to you know what (apologies to Abrahams and the Zuckers).
In one day, US taxes roughly $2.4 trn worth of goods (2023 amounts). Biggest one year tax increase in dollar terms since… ever, at $364 bn (if Trump goes through with plans). Automatic escalation clauses if the target countries retaliate (Canada already has declared).
My $364 billion tax revenue increase is based on a constant import levels. Assuming a (generously high) elasticity of one yields a $290 billion tax increase. The former is 1.2% of 2024Q4 GDP, the latter is 1%.
Estimates of the impact, given the reality, from PIIE. The authors of that study did not believe Canada and Mexico would retaliate. I think, for the former, that assumption has been OBE.
Must say I did not expect the trade war to begin in earnest so quickly. And I did not expect Canada and Mexico would be the primary targets, when I first wrote up the syllabus. What happened to China as the most egregious trade policy offender (a view I actually shared)?
This might entail re-arranging my Econ 442 teaching plan.
Thanks, Trump!
PS: Can I freeze avocados and tomatoes? Asking for a friend.
I nominate Randy Rainbow to write the lyric and and perform “Yes, We Have No Avacados”. Music by Irving Cohn, of course.
Menzie Chinn: “I did not expect Canada and Mexico would be the primary targets, when I first wrote up the syllabus. What happened to China as the most egregious trade policy offender (a view I actually shared)?”
Elon Musk has billions invested in car factories in China and it is one of his largest markets. Wouldn’t want to upset them too much. Musk has been kissing Xi’s *ss for years now for special tax breaks and exemptions from the usual China partnerships required for foreign business enterprises. Musk has also said that Taiwan should cede control to Beijing. Musk and Xi are quite chummy so Musk would be expected to lean on Trump to go easy on Chinese tariffs.