I think Trump is trying to build a case where AMZN has to foot the pension liability of USPS Is a good try
Very good article that addresses the arithmetic aspects of trade deficits. It’s just basic arithmetics of the balance of payment equation. Very few understand.
America depends on China because of a fundamental weakness in the structure of the U.S. economy — a profound and worrisome lack of domestic saving. In the fourth quarter of 2017, the net domestic saving rate (depreciation-adjusted saving of households, businesses and the government sector, combined) was just 1.3 percent of national income.
Lacking in savings at home, and wanting to consume and grow, the U.S. must import surplus foreign saving from abroad – and run massive balance-of-payments and trade deficits to import this capital. In 2017, the United States had merchandise trade deficits with 102 nations!
Do people realize you can’t run a trade deficit forever? It’s literally the path to financial ruin. It’s like running a monthly spending deficit at home, and the deficit is spent on stuff that rapidly depreciates. Would you borrow home equity every month to buy clothes and electronics? That’s literally what the country is doing. The US can’t go on forever selling equity in business and RE to find consumable spending on depreciating stuff.
The US has been spending itself broke for decades. Checkout how debt is growing faster than income as shown by debt to income ratio.
People talk about post WW2amd all the growth of the US economy. The savings rate was over 7% for most of the 50’s and 60’s.
Yes, many govt over govt neglected with short-sightness and claiming they are trying to solve the jobless issue or other.
Unfortunately, whatever Trump does, people will not appreciate, he will be scolded / criticized, but the real benefis will be seen in next 3-7 years.
From Stephen Roach’s article:
Trump’s budget deficits will make America’s trade problems worse. A low-saving U.S. economy can’t square the circle without trade deficits. With tax cuts of $1.5 trillion over the next 10 years and another $300 billion in spending increases added in by a reckless Congress in order to avert a government shutdown late last year, the net domestic saving rate is headed toward zero – or even lower – with trade deficits likely to widen sharply in response.
And that leads to the uncomfortable truth of China bashing: protectionism in the face of widening trade deficits. Courtesy of Trump tariffs, China’s deficit will now be distributed to the other 101 nations that make up America’s multilateral merchandise trade deficit. Relative to China, these are higher-cost producers, meaning the likely response to this retaliation will have the effect of taxing the very families Trump insists he is protecting.
Trade deficit is an automatic consequence of low savings rate. It’s just like 1+1 = 2. It’s not a moral argument. It’s just simple math.
You want trade surplus? Sure. Save more and spend less. Start with the federal government. Those corporate tax cut is a bad idea.
By singling out China as a bad actor, we may be substituting low cost Chinese goods with more expensive goods from elsewhere. Again, low to no savings means you must run a trade deficit because of balance of payment equation.
By the way comparing US as a whole with a single household is wrong, because of the simple fact that US can print its own money. And because USD is the reserve currency of the world, there is no default risk.
How many of the items with a new tariff are essential? Higher prices should lead to less spending which would increase the savings rate.
Same way, whole concept of the post is “The U.S. depends heavily on China for providing the low-cost goods that enable income-constrained American consumers to make ends meet.”
This is almost equal to saying “Apple badly needs Foxconn to supply iphone and Apple can not survive without Foxconn production”
The owner/designer (and payer) is always stronger than Supplier (and payee).
Most people on this forum are rich. iPhones are for rich people. Imagine we put even more tariffs on shoes and clothing so they are 20% more expensive on average. It won’t affect you or me. It will affect people who live on minimum wage and shop at Walmart.
minimum wage affects us more… lot of restaurants, cafes, closing down and cutting cost on their ingredients.
and iphone is not for rich people. lot of poor people use iphone. remember these college kid got no money for food but got money for iphone?
The complete list of 1300 items are linked here https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf
Second, necessity is mother of invention.
The force must come from top down, it is good that the issue is addressed Top Most in USA which was neglected for many decades.
When Obama put a stop (reduction) on oil imports and encouraged alternate source, we have got EVs on road. In 10-15 years, EVs are the way for regular commute cars. The entire USA went in recession during 1975 when OIL-OPEC-EMBARGO was in place which is turned UpSideDown when Obama reduced oil imports and increased domestic production and alternate energy initiative.
Similarly, when Trump forces a reduction on imports by adding tariffs, businesses will find alternate way to produce locally that benefits this local jobs.
Short term, entire country businesses will have issues, cost increase, but long term this clearly benefits the local economy. In 3 to 7 years, USA will have self reliance, self sufficient in jobs, manufacturing and growth.
The task is not simple or easy for any one,it is a struggle for everyone, but Trump is bold on taking such challenging task until he sees the end of it.
Time to remove the two terms limit. Trump for President for life👏🏻
So are people suddenly for governments to force corporate changes? How about we tax oil out of existence because we can force more clean energy?
Try to be more consistent with yourself.
Here’s a good article by Krugman to explain some of the math behind a trade war.
Trade war won’t affect economy of US and China all that much. So why did stock market drop so much? Was it just panic? One explanation is the “stranded assets” theory:
Since about 1990 corporate America has bet heavily on hyperglobalization – on the continuance of an open-market regime that has encouraged complex value chains that sprawl across borders. The notebook on which I’m writing this was designed in California, but probably assembled in China, with many of the components coming from South Korea and Japan. Apple could produce it entirely in North America, and probably would in the face of 30 percent tariffs. But the factories it would take to do that don’t (yet) exist.
Meanwhile, the factories that do exist were built to serve globalized production – and many of them would be marginalized, maybe even made worthless, by tariffs that broke up those global value chains. That is, they would become stranded assets. Call it the anti-China shock.
By the way we should also pay attention to the NAFTA negotiation. Car companies like GM have a big web of logistics spanning the 3 countries. If NAFTA came undone there will be HUGE disruption to GM for example. Their stocks can drop like a rock.
The end goal isn’t tariffs. The end goal is opening up China for more American companies to fairly compete.
yup, not fair, even the legendary jordan have a hardtime winning in china, haha
Unfortunately, that is bad too. Power should not be concentrated in one person like the way China has given. This country proved that Trump (Rep) can do Similar (or better) one what Obama did (Dem).
@Jil since when did you become a Trumpster? I thought you voted for Hillary two years ago, or maybe I misremembered.
Corp tax reduction onwards !
I was scared by Bush period, spoiling the whole country into wars and economical crash. Yes, you are right, I supported Hillary during election.
I am not Dem or Rep, but I see Trump actions are bold, tough to meet even for himself and above all benefits US People. He is, even after winning election, thinking about the low income earners and how to benefit them/their jobs.
The first one was reduction of corp taxes. It was incredible that bring back money to USA from all over world. When companies, investors pour the money in USA, local people get benefited and companies, investors benefit by low taxes.
However, if they bring money, design in USA, market in USA, but manufacture elsewhere outside world, it affects USA.
All along US has been made marketing/sales world. BE AMERICAN and BUY AMERICAN is gone multi-decades before. He is trying to get it back.
The second one is tariff on imports. The basic premise is every item imported is affecting one person job locally. If the item is made in USA, it benefits the local people as job/income. This country has everything, Money, resources, technology, leadership, planning, but lack of direction/focus from the TOP resulted job-loss.
I admire his bold & challenging actions to help people of USA, even though I did not support him originally.
The problem with tariffs is the government picks winners and losers.Trump wants to help coal miners. It is dying industry retrain them don’t put tariffs on steel and aluminum. Then the Chinese retaliation on Boeing and soybean growers puts more people out work than the jobs saved.
Blame the EPA OSHA and government for lost jobs not China. We can’t beat China in the trade war. Maybe 20 years ago but not now. They can grow their economy with domestic spending… they don’t need us anymore.