Trade deficits in isolation aren't good or bad but because the US has the world reserve currency it must supply it's currency to the world.
This basically forces it to have a trade deficit with everyone which over time can hollow out manufacturing sectors. Making the whole economy vulnerable to shocks and ultimately causing it to fail.
It's similar to "Dutch disease," where external demand overvalues the currency and harms tradable sectors.
It's not sustainable without careful policy management, and attempts to weaken the currency via tariffs, devaluation, or some other mechanism.
You might not like Trump or his approach but he is directionally correct and does have a powerful bargaining chip (access to the US market - which is basically on track to be the only 1st world consumer driven economy 5 years from now).
Doesn’t this assume tariffs are efficiently adapting to changes in the market? Markets, trade, innovation, even currency prices change all the time. Tariffs change every decade if you’re lucky and when they do there’s a thousand conditional statements baked in that make it even more disconnected from reality
> You might not like Trump or his approach but he is directionally correct and does have a powerful bargaining chip (access to the US market - which is basically on track to be the only 1st world consumer driven economy 5 years from now).
Interestingly, though, Robert Triffin International put out a paper essentially arguing that Trump's tariff approach is all wrong.
On what sort of basis do you make the claim that the US is on track to be the only 1st world consumer driven economy 5 years from now? What do you mean by a 1st world consumer driven economy, as opposed to what exactly?
I do agree that having tariffs on certain items to encourage domestic production definitely does work. The tariffs have to be consistent and on things that can actually be produced in the country.
The issue with Trump's approach is that its not consistent, has nothing to do with which products can be made domestically. Changing tariffs daily/weekly/monthly is not going to encourage domestic production.
> I do agree that having tariffs on certain items to encourage domestic production definitely does work. The tariffs have to be consistent and on things that can actually be produced in the country.
Huh? The US gets to print money for free. They don't even need to have printer's ink any more, since it's all entries in a database these days. And in return they get real stuff from overseas.
And you want to tell me that this is somehow unfair for the US?
The US can print an arbitrary amount of dollars, if there's demand for them in the rest of the world.
Btw, focussing on dollars is actually a bit narrow. When Americans sell stocks or bonds to the rest of the world, that's also part of the trade deficit. So Americans aren't just exporting dollars, they are also exporting stocks and bonds and options and futures. Financial engineering is one of great American manufacturing industries.
Interestingly enough, despite exporting so many financial products (= 'trade deficit'), Americans as a whole still make more money from their foreign investments abroad that foreigners make on their American investments. To simplify a bit too much: foreigners buy low yielding American government debt, while Americans make savvy investments abroad.
> It's not sustainable without careful policy management, and attempts to weaken the currency via tariffs, devaluation, or some other mechanism.
Oh, magical tariffs! They can strengthen or weaken your currency, just as the plot demands. They also prevent hollowing out of industry, and cure toothache.
If you want to weaken your currency, just print more of it. It's much simpler.
> You might not like Trump or his approach but he is directionally correct and does have a powerful bargaining chip (access to the US market - which is basically on track to be the only 1st world consumer driven economy 5 years from now).
What does 'consumer driven economy' even mean? Could you make your prediction more concrete. Perhaps we can even have a little bet.
Trade deficits in isolation aren't good or bad but because the US has the world reserve currency it must supply it's currency to the world.
This basically forces it to have a trade deficit with everyone which over time can hollow out manufacturing sectors. Making the whole economy vulnerable to shocks and ultimately causing it to fail.
It's similar to "Dutch disease," where external demand overvalues the currency and harms tradable sectors.
It's not sustainable without careful policy management, and attempts to weaken the currency via tariffs, devaluation, or some other mechanism.
You might not like Trump or his approach but he is directionally correct and does have a powerful bargaining chip (access to the US market - which is basically on track to be the only 1st world consumer driven economy 5 years from now).