What’s the End Game?

From Toles:

The question we should be asking (prompted by my thinking about the relevance of game theory) is which payoff matrix is of relevance. Here, it makes sense to differentiate between the objectives of Mr. Trump and the United States as a whole.


  1. To degrade China’s ability to ascend the quality ladder, and maintain US technical leadership in advanced production technologies.
  2. To reduce the bilateral trade deficit with China.
  3. To reduce the overall US trade deficit.
  4. To increase the Republican party’s ability to retain control of the legislative branch.
  5. To activate nativist and xenophobic groups within the Trump electoral coalition.
  6. To satisfy atavistic desires to impose pain on foreign parties.

Surely, this is not an exhaustive list, but I think it covers a lot of possibilities.

It is useful to then consider the efficacy of (i) anti-dumping duties, (ii) Section 232 tariffs, and (iii) Section 301 tariffs in the context of these objectives, keeping in the mind the targeting principle — the core idea of which “is that if a new regulation of some sort is required, the most efficient intervention targets the specific variable of direct interest.”

Hence, if (1) is the objective, then strict implementation of the CFIUS process, augmented by perhaps additional legislation (and funding), combined with increased expenditures in civilian and military R&D, tax breaks for R&D, and increased educational funding aimed at science and technology (including grants for higher educational system) would be in order. I don’t see moves toward the second — perhaps more important aspect — of retaining our technological lead in Mr. Trump’s agenda.

If (2) is the objective, then tariffs and quotas might have an impact. However, it is unclear whether the bilateral trade deficit has any economic meaning. At the same time, reducing the bilateral trade deficit might have meaningful economic costs (higher input costs as trade is diverted from the lowest cost producer, disruption to existing value chains, etc.)

If (3) is the objective, then tariffs and quotas by country will have little impact on the overall trade deficit (since the current account is driven by saving and investment balances), while having a possibly meaningful impact on overall import costs — and at the same time will have some collateral impacts on economic policy uncertainty as the possibility of a global trade war is enhanced. Contractionary fiscal policy (rescinding the TCJA, re-establishing budget caps) would make much more sense.

If (4) is the objective, the fact that it is easy to determine the politically sensitive export sectors vital to the continued Republican control of the legislature means that this is an ill-advised approach for Mr. Trump to take.

If (5) is the objective, then tariffs and quotas aimed at China, Asian countries (including Japan), African countries and Mexico make sense. Tariffs and quotas aimed at Canada do not. Nor do those at the European Union. Note Japan and South Africa were not exempted from the Section 232 sanctions; Canada and Mexico have temporary (conditional) exemptions.

If (6) is the objective, then the tariffs and quotas will have the desired effect (of course, at some cost to domestic parties).

My view is Mr. Trump’s objectives are (5)-(6), mediated by (4). To the extent that the former dominates, we can expect little scope for walk-back, climb-down, de-escalation — pick your preferred phrase. To the extent the latter dominates, Mr. Trump will step back from the brink and declare victory. But don’t expect the national interest concerns to drive the agenda.

(As for Xi’s payoff matrix deviating from China’s, I’m sure there is some difference. However, I’d think the biggest deviation to come from Xi’s willingness to compromise in order to maintain employment vs. political repercussions if he were to lose face by bowing to pressure from the West, or Trump, specifically).

124 thoughts on “What’s the End Game?

      1. Menzie Chinn Post author

        Bruce Hall: You do realize this exactly illustrates the point that a tariff by China on soybeans when China is a large buyer imposes a terms of trade loss on the exporting country on which the tariffs are levied? So I don’t understand how this isn’t exactly as simple as I pointed out in my post on incidence (and in my int’l trade course)…

        Reply
        1. pgl

          Maybe this is one of those ceteris paribus moments. Brazil supplies less so one would expect a price increase in the absence of this trade war. Now had the only event been the trade war – ceteris paribus we would see a fall in soybean prices.

          Reply
          1. Moses Herzog

            @ Steven Kopits
            Would be interesting to know how you came up with the name “Princeton Policy Advisors”??? As far as I can tell you have no connection to the University. You live in the town??

        2. Bruce Hall

          Yes, short term shift in prices… downward for U.S.; upward for Brazil. And…?

          “U.S. prices got exceedingly cheap compared to Brazil,” said a U.S. trader who asked not to be named. “Some of this is outright new business. Some of it is arbitraging away from Brazil.”

          The longer term question is whether or not this is good for China and whether or not this is good for U.S. growers.

          Reply
      2. pgl

        “We’re seeing a realignment of trade,” largely because the politics is driving up Brazilian soybean prices, said Jack Scoville, analyst with the Price Futures Group…Soybean prices tumbled by as much as 5 percent after China threatened to levy extra duties on U.S. shipments, though the market ultimately ended the week down about 1 percent. The United States is the second-largest soybean exporter in the world after Brazil. China is by far the top buyer, importing about two-thirds of all soybeans traded globally.”

        Brazil supplies less but China purchases less – impact on market price ambiguous.

        Reply
  1. Lord

    Perhaps one more is a declaration of an agreement/victory and undoing of everything up to this point, claiming his deal making prowess, but that dims each day. Perhaps the target is less China than those US companies that have taken advantage of offshoring and tax arbitrage, redirecting them towards investment and tariff arbitrage.

    Reply
      1. pgl

        Zakaria is not agreeing with Trump.He starts off by noting how amateurish most of what this White House says is. What he did say is that China has not adopted strict free policies noting other nations have not either. But China is big and Korea is not so what China does matters a lot. Folks – take a listen as the title they gave his talk is really misleading.

        Reply
  2. Moses Herzog

    My preferred nomenclature is “backpedaling” (joke). I kind of read this sloppily because I am playing catch-up on some books and DVDs. This post is well-written and deserves a more thorough and turning in the mind than I can give it this afternoon. I like the cartoon to add some fun to the post. And I had never thought of the game theory aspect of this—which actually adds a lot of insight and was/is very perceptive of Menzie to bring into the China/USA trade conversation. My immediate/abbreviated thought on it is that one of the best guys at game theory (and who, yes, I am a big fan of) is Yanis Varoufakis. I have bought all of his books and have spent hours of time watching his interviews/speeches on Youtube. I think it might behoove Menzie to try to contact Yanis (assuming his plate isn’t already full with Europe) and “brain-pick” Yanis on how he thinks game theory will affect the China/USA trade sword wrangling. Whether meeting Yanis at a conference, meeting at a beer bar, or just talking long-distance by phone with Yanis, I think Yanis’s thoughts on game theory via this trade mess might add perspective. Think how similar Yanis’s situation was during his defending of Greece’s ground against the Troika—no it is not the same situation, it is somewhat “apples and oranges” but his experience butting bull horns with the Troika gives Varoufakis a deeper view of these things than most people have.

    Reply
  3. 2slugbaits

    Framing the discussion in terms of formal game theory modeling almost certainly gives Trump too much credit. He’s just not that smart. Game theory involves a lot of advanced mathematics. I find it implausible that Trump has either the IQ or the mental discipline needed to work out a formal game theoretic approach. It’s all gut instinct with him, which probably explains why so many of his ventures have been colossal failures. Were it not for the cleansing power of bankruptcy courts, Donald Trump would be a pauper. Of course, for all we know he might actually be a pauper. He’s such a liar that no one should take his word for it that he’s rich. Bernie Madoff had a lot of folks convinced that he was rich. A sucker’s born every minute.

    Reply
    1. Moses Herzog

      @2slugbaits
      You have a point on Trump not understanding game theory—but I think that is why Menzie was differentiating.

      “Here, it makes sense to differentiate between the objectives of Mr. Trump and the United States as a whole.”

      It is a great point, obvious to some, but also a point many people will still not “get it” even after all of this is said and done and the smoke has cleared. Even so, game theory can tell us, “the passive observers”, (which I use loosely here, as we will be affected) how to read the situation from China’s side. My experience with the Chinese people (which I dare say is better than 95% of those discussing China, even those who are paid to discuss China) is that the Chinese people are extremely pragmatic. They are relatively good at reading individual situations very quickly and surmising quickly what is the “maximizing function” for them. Xi theoretically (it’s debatable) has less poker chips to play with than Trump. But Trump is so ineffectual at playing his poker chips (on top of just being an emotionally dysfunctional human being) I think Xi comes out on top, even with Xi’s smaller “buy-in” of chips to the game. Playing aggressively (as Trump does) against an opponent (Xi Jinping) who is exceedingly more intelligent than you are rarely ends well. You are betting on ‘the river” to bail your tuchus out.

      Reply
      1. Moses Herzog

        I think in this game (the first game in the film “Rounders”, not the last one) Trump would be Mike McDermott, and Xi Jinping would be Teddy KGB.

        https://www.youtube.com/watch?v=e6LqGHjjp68

        The difference here is McDermott is playing with his own chips. In real life Trump is playing with the American people’s chips, so the VSG doesn’t give a F___ if he loses.

        (The example of “Rounders” may have been a poor one, as we like McDermott and pull for McDermott in the film, but may find it very difficult to see either Trump or Xi Jinping as “likable characters”.)

        Reply
      2. Moses Herzog

        I think in this game (the first game in the film “Rounders”, not the last one) Trump would be Mike McDermott, and Xi Jinping would be Teddy KGB.

        https://www.youtube.com/watch?v=e6LqGHjjp68

        The difference here is McDermott is playing with his own chips. In real life Trump is playing with the American people’s chips, so the VSG doesn’t give a F___ if he loses.

        (The example of “Rounders” may have been a poor one, as we like McDermott and pull for McDermott in the film, but may find it very difficult to see either Trump or Xi Jinping as “likable characters”.)

        Reply
  4. Ed Hanson

    pgl

    The question is still there from the topic “Is There a Pattern? Trade Sanctions on China” You have not answered yet. It started with your reply (in part) to peak;

    pgl
    April 7, 2018 at 12:50 am
    ” To assume Canada is like China shows your extensive ignorance of economics.”
    This is classic PeakIgnorance. I did not say that.

    So I asked:

    pgl
    When did you start caring whether anyone said anything. I let it go at the time but since you now think such things are important, I will bring it up. Here is a reminder:
    “Ed Hanson
    April 6, 2018 at 10:29 am
    p
    That’s what you get out of this. You are getting pathetic and a little strident.
    Ed
    Reply ↓
    pgl
    April 6, 2018 at 10:43 am
    You are saying only the Chinese deviate from free markets but that is clearly not an accurate statement.”

    Like your response, I will tell you,, “I did not say that.” But am willing to be reminded if I did, So put up or shut up.

    Ed

    Reply
    1. pgl

      You have to be kidding me with this. Peak is a dishonest troll.If you for some dumb reason want to expand on his intellectual garbage – permit me to ignore you. Oh wait – you want to go on and on regarding some intellectual garbage you started. Got it! Sorry – it was intellectual garbage and you know it. If you choose to take no responsibility for your garbage – not my problem.

      Do NOT approach me again with such child like behavior – else I will tell you and Peaky what I really think of your garbage.

      Reply
      1. pgl

        Notice Ed did not put up the silly statement he originally made choosing to take totally out of context my objection my response to his silly statement. And so goes your usual right wing talking points devoid of any honest discussion of the actual issues. I rest my case.

        Reply
        1. Ed Hanson,

          p

          Please note that I did not put up any silly statement because I never anything like “only the Chinese deviate from free markets but that is clearly not an accurate statement.” So I have no idea what statement should be put up.
          So feel free to put the statement up and we will see if it was mine. In fact it is exactly what is asked of you.

          Put up or shut up.

          Ed

          Reply
          1. pgl

            Ed – if you insist on going back to Thursday, you could have been honest enough to remind people that my comment below sparked your unwarranted little slam:

            ****

            “In a normal economy, many of China’s steel companies would have gone bankrupt.”

            The same thing goes for US Steel. It has struggled for decades and is always calling for tariffs to bail them out. BTW of our $20 billion in steel imports in 2017 less than $350 million came from China. We import more steel from Sweden than we do from China. We do import a lot of steel from Canada, Mexico, Japan, Korea, and Germany. You might know this if you checked the data at http://www.census.gov.

            ****

            I stand by this statement. Now if you wish to continue with the kind of pointless comments that followed – be my guest. I’m done!

          2. PeakTrader

            Ed, Pgl has some type of mental disability – you cannot have a rational conversation with him. Even when he agrees with you, he’ll disagree with you and call you names (that remarkably fits him) – it’s his way.

          3. Ed Hanson,

            p

            The trouble with you is it seems, you can not read and comprehend at the same time. The quote, “In a normal economy, many of China’s steel companies would have gone bankrupt.” is not my words but those of Jennifer Hillman, a highly qualified commentator on the trade issue. It is not a statement of mine, and in fact I did not even give an opinion of its accuracy, but just repeated it here because it might be of interest of other. Unfortunately, along with others who actually can read it caught a pathetic troll, you.

            So, while I am willing to accept an apology, since you are unable to ‘put up’ I would rather see you take the other option and just

            Shut up.

            That would go along way returning Econbrowser to it former state of highest regard within the economic community.

            Ed

      2. Ed Hanson

        pgl

        The intellectual garbage as you call it was the linked source from Menzie’s topic Take up the garbage talk with him. For now apologize for writing that I said something that I did not or show me where I said it.

        And while you at it maybe you should read rather spurt. Here is the link again, Jennifer Hillman interview begins on page 8.

        https://research.gs.com/content/research/en/reports/2018/03/28/fe2f67f9-ae9e-4db9-ba3f-14835f611db2.pdf

        Put up or shut up.

        Ed

        Reply
        1. Menzie Chinn Post author

          Ed Hanson: Just to be clear, my specific source was the Philips/Tilton article in the GS publication, not the Hillman piece.

          To be clear, the Russian Federation is also not a normal country. Our State Department (at least it’s ours for now) indicates SOEs account for 70% of the economy. I can’t vouch for the 70% figure, but it’s clear SOEs are important. Further, Russia ranks even below China in intellectual property protection. And yet, I do not see Mr. Trump arguing for comparable action against Russia. Strange, isn’t it.

          Reply
          1. Ed Hanson,

            Menzie

            Sorry, I clicked your link and saw the whole “Top of the Mind” and assumed you thought the whole issue was worth reading, and that the chart you used was just part of the whole reading. You are perhaps more familiar with the different interviewees that I am, but I read Jennifer Hillman as a person with great expertise in WTO, much more globalist than I am or President Trump, a person who believes in the WTO more than I do or President Trump, and who does not like President Trump nor his policies. But given all that she used her knowledge, experience and expertise to honestly evaluate the situation of tariffs and China, some of which I highlighted both because I found them interesting and provocative enough to use to encourage others to read what you linked.

            I never considered her opinions to be your’s, Menzie. nor mine. The link and Jennifer Hillman stand on their own.

            As for Russia, I, of course, can not answer for the administration. But I would assume that beyond poor protection of IP, it is the much greater use by China of the ill-gotten gains that brings that country the front. It is also good to remember the criticism of China and IP did not begin with President Trump but previous administrations for years have been very critical. The difference is, and I understand that you do not like it, is that this administration does not just give it lip service and allow years of inaction and unrealized promises as a substitute for actually dealing with the problem.

            And please do not try to propagate the idea that Trump is soft on Russia. His expulsions and continued and new sanctions puts idea to rest.

            Again, sorry that you thought I implied that the “top of the Mind” issue was your opinion, I assure you that I had no such intention.

            Ed

          2. pgl

            ” the Russian Federation is also not a normal country.”

            Spot on. What I found offensive about the highlights of that discussion that Ed choose to highlight was the idea that any nation that props up its steel sector is “not a normal” economy. My simple point was that the U.S. props up its steel sector. I’m not sure why Ed found that offensive unless he also believes the U.S. has been an abnormal country for generations.

  5. 2slugbaits

    One of my brothers is a department head at a large research university. This afternoon we were bitching about Trumponomics and he mentioned some collateral damage from this tit-for-tat with China that I hadn’t considered. Universities are quietly being told not to expect nearly as many Chinese students next year. In his case it comes to around 1,700 fewer Chinese students, predominantly in the STEM fields. That’s going to have a huge impact on STEM departments because those Chinese students pay the full load. That’s a lot of lost revenue and means departments will have to cut back. There was a time when US research universities were tops in the world, but with all of the higher education budget cuts that competitive edge has been dulled. Chinese students no longer have to go to US universities to get a high quality education.

    Reply
    1. Menzie Chinn Post author

      2slugbaits: I’m not so sure that this is not part of the Trump plan — he wants to diminish the number of foreigners from non-European countries coming into the US, for any reason. While China is not (presumably) one of the s***hole countries as designated by Mr. Trump, I don’t think he wants any more of those types coming here. This also hits institutions of higher learning.

      So, for Mr. Trump, Mission Accomplished!

      Reply
      1. Ed Hanson,

        slug

        That would be a crummy thing for the Chinese students, but I wonder if it was worse for the Americans denied, due to the California quota limiting opportunity for Americans of Asian descent. Not that two wrongs make a right. Perhaps University Professors will volunteer to rebate to the Colleges what would be lost for the full price students. Full load for 1700 would be a very small amount spread across all those professors.

        Ed

        Reply
        1. pgl

          ” I wonder if it was worse for the Americans denied, due to the California quota limiting opportunity for Americans of Asian descent.”

          Have you ever been to UC Berkeley. Yes – there are Asian students there who got there on their merits. I trust you are NOT saying these Berkeley kids are not very bright as that would be very inaccurate.

          Reply
      2. Moses Herzog

        I had a close mainland Chinese friend (at the time) that I was helping study for the TOEFL, as she had gotten a “free ride” for University in Germany (China charges native Chinese a LARGE fee to leave their own country, even if the country they go to is paying ALL their tuition, this would have been roughly 2002, I severely doubt the policy has changed). I’m relatively neutral as far as Chinese getting education in America (I’ll be honest and “confess” I have problems with some Arabs getting an American college education, as they often later use their American education in science and engineering against “the great Satan” that educated them, but I digress).

        My issue with Chinese coming to America is mainly with how it affects Chinese themselves—superior Chinese students without wealthy parents in China are often stuck in futility. Sub-par Chinese students with affluent parents get the visas to America—as their parents are willing to “pony up” to Chinese officials and the American universities who often only view them with dollar signs in their eyes. You can argue these issues are delineated from Trump’s policies, and maybe that’s true. Not sure if I was an academically excelling student with poor parents stuck in China if I would feel that way.

        I wish I was a fly on the wall for that brotherly conversation that 2slugbaits had—I wish to “caste dispersions” on no one here, or their brother—but the cynical side of me says that 2slugbaits brother was probably much more melancholy over lost $$$$ to his department, rather than melancholy over any Chinese who would be missing out on USA research facilities/mentoring.

        Reply
        1. [anonymous]

          @Moses : yes right, you are cynical. Self-reflection is the first step towards healing.

          Yes true, “pony-up” Chinese officials and giving gifts in general is the key in China, to get what you want.
          An unspoken rule, called ‘guanxi’ (Menzie, you are invited to correct me).
          Giving a gift also has a strong connection with giving someone ‘face’. This not only creates ‘face’,
          but also acts to strengthen the relationship between the two or more parties.
          There is a key difference between this type of gift giving and the traditional bribe :
          The goal of a regular gift is to demonstrate your respect for an individual and your commitment
          to creating or maintaining a relationship with them. However, the exact difference
          between a ‘gift’ and a ‘bribe’ can remain unclear within the sometimes oblique Chinese business environment.

          Anyway @Moses : behave properly.

          Reply
  6. Dwight L. Cramer

    Anyone who thinks she has a handle on the end game here is committing the Olympian fallacy, even if dressed as Game Theory. IMHO, we won’t enter into a period of overt economic conflict unless the Chinese calculate that it is to their advantage to do so (which may, or may not, be a miscalculation, of course). I suspect a period of plausibly deniable passive aggressive mischief is more likely than overt conflict. Either way, there is not a lot of room for more tit for tat tariff posturing, so whatever comes will be expressed differently–and I very much doubt limited to a reduction in the mainland Chinese component of the U.S. graduate student population. Make more sense to try to formally undermine the global IP regime, disrupt and confuse UST refunding operations, chip away at the dollar’s role in global trade, etc. etc. etcccc. The Global Hegemon has many fronts to defend, the challenger can focus where it chooses.

    Not pretty.

    Reply
    1. [anonymous]

      @Dwight L. Cramer “a period of plausibly deniable passive aggressive mischief is more likely than overt conflict” : yes, you are correct. Generating lots of hot air is exactly Trump’s leadership style.
      Xi is the long-term thinker. He will win, if there will be a winner.

      Yes, not pretty all of this.

      Reply
  7. Benlu

    As an indication of the end, one China official stated that China would retaliate US trade war even if it meant trade between China and US became zero.

    Reply
    1. Steven Kopits

      Well, I don’t think we get there. But I strongly believe there is a right way to interact with China, and a wrong way. The right way is to clearly indicate interests, articulate the rationale in private, listen to the Chinese, and give them plenty of runway to formulate a response. Further, you want to be narrow and targeted. Even if the US stood on the moral high ground in every respect, Chinese leadership cannot deliver everything all at once. Therefore, the key is to pick out one or two priorities, explain the position to Chinese, listen to and incorporate their views, and then act to enforce in a very predictable way if the US can’t obtain satisfaction.

      I am not opposed to having conflict with China, but I am greatly opposed to doing it in a way that is inefficient, ineffective, unnecessarily risky and harmful to the relationship. China and the US do, however, share interests. Like the US, China is a great trading power interested in stability in global trading relations. President Xi has often projected China as kind of rogue, upstart country determined to dominate the globe. In fact, China has even a greater interest vested in open and stable trading relations than does the US. China is, in its fundaments, a boring hegemon, a view to which Xi is gradually coming around, as I see it.

      Reply
      1. [anonymous]

        Never ever has China been called “a boring hegemon in it’s fundaments” by anyone of my Chinese friends or Chinese business partners or anybody Chinese, I have ever met. All of them, without exemption, see China as “a tiger ready to attack.”
        Suggest to you, you may visit Shenzhen in Guangdong.

        Reply
        1. Steven Kopits

          I am arguing that Xi’s world view in internally inconsistent. You can’t want to foment insurrection and at the same time desire stable trading relationships. To wit: Who would be hurt most by instability in the Middle East? Not Russia. They are an exporter and actually benefit — substantially so — from any interruption to oil flows out of the Strait of Hormuz. The US? Our import dependency is now down at 15% and falling. Of course, turmoil in the Middle East isn’t good for us, but hey, we can make do.

          But China? China’s import dependence is 80% in some months, and they take perhaps 1/3 of oil flows from the Strait. So who is interested in stability? Don’t kid yourself. It’s China. And if you’re interested in stability, then guess what, you’re on the path to become a hegemon. You want predictable rules and order, and to to that, you yourself must abide by those rules. This in turn pushes China towards a legalistic approach to international affairs — tough to reconcile with seizing the South China Sea!

          And also, this will tend to put constraints on China’s leadership. It, too, has to become more legalistic and accountable. Historically, the imperial court couldn’t digest these requirements and pulled China out of international markets.

          Reply
  8. CoRev

    For all the Tariff/Trade war nay sayers, here is another view of the actions (current and prior).
    https://chiefio.wordpress.com/2018/04/07/tit-for-tat-tariff-who-wins/
    “…So if it is so “balanced” and “proportional” from China, just who wins? The implication is “nobody wins, China will just match our Tariffs”. But is that true? Or even possible?

    Well, as a percentage basis, yes; but on a total $ of trade goods basis, no. It is simply not possible for China to put as much “pressure” on the USA as we can put on them.

    Why?

    Because their Mercantilist practices have let them dominate the trade balance essentially since trade began. Manipulated currency exchange rates. Mandated 1/2 State ownership. Handing over intellectual property. We simply don’t do any of that, so we can’t be hurt if it stops. In fact, we will be significantly helped. That’s the whole point, to stop it. At present, we are sorely losing. Simply halting the process is an improvement….”
    and then there is this added thought:
    “The simple fact is that the party that is winning in imbalanced trade due to mercantilist practices is the one that loses in a “trade war”. They have all that loverly “gain” at risk, where the party having their economy gutted has a sudden increase in economic growth and retains more money at home to circulate at home and stimulate their economy. Similarly, the Mercantilist economy / government pays out much more in tariffs than it can collect, while the exploited economy / government gains much more than it pays.

    The standard platitudes being spouted on the Yellow Stream Media (or the Friends Of Soros Press 😉 that “nobody wins a trade war” or that “tariffs just hurt both parties” is ONLY true in the case of fair and balanced trade. In highly imbalanced and mercantilist trade relationships, it can protect your economy from destruction and stimulate grown of the economy at home rather than in the mercantilist economy. In short, it’s a lie that all ‘trade wars’ are bad.”
    and fisked from the comments:
    “…It becomes a classic velocity of money equation. The over seas sale is essentially a one sale and gone from the economy,where the money spent on the locally manufactured substitution will turn over in the the economy up to 6 times before it all gets eaten up by taxes and fees, or gets socked away in someones savings account and stops participating in the money flow of commerce. This local revenue multiplication effect is intentionally ignored by the anti-tariff folks….”

    Reply
    1. 2slugbaits

      CoRev that “nobody wins a trade war” or that “tariffs just hurt both parties” is ONLY true in the case of fair and balanced trade. In highly imbalanced and mercantilist trade relationships, it can protect your economy from destruction and stimulate grown of the economy at home rather than in the mercantilist economy.

      Sorry, but this is just flat out wrong. I would agree that it has a kind of intuitive “hey, that makes sense” kind of appeal, but it’s simply wrong. Another one of those reasons why you can’t just BS you’re way through econ. One of the first things you learn in any int’l trade class is that trade does not have to be “fair and balanced” between trading partners in order for tariffs to hurt both parties. The benefits of free trade are not contingent on both parties engaging in fair trade. If China wants to subsidize its exports then that makes China worse off, not US consumers. If China steals intellectual property, that cuts into the monopoly rents of American businesses, but it does not hurt American consumers. In fact, it makes them better off. Now, does that mean the US should just sit by and passively allow China to dump its exports onto American consumers? The answer is, it depends. First, it’s not always the case that just because a country exports products at what appears to be below cost is in fact dumping. It’s takes too much math and geometry to explain it here (maybe a future post for Menzie), but it’s one of those counter-intuitive things about economics. Second, there’s a big difference between dumping and predatory dumping. If China subsidizes its exports and commits to doing so permanently, then this represents a permanent windfall for American consumers (at the expense of Chinese consumers) and American businesses should simply shift investment into other sectors. But if China is engaging in predatory dumping with the intention of only subsidizing exports in order to gain a future monopoly, then that would be bad for US consumers and a tariff might make sense. Of course, the same logic applies to American businesses doing business within the US; e.g., if a big box store comes into town and temporarily undercuts local businesses by selling at a loss in order to gain a future monopoly, that’s bad and should be punished. The problem is that it’s not always obvious whether dumping is predatory or not. Finally, China’s stealing of intellectual property (IP) is a tricky case. It’s really only a problem if doing so undercuts future innovation because it threatens the monopoly rents that come with a patent or copyright. The only economic justification for patents and copyrights is that they provide a spur to future innovation through the promise of temporarily non-zero economic profits. Now PeakTrader keeps telling us that the US leads the world in innovation, so if that’s true, then it’s hard to argue that Chinese IP theft is having any adverse effects. I suspect PeakTrader might want to rethink his position and argue that the US advantage in innovation has slipped. But then again, it’s not a question of which country leads the world in patents and copyrights; the economic issue is whether or not Chinese piracy hurts global innovation and not just US innovation. As a consumer I don’t really care whether bio-medical or technological breakthroughs come from the US, China, Germany or Somalia. A breakthrough is a breakthrough regardless of its origin.

      Your link kept referring to mercantilist policies, but much of what he said was itself based on wrongheaded mercantilist ideas. He just didn’t see it. And a lot of this trade war crap could have been avoided if Trump had gone ahead and approved TPP even though China was not a signatory.

      Reply
      1. Moses Herzog

        I read this quote from William Burroughs in an old “Crawdaddy” magazine piece:

        “If you consider any set of data without a preconceived viewpoint, then a viewpoint will emerge from the data.”

        People always joking “did you get that off the internet?”. The internet is like TV or any medium. You can watch PBS or you can watch the “Lifetime” channel. If you first go looking for solid sources of information, maybe try to find 25 good sources. Then try to find a consensus view from those sources or a “compendium” viewpoint thereof. But when you look for 100 websites, and then run through those 100 sources to find the 2 village idiots that agree with your original stance, exactly what was the point?? This is the same reason Trump ignores the CBO and the OMB, and scientific staff that used to work at the EPA before they were fired by Scott Pruitt. They don’t want to know what the real numbers tell them, as they’ve already made up their mind.

        This is why Lawrence Summers was telling Brooksley Born at the CFTC to “STFU” in the late 1990s. Summers was/is an arrogant jack*ss, and no one on planet Earth is going to ever tell Lawrence Summers “You’re wrong” or “You’re doing this wrong”, the Summers ego cannot and will not stomach that.

        Reply
      2. PeakTrader

        2slugbaits, I agree with much you’ve said. The U.S. has benefited tremendously trading with China. The U.S. offshored older industries, imported those goods at lower prices and higher profits, and shifted limited resources into emerging firms and high-end manufacturing.

        Nonetheless, China should be exchanging its goods for U.S. goods rather than acquiring IP illegally for production and export, which results in larger U.S. trade deficits. Navarro estimates 2 million good U.S. jobs are lost – high tech jobs are being transferred to China. It slows U.S. innovation that benefits the global economy. U.S. firms shouldn’t be coerced into giving away IP for market access and it certainly shouldn’t be stolen.

        Reply
        1. pgl

          “Navarro estimates 2 million good U.S. jobs are lost”. Are you still peddling this Navarro nonsense? Anything from Navarro is bogus but then you specialize in this fluff.

          Reply
        2. 2slugbaits

          PeakTrader First, Navarro embarrassed himself on Meet the Press this morning. Second, no one is forcing firms to enter the Chinese market. If they don’t want to give up some of the IP rights, then don’t pursue access to China’s market. This is a business decision and apparently many US based firms think that, on balance, it’s worth the trade. Who are you to argue with those companies? As to illegal pirating of IP, why should US consumers suffer just because US based companies can’t manage their internal IT systems? And maybe pirated IP wouldn’t be so attractive if US companies didn’t try and extort US and global consumers. A lot of the pirated IP is for things that have seen their R&D costs fully recovered many times over. Should I cry for those companies that still want to extract monopoly rents from American and Chinese consumers 50 and 60 years after their development costs were recovered? If you’re genuinely concerned about innovation, then there are much better ways of achieving that than with tariffs. Trump is a moron and I wouldn’t expect him to know the first thing about economics. All he understands is how to grease the palms of local officials in order to get building permits. But Navarro is supposed to be an economist and for him there’s no excuse. Like I said, he embarrassed himself on MTP.

          Reply
          1. PeakTrader

            2slugbaits, if China can prevent U.S. producers from doing business in China, extort money from U.S. firms, or just steal technology, then the U.S. has a right to impose tariffs.

            “China is vital for many top international brands, but doing business there often comes with a high entry fee…International companies have long complained that China has strong-armed them into handing over trade secrets in exchange for market access…International automakers are “training their future competitors and receiving only a fraction of what their intellectual property would earn” if they were allowed to go it alone in China, said Mary Lovely, a professor at the Peterson Institute for International Economics…”It’s no surprise that some domestic Chinese brands resemble American or European models” because of this practice, said Scott Kennedy, a China expert at the Center for Strategic & International Studies…Companies that refuse to play ball are left on the outside, forced to pay potentially hefty tariffs at the border for the goods they ship to China…CEO Elon Musk voiced his frustration earlier this month…It’s like competing in an Olympic race wearing lead shoes.””

          2. pgl

            Navarro’s nonsense can be found here:

            https://www.nbcnews.com/meet-the-press/meet-press-april-8-2018-n863726

            Let’s see – he claims that steal our stuff which has led to 70 thousand factories being sold. Ahem! Of course this is what gets his goat:

            ‘China comes in to our homes, the businesses, our government agencies, and the damage is on the order of about $1 billion a day. And then, when you add to that damage the billion dollars a day in the trade deficit in goods we face, this country is losing its strength and wealth even as China has grown its economy from $1 trillion since 2002—-to over $12 trillion today.’

            Not sure where he gets his $1 billion a day but that figure for Chinese GDP growth is not inflation adjusted. But yea – China has seen impressive real income growth. And Navarro hates that!

          3. 2slugbaits

            PeakTrader China is vital for many top international brands, but doing business there often comes with a high entry fee…

            So what? If they don’t like the fee, then they don’t have to enter China’s market. No one is forcing them. I would argue that Big Pharma puts a far bigger fee on seriously ill Americans than the Chinese demand of American businesses, but yet I don’t hear you arguing that Big Pharma should be nationalized.

            International automakers are “training their future competitors and receiving only a fraction of what their intellectual property would earn” if they were allowed to go it alone in China

            Do you understand that what IP “earns” is called “monopoly rents”? So American businesses are complaining that they can’t extract 100 percent of potential rents. Boo-hoo. Notice that these companies are implicitly admitting that they are complaining about not being able to earn extraordinary rents that are over and above the cost to recover R&D, since those costs were already covered by charging American consumers rents.

            CEO Elon Musk voiced his frustration earlier this month…It’s like competing in an Olympic race wearing lead shoes

            So US trade policy should be designed around Elon Musk’s hurt feelings? No one is compelling Musk to seek access to China’s market. His not having access to China’s market hurts Chinese consumers and no doubt hurts his personal bank account, but as a US consumer I couldn’t care less. It’s not my problem. Why should US consumers pay more for Chinese imports just because Elon Musk wants a few extra billion in his Xmas Club account? Musk can’t even decide his own citizenship…he’s holds citizenship in three different countries.

          4. PeakTrader

            2slugbaits, many foreign firms don’t do business in China, because it wants their intellectual property. You need to understand businesses are in business to make a profit, grow, and they provide jobs – sometimes good jobs. Take big pharma – if it didn’t make a profit, because you want to take away intellectual property rights, you wouldn’t be able to buy the drug you need at any price – it wouldn’t exist. You need to move beyond your one-dimensional thinking about monopoly rents or rent seeking. Also, fair and equal rules are needed. Why should U.S. firms be shut out of China’s market or compete at a huge disadvantage with Chinese firms?

          5. PeakTrader

            And, American shareholders, including 401(k)s, IRAs, and pension plans benefit from American monopoly rents and market power. Moreover, they tend to provide better jobs, more taxable income, and corporate taxes. Of course, the global economy benefits from a virtuous cycle of American innovation.

      3. CoRev

        2slugs , I can see on a few comparative products where a tariff on those products can be bad for both parties, but that’s not the kinds of tariff we are seeing. Is it? Making a general statement: “Sorry, but this is just flat out wrong.” is inappropriate or at best a reach.

        Also, all the attention given the negative impacts on AG-business is simultaneously a short term gain for US consumers due to the lower prices, and or added supply. Moreover, it won’t take long, a year or two, for international markets to adjust to the changes in demand, and shifting buyers for US Ag-products.

        China’s stealing of intellectual property (IP) is a problem because it cuts ROI on innovation investment. The problem is exacerbated when the IP is stolen early before the investment costs are recovered from a patent or copyright. Patents and copy rights are there to protect those innovations’ investments and mitigate the inherent risks of innovating. Some how you feel these are minimal?

        Reply
        1. 2slugbaits

          CoRev Patents and copy rights are there to protect those innovations’ investments and mitigate the inherent risks of innovating. Some how you feel these are minimal?

          You need to read more carefully. I specifically said that the problem with stealing IP is because is that it risks less future innovation because owners of patents and copyrights will not enjoy temporary non-zero economic profits. The problem is NOT that we should all feel sorry for businesses because they won’t be able to generate higher rents; the problem is that the prospect of lower rents discourages innovation. See the difference? But it’s also true that excessively long-lived patent and copyright licenses tend to discourage innovation and invite piracy. I’ve said this umpteen times before, but somehow it just doesn’t get through. Getting IP right is tricky. You need to balance the innovation benefits that come from allowing temporary rents against the welfare losses that come with monopolies. We could help ourselves if a lot if our patents and copyrights didn’t last for several generations. Excessively long patents and copyrights can discourage innovation and only invite piracy. Chinese piracy carries costs, and when patent and copyright licenses go too far out into the future, the benefits of piracy begin to outweigh the costs. Shorter licensing periods make piracy less attractive. We could also have more government funded R&D that was made available to all comers. In other words, try taking advantage of the fact that knowledge is a non-rival good.

          “Sorry, but this is just flat out wrong.” is inappropriate or at best a reach.

          No, it’s something you learn in the second day of any int’l economics class. The existence of unfair trade (whatever that means) is irrelevant to whether or not a country is better off following a free trade policy. There are some conditions when it makes sense to move away from a pure free trade posture, but none of those conditions really apply here. In the case of Trump’s tariffs it’s a no brainer that it’s a bad idea and will not end well. Repeat after me: the benefits of free trade do not depend on fair trade. That’s an iron law.

          Moreover, it won’t take long, a year or two, for international markets to adjust to the changes in demand, and shifting buyers for US Ag-products.

          That’s possible. Over the long run farmers will adjust. And it won’t be Iowa and Nebraska acres that get taken out of production over the long run. The farms that will go belly up are the marginal soybean and corn producers in other states; e.g., Michigan and Ohio.

          Reply
        2. pgl

          ” I can see on a few comparative products where a tariff on those products can be bad for both parties, but that’s not the kinds of tariff we are seeing. Is it? ”

          Government interference with trade can be good for all parties for certain sectors? WTF? Please list the tariffs that would make everyone better off as that would be real news!

          Reply
          1. CoRev

            PGL, what the heck are you going on about now???? I said “bad” and about “tariffs” on specific goods/services, and you changed it bad to “good” and generalized tariff to government trade interference. Peak’s correct about your disingenuousness.

          2. pgl

            “that’s not the kinds of tariff we are seeing. Is it”

            How else to read this. The kinds of tariffs were are seeing now are not bad aka good??? Oh it depends on what the meaning of “is” is. Got it!

    2. pgl

      “Manipulated currency exchange rates. Mandated 1/2 State ownership. Handing over intellectual property. We simply don’t do any of that”.

      We don’t? We did peg exchange rates before the Nixon shock. And China is no longer a currency manipulator. And we do have state owned industries. Ever heard of the Post Office? Heck we temporarily nationalized GM. As far as IP – the notion that we should shield companies from competition via patent laws is anti-competitive. One of the reasons we pay obscene prices for drugs.

      Reply
      1. CoRev

        Pgl, the US Office? How desperate you get to make a useless point. The rest of your comment is more pgl BS. China has not manipulate its currency since ??? as much as it did before then. I’ve commented in the past regarding your strange belief in not protecting innovation.

        Reply
        1. pgl

          Oh wow – that was a substantive rebuttal – not. We have had state owned sectors and at times it is good policy. FYI – Trump is considering well known gold bugs for positions on the FED. In case you do not know gold bugs prefer fixed exchange rates which is the ultimate in currency manipulation.

          Protecting innovation? Sweet term for protecting monopoly privileges. Maybe you should patent your innovation excuses for Trump’s bad policies!

          Reply
    3. Menzie Chinn Post author

      CoRev: Regarding the source you linked to: I wish he’d taken a few more economics courses. You know it’s bad when the author cites the Hume price-specie-flow mechanism. He’s also confusing money with income…yeesh.

      Reply
      1. pgl

        Check this passage out:

        “Our exports are largely agricultural and things like wine and specialty brands. Ag products are fungible and global markets are very large. China WILL turn to another source (say, Brazil) and the USA can then sell our ag products into whatever market was “shorted” by Brazil swapping their destination. Now compare to some Chinese socks or rubber duckies. Is there REALLY going to be a massive increase in demand for socks or rubber duckies in the rest of world?”

        The 1st part about agricultural goods is an argument John Cochrane made. But Cochrane made the same argument for the goods we import from China. Except he never mentioned rubber duckies. Seriously? How many rubber duckies do we buy from China? Now maybe apparel goods such as socks. But apparel goods are likely more fungible than California wines.

        This fellow’s grasp of economics is indeed very weak.

        Reply
  9. noneconomist

    Looks like those lib-symps at the Wall Street Journal are at it again.
    “someone in the White House seems to know the risks because the press shop spent Friday telling farmers not to worry. Trump’s $100 Billion tariff threat included that he had told the secretary of agriculture ‘to use his broad authority to implement a plan to protect our farmers and agricultural interests.’
    What’s Secretary Sonny Perdue going to do—buy up all the soybeans China no longer buys? Order farmers to slaughter their pigs to produce less pork that will be subject to Chinese tariffs?”
    Or how about that unpatriotic Nebraskan Ben Sasse? He says the President has no actual to win a trade war, and that he’s “threatening to light American agriculture on fire.”
    Heaven’t these malcontents ever heard of the benefits of taking one (or a few dozen) for the team?

    Reply
    1. pgl

      “What’s Secretary Sonny Perdue going to do—buy up all the soybeans China no longer buys? ”

      Perhaps. But that would be manipulating the market. More evidence that the US has ceased to have a “normal” economy.

      Reply
  10. Steven Kopits

    Europeans are buying up US soybeans. Guess where they are going from there?

    The Chinese tariff on soybeans always looked like an embargo, and as we know from the oil world, commodities are fungible and embargoes are well nigh impossible to enforce. So, some European and Chinese intermediaries are making good money trading US soybeans via Europe just now.

    This was a not a great move from the Chinese part, but then again, I think they are comparative newcomers to the embargo game.

    Trump wins this round.

    Reply
      1. Ed Hanson,

        Steven

        No need to guess, they are going to European processors. It replaces what they would have bought from Brazil, but now with more of Brazil’s soybeans going to China, they have switch to US soybeans. It just shows that Chinese retaliation aimed at soybeans is futile. Only by reducing their consumption of the highly integrated food source can China affect the world market. And the consequences if they reduce consumption, are much greater for China and the Chinese people, than it is for the ROW and the US.

        Ed

        Reply
      2. pgl

        Bruce Hall already provided this story from Reuters. Try reading more carefully as it notes soybean prices fell. Winning?????

        Reply
        1. Steven Kopits

          The problem with putting on bilateral tariffs is that the traffic is merely diverted through third countries. There is quite a lot of literature on this wrt to oil embargoes, for example. Jim Hamilton may have even written some of it. In any event, an embargo on widely traded, fungible commodities is really, really difficult to enforce — as the Chinese are finding out.

          Therefore, the placing of tariffs on US soybean exports is more likely to simply redirect trade flows than materially curtail, in this case, US soybean sales. The losers will be traders in Seattle; the winners will be traders in Houston and Europe. Soybean farmers are likely to be largely unaffected.

          I said Trump is ‘winning’ this particular hand in that respect: China’s soybean tariffs are likely to prove ineffective. I am no fan of overall US negotiating tactics, neither in timing, in form nor in breadth, among others. See my comment above.

          Reply
          1. pgl

            “there is quite a lot of literature”. John Cochrane made this argument over at his blog. Does your literature explain his subsidizing skunks analogy?

          2. pgl

            Trump is indeed a fool to put tariffs on Chinese steel and not steel in general. Something tells me that China’s tariffs will be on all soybeans. Which makes Manzie’s point that the Chinese are better at this than Trump is.

    1. pgl

      Trump wins? I guess you and Kudlow think your trade coalition of the willing is going to work – like the 2003 coalition of the willing to invade Iraq worked!

      Reply
    2. 2slugbaits

      Steven Kopits The fact that the Chinese have shown ample willingness to sacrifice Chinese consumer welfare in exchange for other strategic goals tells me that they are unlikely to be the first ones to blink on this issue. Yes, soybeans are a fungible commodity and no doubt many will enter China through the back door. But an embargo is what an exporting country imposes on an importing country. In this case it’s China that is imposing a tariff on US soybeans, so the Chinese have a lot of control over how much they choose to consume. There’s no way around the fact that the cost of shipping and trading soybeans is going to rise. And there shouldn’t be any real doubt that US soybean farmers are facing a far more uncertain global demand curve, which is a problem if you’re operating on very thin margins. We’re already sitting on a pretty big pile of carryover beans, so if you’re a farmer you have to ask yourself whether to plant corn or beans. And does corn make sense if Sen. Cruz is successful in constraining ethanol? Soybean and corn farmers will have to absorb a lot of uncompensated risk.

      But the Chinese tariff also extends to pork, and there is a lot less global demand for pork. Chinese tariffs on US pork will hurt US pork producers. Outside of China global demand for pork is flat and prices are already low because there’s a glut of pork currently on the market. And pork producers cannot easily switch to beef or poultry production…especially when the cost of building new steel farm structures is increasing.

      Reply
      1. pgl

        “The fact that the Chinese have shown ample willingness to sacrifice Chinese consumer welfare in exchange for other strategic goals tells me that they are unlikely to be the first ones to blink on this issue. ”

        True but Trump is willing to sacrifice our consumer welfare to line the pockets of his buddies. This will not end well,

        Reply
      2. Steven Kopits

        There is a humorous aspect to putting tariffs on Chinese traders, who are among the most nimble and clever in the world. How long would it take for them to figure a work-around? Maybe half a day?

        I don’t doubt that the Chinese take all this seriously. I would. And as I state above, I would not have elected to confront the Chinese in this way, particularly not just weeks before a North Korea meeting.

        As for soybean prices, of course, markets can be dislocated for a time. The history of oil embargoes suggests, however, that in a fairly short time work-arounds are created and price differentials fade.

        Reply
      3. Steven Kopits

        Yes, transactions costs could be a bit higher, depending on how serious the Chinese authorities are about enforcing the tariffs. If you have to send the soybeans to Brazil for offloading and then re-shipping to China, then sure, that’s some cost. On the other hand, if you take the usual US shipment, print up a fake invoice claiming its from Brazil, and then send it to China, the costs could be minimal. It’s not in China’s interest to enforce the embargo, so much depends on how seriously the Chinese actually treat the tariffs in practice.

        Reply
    3. pgl

      “This was a not a great move from the Chinese part, but then again, I think they are comparative newcomers to the embargo game.”

      They may be newcomers to trade wars as compared to our long history. But of course this runs counter to the usual Trumpian claim that China shot the first shots in this trade war!

      Reply
  11. CoRev

    I have a question for all you anti Trumpers. What is your suggestion to IMPROVE the US international trade positions? I fear more of this: “…a lot of this trade war crap (with China) could have been avoided if Trump had gone ahead and approved TPP even though China was not a signatory.”

    Reply
    1. pgl

      An expansionary monetary policy generally devalues one’s currency leading to an increase in net exports. See – easy! Oh wait – Trump wants more gold bugs on the FED which will cut off the rational approach. Never mind!

      Reply
      1. CoRev

        Pgl, you are again making another meaningless point. How would you IMPROVE the US international trade positions? C’mon man, think!

        Reply
        1. pgl

          I guess CoRev needs to take Menzie’s international macro course. He does not realize that one of the channels of monetary stimulus is via exchange rate depreciation increasing net exports.

          Reply
    2. pgl

      ‘ I fear more of this: “…a lot of this trade war crap (with China) could have been avoided if Trump had gone ahead and approved TPP even though China was not a signatory.”’

      The real problem with TPP is that it overextended the protection of IP. Trump was wise not to fall for this protection of monopoly privileges for the rich. Leave it to CoRev to disagree with Trump on the one issue he got right!

      Reply
      1. CoRev

        Pgl, this, your need to make meaningless points, is getting hilarious. Notice the quotes? It was from 2slugs, and you missed the obvious logical fallacy of his comment.

        Reply
    3. 2slugbaits

      CoRev What is your suggestion to IMPROVE the US international trade positions?

      There are plenty of things. A good start would be to quit obsessing about a bilateral trade balance. Then you might want to focus on the total trade deficit rather than just the goods trade deficit. Then try raising taxes so that we don’t have to depend on the Chinese demanding US dollars in order to buy US Treasuries. Improving the US trade position ultimately means US consumers have to save more or pay higher taxes. Exchange rates matter. And as PGL pointed out, monetary policy makes sense. And while I share PGL’s disgust with some aspects of TPP, on the whole I think it makes sense to swallow hard and accept it. In particular I would agree that the IP protections in the TPP are too focused on protecting obscene monopoly rents. But the strategic value of TPP outweighs the downside. And adopting TPP would not prevent the US from unilaterally coming up with more sensible limits on IP after Trump leaves. Public funding of R&D along with a stronger commitment to higher education would help. And oh by the way, foreign students coming to this country for their education counts as an export. So perhaps Trump should be more receptive to non-Europeans coming here for a university education. And you won’t like this, but we need to get our butt in gear with greener technology, because it won’t be long before our major trading partners demand it.

      The goal is not to expand exports just for the sake of expanding exports. The purpose of exports is not to enrich American businesses with surplus species flow. That’s mercantilist thinking. The only reason we need exports is in order to pay for imports. In a perfect world (at least perfect from the US position), every country would flood us with their exports and we’d never have to pay for them.

      Reply
      1. pgl

        Did you see where CoRev said above that monetary stimulus is manipulating the currency? Wow – we have a gold bug!

        Or course expect him to do his usual – ask us “what’s your point”. Followed by saying we never write anything that makes any sense. And we thought Kudlow was goofy!

        Reply
      1. pgl

        Yep. Of course Trump wants to be Reagan. Cut taxes for the rich and increase defense spending. That fiscal disaster back then led to a massive currency appreciation and a yuuuuge decline in net exports. Of course Trump is so dumb – he decides to repeat this disaster.

        Reply
        1. pgl

          Ah yes – he advocated monetary stimulus which you for some odd reason thinks is currency manipulation. Good to know you are a gold bug!

          Reply
          1. Steven Kopits

            I think the budget deficit is rapidly becoming understood as unmanageable. I think the Republicans will have to walk back the tax cuts, some of the spending increases, and maybe cut spending on social programs. In any event, I think the pressure will be there — soon — to reduce the budget deficit.

          2. CoRev

            Steven, I do agree that the Republicans will soon raise taxes after improving the economy. Just like Reagan, Bush1& Bush Jr had to do.

    4. noneconomist

      All you anti Trumpers…like the Wall Street Journal?
      “The basic problem with trade protectionism is that it is a political intervention that distorts markets. One political intervention leads to another, and the cumulative consequence is higher prices, less investment, and slower economic growth….
      China’s trade abuses need to be addressed but Mr. Trump’s tariffs first strategy risks punishing America first…”
      WSJ 4/7

      Reply
      1. CoRev

        Nonecon, so what would you propose? With all the unsupported griping and claims there are few REAL proposals. Raising taxes will NOT slow the economy if done by the Dems. Borrowing so that the Federal Deficit is dramatically raised is OK if done by the Dems. Raising revenue by improving the US economy is always BAD because it is a republican approach; even though we have 2 recent examples where it worked. Yes, both were combinations of economic stimulus followed by raising taxes.

        Reply
        1. pgl

          Leave it to you to be all partisan and no economic sense!

          “Raising revenue by improving the US economy is always BAD because it is a republican approach; even though we have 2 recent examples where it worked.”

          Pray tell give us those two examples of what Laffer nonsense “worked”.

          Reply
          1. CoRev

            Pgl, why did you leave out the explanatory sentence? Reading the whole statement can be more important than making even another meaningless point.

        2. noneconomist

          Gee, CR, I believed all those Repubs who were always crowing about the benefits of free trade and freer markets. Same guys who joined Orrin Hatch in lamenting “trillion dollar deficits as far as the eye can see.” Now they’re worried about setting agriculture on fire but teaching China a lesson while doing so.
          But to answer your question, I simply quoted Trump cheerleader WSJ. They’ve held to an anti protectionist position, unlike Trumpers who sound like early 90’s Gephardt Democrats.

          Reply
  12. Moses Herzog

    @ Menzie
    You know Menzie, I’ve said before there are some conservatives that I will actually listen to and read. That is to say, even though they largely annoy the hell out of me, out of respect for them I will read it. They can “bring it” in the form of an argument. I think Cochrane over at Hoover was one I mentioned. Sometimes I’m pressed to think of the Republicans that I do read, and reading the footnotes to one of your old papers reminded me of another Republican that I will read/listen to. in fact under a pile of books that I haven’t gotten around to yet, I think I have one of his gargantuan volumes on Fed History. It had something written by Keynes that’s hard to find other places. Alan Meltzer

    Reply
      1. Moses Herzog

        Interesting, did not know. Appreciate the info. Wasn’t a huge fan, but I do think he at least made better arguments than most Republicans.

        Reply
      2. Moses Herzog

        @2slugbaits
        This is the book I had purchased of his. It’s quoted $34 on Amazon, but when I got it I think the used ones were much cheaper.
        https://www.amazon.com/History-Federal-Reserve-1913-1951/dp/0226520005/ref=sr_1_1?ie=UTF8&qid=1523307119&sr=8-1&keywords=9780226520001&dpID=514gsOEKlzL&preST=_SY291_BO1,204,203,200_QL40_&dpSrc=srch

        Mainly I had got it because it had some archaic stuff of Keynes that was pretty tough to find from other sources. As is typical of me I haven’t got around to reading the damned thing yet. Seems like there’s always more piling up that I want to read and never catch up. 1st world problem I guess.

        Reply
  13. pgl

    Navarro’s latest nonsense can be found here:

    https://www.nbcnews.com/meet-the-press/meet-press-april-8-2018-n863726

    Let’s see – he claims that steal our stuff which has led to 70 thousand factories being sold. Ahem! Of course this is what gets his goat:

    ‘China comes in to our homes, the businesses, our government agencies, and the damage is on the order of about $1 billion a day. And then, when you add to that damage the billion dollars a day in the trade deficit in goods we face, this country is losing its strength and wealth even as China has grown its economy from $1 trillion since 2002—-to over $12 trillion today.’

    Not sure where he gets his $1 billion a day but that figure for Chinese GDP growth is not inflation adjusted. But yea – China has seen impressive real income growth. And Navarro hates that!

    Reply
  14. Daniel Nevins

    “tariffs and quotas by country will have little impact on the overall trade deficit (since the current account is driven by saving and investment balances)”

    Just a suggestion: Maybe you could write a post explaining why you believe the Savings Identity implies causation from S, I, T & G to the current account. If everyone decides to buy all foreign-made goods in 2018 after buying all American-made in 2017, then imports would rise and so would inventory investment, preserving the identity. After businesses see their inventories rise, other adjustments would follow, while preserving the identity.

    I know you’re not the only one to presume causality, but it seems one of those fallacies that persists only because it sounds smart (on the surface) or because it’s convenient.

    Reply
  15. Not Trampis

    Trump has no end game.

    Trump simply does not have the capacity to think things through.

    This also confirms that trump is no conservative unfortunately.

    Reply
  16. Not Trampis

    Perhaps I should add if Trump was a conservative given how the economy is going he would be trying to reduce the deficit like Bill Clinton unfortunately he is aping Reagan and Bush jnr by increasing it.

    how ironic Clinton was way more conservative than Reagan or Bush.

    history shows both Reagan and bush failed by introducing ptotectionist policies.

    i’m sure Reagan destroyed the colour TV industry but my memory could be tainted.

    Reply
    1. Ed Hanson,

      Tramp, you wrote in part, ”

      how ironic Clinton was way more conservative than Reagan or Bush.”

      Not true for Reagan The real change was the make up of Congress. Reagan had to deal with spending oriented Democratic who controlled House, while Clinton had to deal, after two years, the balanced budget minded Gingrich Congress. It is a shame that by the Bush era the politics of personal destruction had forced out Gingrich who could have controlled Bush as he did Clinton.

      Ed

      Reply
  17. Moses Herzog

    @ Not Trampis
    Cool. You’re throwing the VSG under the bus like “conservatives” threw “W” Bush under the bus when the financial crisis hit in 2008. Do Democrats also get to disclaim the President of their own party whenever they do a clusterF___ ??? Asking for a friend.

    Reply
  18. Daniel Nevins

    Came back to this thread and should clarify – you’re dismissing any causality from uniquely X-M factors (terms of trade, preferences for foreign vs. domestic goods, etc.) to S, I, T & G and assuming full causality in the other direction. That’s what I’d like to see defended – you seem to rely on just the identity, which on its own says nothing about causality, and with all the posts I see here on trade and tariffs that seems a fundamental point. Maybe I just didn’t look at the right post, but I did hit the link on your claim that S, I, T & G “drive” X-M, leaving “little” possibility that X-M factors (terms of trade in this case) could lead to adjustments in S, I, T & G.

    To me, that’s like saying that exercise has “little” effect on weight loss because diet “drives” weight loss. You can write an identity linking weight loss to exercise (calories burned) and diet (calories consumed), but that doesn’t mean only one of the terms in your identity can ever be dominant.

    Reply
  19. dilbert dogbert

    When the word “embargo” was used in the posts above, the Arab oil embargo popped into the pea brain. That had some interesting long term impacts. It may be a bit of a reach to compare soy with oil.

    Reply

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