Where’s the Balance of Payments Emergency?

Section 122, invoked to place 10% tariffs, was written primarily to address balance payments issues under fixed exchange rates. By balance of payments accouting:

CA + FA +ORT ≡ 0, ORT is official reserves transactions, ORT > 0 implies decumulation.

So CA + FA < 0 requires total reserves to be decreasing. Is that the case?

Alternatively, a crash in the currency’s value. What’s reality?

Figure 1: Total reserves ex-gold, bn.$ (blue, left log scale), real value of US dollar against a broad basket of currencies, 2006M01=100 (red, right log scale). NBER defined peak-to-trough recession dates shaded gray. Source: IMF, Federal Reserve Board via FRED, NBER.

If IEEPA tariffs are not replaced with Section 122 tariffs, then the effective tariff rate of 16.9% drops to 9.1% (pre-substitution).

2 thoughts on “Where’s the Balance of Payments Emergency?”

  2. Macroduck

    Larry Johnson, who may or may not know anything, thinks that the State of the Union address has delayed a U.S. attack in Iran – if so, thank Suzie Wiles. Johnson also claims that poor polling – for an attack and for Republicans – may prevent an attack:

    https://larrycjohnson.substack.com/p/white-house-drama-re-pending-decision

    I’ll point out that in the cases of both tariffs and immigration enforcement, the felon-in-chief has been worse this term than last, and has mostly ignore the polls and prospects for Republicans in the midterms.

Comments are closed.