“For now, there is nothing the matter with Kansas.” – Stephen Moore, June 17, 2014
So You Want to Fix the Trade Deficit?
Well, I don’t think a few tariffs and quotas, plus “tweaking” Nafta, are going to do it. And blowing a hole in the Federal deficit ain’t likely to help.
(Transitory) Revealed Preferences
Here’s the health coverage implications of President Trump’s proposal to repeal Obamacare, as assessed by the CBO:
Figure 1: Effects of H.R. 1628, THE Obamacare Repeal Reconciliation Act of 2017, on health insurance coverage of people under age 65, in millions, by calendar year. Source: CBO, Table 4.
So, at least for part of one day, the President was content to let an additional 32 million be uncovered by 2026.
“Challenges for Global Macroeconomic Stability and the Role of the G7”
At the invitation of the Italian Presidency of the Group of Seven (G7) in 2017, the Istituto Affari Internazionali (IAI) conducted a research project on “Major Challenges for Global Macroeconomic Stability and the Role of the G7” together with a major policy think tank in each of the other G7 member countries:
The Administration Considers Raising Taxes
On imported steel, that is
From Politico today:
STEEL REPORT COULD COME NEXT WEEK: Commerce Secretary Wilbur Ross is expected as early as next week to give President Donald Trump a menu of options for restricting steel imports, senators said after a closed-door meeting with the Cabinet official Thursday afternoon.
The Budget Deficit under Trump, Excluding Unicorn Effects
The CBO has just released an assessment of the President’s budget proposal. Balancing the budget looks unrealistic, even given massively sweeping (and unrealistic) spending cuts.
A New Puzzle à la Fama
In a forthcoming paper (“The New Fama Puzzle”), coauthored with Matthieu Bussière (Banque de France), Laurent Ferrara (Banque de France), Jonas Heipertz (Paris School of Economics), we re-examine uncovered interest parity – the proposition that anticipated exchange rate changes should offset interest rate differentials. This is one of the most central concepts in international finance. At the same time, empirical validation of this concept has proven elusive. In fact, the failure of the joint hypothesis of uncovered interest rate parity (UIP) and rational expectations – sometimes termed the unbiasedness hypothesis – is one of the most robust empirical regularities in the literature. The most commonplace explanations – such as the existence of an exchange risk premium, which drives a wedge between forward rates and expected future spot rates – have little empirical verification.
Mr. Trump on Economics and Accounting
“For many, many years, the United States has suffered through massive trade deficits. That’s why we have $20 trillion in debt. So we’ll be changing that.”
This statement was made during the meeting with the South Korean President on June 30th [1]
“White House Gaffe Names Xi as President of Taiwan, Not China”
That’s from Bloomberg. Ya gotta wonder who’s running the show there.
Non-Credible Threats Are Only Non-Credible when Actors Are Sane
Ordinarily, when I read a senior government official stating:
“We have other methods of addressing those who threaten us, and of addressing those who supply the threats. We have great capabilities in the area of trade.”
[US Ambassador to UN Nikki] Haley said she spoke at length to President Donald Trump on Wednesday morning about “countries that are allowing, even encouraging trade with North Korea, in violation of U.N. Security Council resolutions.”
“Such countries would also like to continue their trade arrangements with the United States,” she said. “That’s not going to happen. Our attitude on trade changes when countries do not take international security threats seriously.”
I discount such talk as constituting a non-credible threat. That’s because punishing China with effective trade sanctions would likely hurt America as much as the target (including through third channels as the global economy is hurt).
But the threat is truly non-credible if the agents are rational, as in the Rational Agent model of international relations (see alternatives, here). But using that model as a baseline is probably not correct for the Trump Administration. I think a better framework for analysis (if not a model) would be stumbling into conflict with a misapprehension of costs, benefits, and the workings of the world, as in this case.
Of course, that does not mean that China would accede to US demands even if we imposed sanctions.