is revitalizing America's industrial base. A position I strongly agree with and advocate for. And because they can't achieve that aim, their effects could actually be harmful.
I'm going to use a very different policy failure as an analogy. The point of it will be to illustrate that half measures can be worse than no measures. The policy failure of Portland's drug decriminalization is an example of a big half step to radically addressing it's drug problem. If it had taken the the necessary additional policy steps decriminalization would have been successful. By itself, decriminalization is actually the worst of all worlds for reducing drug use and its harm. It invited increased use, plain and simple. The drug problem got worse. Obviously, that was going to happen. Decriminalization should have been strictly for use. The Other step that should have been taken was for the city or the state to then control the supply of drugs and introduce and enforce draconian penalties for drug dealing. This would have compelled drug users to be exposed to treatment options on a regular basis. And because use was not illegal there would be no reason to fear getting drugs from government outlets. It also would have allowed government officials a better grasp of the drug using population. Further policy for dealing with mental illness could and should have been implemented.
That may be a step too far for many people to imagine, but it's not entirely the point. The point is tariffs are a weak half measure toward the actual goal, which is revitalizing our own industrial base. And here is the kicker. Ultimately it is the cost of labor that makes for trade imbalance. Assume that tariffs induce markets to have equal barriers or lack thereof between countries. That does nothing to guarantee trade will be equal. If American products are more expensive because American wages are higher, American products won't sell abroad as much as cheaper products offered from abroad sold to Americans. Thus, problem not solved. Not even the immediate trade deficit problem. I don't see how anything less than direct trade restrictions can balance trade deficits and stimulate domestic industrial production. And that is still a step short. Direct government investment in ramping up heavy industry is required to make it happen in a perceptible time frame. That is, an explicit industrial policy aimed at making the US actually economically independent of the rest of the world. When that position is achieved, Then we can look at what could be useful about trade.
All the neoliberal handwaving about the glory of international trade has been part of a Libertarian project to denigrate American workers. Libertarians view workers as beneath shoe leather: to be walked on. I remain completely skeptical of Trump/Musk's intents and motives. We have to ask what Trump/Musk's aim for workers actually is? What are they doing that actually benefits the working class. Tariffs by themselves are arguably not helpful to workers. For this and other reasons, maybe let's not argue about them in isolation from overall policy and goals.
I am getting to the point that I need to ask GROK to summarize Oren's genius articles. Oren, we love you but you gotta lower the word count just a bit... Sorry, we are attention deficit savages.
This narrative seems to completely exclude the role of American tech companies and other IP-heavy companies that play an outsize role in the American economy and draw a large portion of all foreign investment in the United States.
Assuming (1) the U.S. is going to continue leading the world in creating new such companies; and (2) we're going to allow foreigners to invest in such companies, won't that necessarily create a capital inflow that can be used to fund some degree of trade deficit without meaningful negative effects? How is generating new, incredibly valuable assets and then selling small portions of those assets for commodities worse--in either a theoretical or practical sense--than just generating our own commodities to swap for commodities?
“But it is still exciting to know that people will someday read and wonder about the collective insanity that gripped the economics profession and cowed nearly everyone into meek embrace of unfettered capitalism with the same fascination that students today study the Salem Witch Trials and the Dancing Plague of 1518.”
The one word that explains globalization's failure isn't reciprosity, it is inclusiveness, the failure to be inclusive in broading the players who make the rules -- it was supposed to spread democratic governance, but instead hampered its development, and a populist backlash resulted.
When economic behavior -- growth -- is expanded it benefits a wide segment of society. Globalization enhanced capital flows, but not to the benefit of their broader society.
Even trade where we import a dollar of goods and export a dollar of goods is not necessarily a good thing. If we export a billion dollars of wheat to china, and import a billion dollars of power tools, China is realizing a lot more jobs from the deal.
Geez Oren, get a grip. I understand you want to argue with fellow elites about arcane economic concepts, but we’re in the middle of an authoritarian movement. How about some history about the economic performance of autocrats from the past? Or perhaps something modern day, say, Hungary? Is there an economy run by an authoritarian regime you’d like to hold up for us to emulate? I suspect not. Please, we all must speak up, and tell the truth. Oren, elites like you, who have a large platform, have a special responsibility to educate fellow citizens about what’s really at stake. Don cares not a whit about economic policy, tariffs included. For him, they’re a simple authoritarian tool to bring business to heel. Anyone notice how well it’s working? Please keep your eye on the ball.
Universal tariffs are the most useless of all possible ways to use tariffs
1) there is no reason to maintain incentives for _all_ production within the country - especially in the era of full employment. First of all, we must protect strategic and promising, high-tech industries. also, do not forget that for the development of production, subsidies are often a better answer than tariffs
2) a tariff on everything will simply lead to an overvaluation of the exchange rate and will not change the trade deficit. moreover, it will not incentivize honest players
A smarter policy would be targeted tariffs and also tariffs that target supply chains that are associated with dishonest practices (the use of cheap labor without the same level of protection as in the US, dirty production with standards lower than in the US, etc.)
https://www.noahpinion.blog/p/when-are-tariffs-good
https://www.noahpinion.blog/p/why-targeted-tariffs-are-more-effective
Trying to figure out what Trump is up to is a difficult task. Generally, he is doing several things at once. He is famously transactional so he could be destabilizing things, getting inside the OODA loop of others and seeing what opportunities present themselves. I doubt that he is greatly concerned about the financial flows of trade balances, though some of his advisors probably are. I am sure those advisors are telling him that if the feared spiral of retaliatory tariffs does occur, that trade surplus nations are more vulnerable than trade deficit nations thus creating opportunities. If it doesn't, the USG gets revenue and consumers probably aren't worse off as currency valuation offsets the costs. Win-win is exactly the situation he loves.
It is also worth considering what I am pretty sure he does care about. Good middle class jobs. As ban nock notes, it is manufacturing that creates those jobs, not resource exports. After deriding Russia as a gas station with nukes, I don't think we want to put ourselves in that position. I think part of the motivation was to restore some portion of the autarky that the US once had. Free trade may be more efficient but autarky is safer. We have the agriculture and the energy resources but lack the manufacturing base. Remember the Arsenal of Democracy when the US was able to repurpose the civilian manufacturing base to outproduce the rest of the world put together. To take one example the M1 carbine was produced by GM, IBM, Underwood Typewriters and Rock-ola (juke boxes). If you have to rebuild the manufacturing base from scratch, it takes a lot longer. And finally, the globalists are insistent that advanced economies should be service economies. Big portions of those industries (finance, law, media, health care) are controlled by those who are enemies of Trump and his Deplorables.
Thank you Oren!
Quote: "The United States will embrace free trade, in Trump’s framework, only to the extent its trading partners do too, and to the extent we get real, actual, honest to goodness trade as a result."
Reciprocity only works in trade between countries with similar wage levels. But in trade with a country like China, whose "comparative advantage" lies in its relative abundance of low-wage labor, only a "wage-price equalization tax" will level the playing field on which American workers compete.
This is standard textbook neoclassical trade theory. See, for example, the closing paragraphs in Stolper and Samuelson's classic paper, "Protection and Real Wages."
Intertemporal barter
Credit systems encourage us of
Inter temporal and Interspatial barter
If course the player to be named
Later Adds uncertainty
And trust the essence of credit
Becomes conditional if not giddy
With uncertainty
if the planetary economic and political structures of capital “G” Globalization break down, and several different things happen, for example , lets say Very Big British Finance loses control (to be fair its the Global system’s control, but their prime there) over the Congo’s cobalt, and, among other things, the LME no longer dominates its marketing, and other such things happen, well, those “several thousands” of people you mentioned may have to pay the piper for the multidecadal selling off of several of Britain’s several hundreds of years in the making civilizational legacies, and, well, I dont think they’ll be such fans of it all anymore. There’s a real chance that beneath the surface Globalization’s local controls systems are breaking down in countries around the so called “developing” world…..
Trump seems to be fixated on using tariffs to achieve balanced trade with each country on a bilateral basis. In arguing that bilateral trade is imbalanced, Trump focuses on US trade deficits in goods. In doing so , he conveniently ignores what are often US trade surpluses in services. Surely, the overall bilateral trade balance between the US and any other country needs to take into account trade in both goods and services. If this were done, it would show that US trade with many countries, such as Canada, is much more balanced than Trump makes it out to be.
In any event, it makes no sense to seek balanced trade between the US and every other country on a bilateral basis. There are some countries that produce large quantities of goods that the US wishes to import, but which do not have populations or economies that are large enough or rich enough to absorb an equal value of US goods and services. For example, as a result of huge oil deposits off its coast, Guyana is likely to soon be exporting large volumes of oil to the US. There is no way that tiny Guyana will be able to absorb imports of US goods and services equal to the value of Guyana’s oil exports to the US. Does this mean the US should be imposing huge tariffs on its imports of Guyanese oil to offset its trade deficit with Guyana? That seems absurd.
Reciprocity makes sense when it means countries committing to provide each other with equal access to their respective markets. That is the kind of reciprocity that is typically the core objective of free trade agreements. With some limited exceptions, that kind of reciprocity has already been achieved by the current free trade agreement among the US, Canada and Mexico, which was negotiated and signed by Trump in 2018. So, why does Trump now want to rip up that agreement by imposing punitive tariffs against Canada and Mexico?
Rather than imposing punitive tariffs on countries that, for the most part, already practice trade reciprocity vis-à-vis the US, Trump should be focusing his attention on countries with high tariff and non-tariff barriers to trade. He should be pressuring those countries to dismantle rules and policies that prevent market access on an equal footing. In the spirit of reciprocity (and subject to reasonable national security restrictions), Trump should be prepared to dismantle such rules and policies on the US side as well.
Anyone who wants a serious academic treatment of intl trade, I recommend Global Trade and Conflicting National Interests by Gomory an Baumol. It was written about 25 years ago, pre Trump, during the heyday of the free-trade-at-all-costs consensus among economists.
The book lays out the extension of Ricardo's 2-country, 2-product trade theory (that we all learned and that Oren mentions here) to dozens of countries and thousands of products, and demonstrates (incl mathematically for those who want it) that hundreds of stable equilibria are possible under such circumstances. Industrial and trade policy is about shorting the actual equilibrium toward one of those that is more favorable to your own side.
It's a great book if you want to go more in dept with this topic.
This is an important issue and I'm not at all convinced that tariffs are the answer. Balanced trade makes sense and I agree with that. That's the aim concerning trade. My concern is tariffs only have indirect influence on shaping the economy. They may not achieve what Oren has written about in the past which is revitalizing America's industrial base. A position I strongly agree with and advocate for. And because they can't achieve that aim, their effects could actually be harmful.
I'm going to use a very different policy failure as an analogy. The point of it will be to illustrate that half measures can be worse than no measures. The policy failure of Portland's drug decriminalization is an example of a big half step to radically addressing it's drug problem. If it had taken the the necessary additional policy steps decriminalization would have been successful. By itself, decriminalization is actually the worst of all worlds for reducing drug use and its harm. It invited increased use, plain and simple. The drug problem got worse. Obviously, that was going to happen. Decriminalization should have been strictly for use. The Other step that should have been taken was for the city or the state to then control the supply of drugs and introduce and enforce draconian penalties for drug dealing. This would have compelled drug users to be exposed to treatment options on a regular basis. And because use was not illegal there would be no reason to fear getting drugs from government outlets. It also would have allowed government officials a better grasp of the drug using population. Further policy for dealing with mental illness could and should have been implemented.
That may be a step too far for many people to imagine, but it's not entirely the point. The point is tariffs are a weak half measure toward the actual goal, which is revitalizing our own industrial base. And here is the kicker. Ultimately it is the cost of labor that makes for trade imbalance. Assume that tariffs induce markets to have equal barriers or lack thereof between countries. That does nothing to guarantee trade will be equal. If American products are more expensive because American wages are higher, American products won't sell abroad as much as cheaper products offered from abroad sold to Americans. Thus, problem not solved. Not even the immediate trade deficit problem. I don't see how anything less than direct trade restrictions can balance trade deficits and stimulate domestic industrial production. And that is still a step short. Direct government investment in ramping up heavy industry is required to make it happen in a perceptible time frame. That is, an explicit industrial policy aimed at making the US actually economically independent of the rest of the world. When that position is achieved, Then we can look at what could be useful about trade.
All the neoliberal handwaving about the glory of international trade has been part of a Libertarian project to denigrate American workers. Libertarians view workers as beneath shoe leather: to be walked on. I remain completely skeptical of Trump/Musk's intents and motives. We have to ask what Trump/Musk's aim for workers actually is? What are they doing that actually benefits the working class. Tariffs by themselves are arguably not helpful to workers. For this and other reasons, maybe let's not argue about them in isolation from overall policy and goals.
I am getting to the point that I need to ask GROK to summarize Oren's genius articles. Oren, we love you but you gotta lower the word count just a bit... Sorry, we are attention deficit savages.
This narrative seems to completely exclude the role of American tech companies and other IP-heavy companies that play an outsize role in the American economy and draw a large portion of all foreign investment in the United States.
Assuming (1) the U.S. is going to continue leading the world in creating new such companies; and (2) we're going to allow foreigners to invest in such companies, won't that necessarily create a capital inflow that can be used to fund some degree of trade deficit without meaningful negative effects? How is generating new, incredibly valuable assets and then selling small portions of those assets for commodities worse--in either a theoretical or practical sense--than just generating our own commodities to swap for commodities?
Well then ,you may see why they danced...see Blowin' The Blues Away,Horace Silver ...note the selections
“But it is still exciting to know that people will someday read and wonder about the collective insanity that gripped the economics profession and cowed nearly everyone into meek embrace of unfettered capitalism with the same fascination that students today study the Salem Witch Trials and the Dancing Plague of 1518.”
Fify.
The one word that explains globalization's failure isn't reciprosity, it is inclusiveness, the failure to be inclusive in broading the players who make the rules -- it was supposed to spread democratic governance, but instead hampered its development, and a populist backlash resulted.
When economic behavior -- growth -- is expanded it benefits a wide segment of society. Globalization enhanced capital flows, but not to the benefit of their broader society.
Even trade where we import a dollar of goods and export a dollar of goods is not necessarily a good thing. If we export a billion dollars of wheat to china, and import a billion dollars of power tools, China is realizing a lot more jobs from the deal.
Not only are they making jobs but they are creating a manufacturing base that at need can be repurposed. Sort of an Arsenal of Autocracy.