For an interesting take on the subject, see the Chicken Tax established during the Kennedy-Johnson administration and how it evolved during the years and the unintended consequences of such wars. To this day, both Ford Motor Company and what remains of Chrysler, as well as Mercedes-Benz (and its Freightliner subsidiary) have to go through contortions to bring their light "commercial" vans and trucks to the U.S. to avoid paying a tax of up to 25.0% placed by the U.S. in retaliation to Germany and France for their enactment of a tariff on chicken shipments from the U.S. This results in waste and higher prices to consumers on both sides of the war. These trade wars never end well, never produce the intended results and history is witness to this.
1
An earnest question: Is it not possibly that Trump's goal is self-serving. Steel tariffs won't impact the cost of soup cans and bottle caps terribly much, so consumers won't feel it terribly. It will have a far greater impact on construction projects such as skyscrapers, where even a small increase in the price of steel will have a significant impact on the overall cost. Domestically, this would make it more prohibitive to build the sort of office and residential buildings in NY and Chicago that would directly compete with Trump's and Kushner's real estate. On the other hand, it would make Chinese steel more available and less expensive in places like India where Trump is building new towers. So this tariff could doubly benefit Trump's family. Is anybody talking about this?
5
This is a typical Krugman column: spewing nonsensical gobbledy-goo and not even pretending to be capable of giving credit to our President. In it, Krugman is wrong on every account (and I suspect he knows it but writes it anyway). As a true cosmopolitan, he wants the US to continue to be a punching bag for every other trading partner (or should I say trading raider): Canada, the EU, China, Russia, etc. This President is incredible in His adherence to his campaign promises: he was elected to raise tariffs (among other things), and he is doing just that, true to His word. Thank you from the bottom of our (the silent majority's) hearts, Mr. President! Stay the course!
You are the one "spewing gobbledy-goo(sp.)". You should skip the anger and try to understand the economics issues.
4
You really ought to ead about our president. He has had more bankruptcies, law suits. US bank stopped loaning him money for his loosing sky scrapers and fights them when they ask for him to pay back. He is mean to his workers, frequently not paying them. Read books about him. Also read Hillaries book on 'What happened" I dare you. Educate yourself. You sound like one of the Russians blog who still interfere and were very involved in getting this con artist to be our President. It is facts about him that are scaring me not Fox News and Breitbart news.
3
I remembered this passage:
http://books.google.com/books?id=GcmvijkDrEcC&pg=PA93&lpg=PA93&a...
1994
The Supply-Siders
The Smoot-Hawley tariff * raised the average tax on imports by about 40 percent, but before the tariff imports were only about 5.0 percent of gross domestic product. In other words, the effective tax increase was only about 2 percent. Yet employment dropped by one third from 1929 to 1933. Conventional economists find a response this large incredible. But the supply-siders have no doubt about the correctness of the diagnosis—after all, what else could it have been?
Peddling Prosperity
Economic Sense and Nonsense in an Age of Diminished Expectations
-- Paul Krugman
* June 17, 1930
1
Imports now are 15.3% of GDP, so thinking in the manner of Paul Krugman a general 10% tariff would be the equivalent of a 1.53% tax increase.
Nicely done Nancy.
This is such a satisfying and lucid, understandable column—if only Trump associates who READ can keep the golf club king's attention long enough to steer him to good sense (or preferably: the golf course, and let adults run the shop).
Something that prevails over Dr. Krugman's columns is that there's a lot of consensus in professional economics about how the world actually works—e.g., if an economist thinks in evidence-based terms. So, I don't understand how Wall Streeters whom Trump favors keep failing to impress on him how things actually work. What are they thinking? That they'll inflate their own wallets, then sell before the harm they've permitted touches them?
1
Today, with a fullotiltboogie disaster looming, trade war, stocks fly! That market is not facts based.
But the trade thong may be less Macroeconomics (or ANY economics) and more hardball political dealings... as in, to GOPers on The Hill...you want me not to do this thing... what can you do for me?
Like shut down a little distracting investigation....
(and to CEOws, how much it worth to ya?)
2
trump needs to sit down at the Old Boys Club with his Wall Street buddies and have a good chat. Fact is, the US in the person of its corporate lobbyists virtually writes the rules of trade pacts to benefit themselves. If he thinks these deal are bad, he is clueless as to how they work. The US *never* loses in the global trade game.
1
The name is President Trump, Sir. Not showing respect to the President of your Country tells a lot about one's character / caliper overall. Be mindful of that when writing in such esteemed paper as the NYT fancies itself to be.
@dov. Others have pointed out that BILATERAL TRADE AGREEMENTS with trump are useless...he does not keep his agreements or contracts even the ones that exist. The man's word is worthless...he is a con and a grifter...look at his lifetime history...bankrupt, adulterer.
12
This might sound like a dumb question, but what if Trump gives an order for a trade war and no one in the government obeys it - I mean, not just at the cabinet level, but at the sub-cabinet and lower levels of the Federal bureaucracy?
It would be like a WWI battle where the crazy general yells "Charge!" and his soldiers just look at him and say "Bot bloody likely!". Generals can't fight a battle if their troops won't fight.
I remember reading that Kissinger gave orders during Watergate's endgame that specifically instructed the military not to pay any attention to orders given by Nixon if the tricky one decided to dust off the Soviet Union while drunk. Can't something like that happen again? After all, the rich creeps that are in Trump's cabinet stand to loose a fortune if our unbalanced and profoundly ignorant president decides to destroy an economic order that has given the world its greatest level of material wealth in recorded human history. That latter point probably won't matter to Trump's cabinet, given the character of its members; but the whole loosing a fortune part should definitely register. So why can't these people let Trump know that he just won't be obeyed if he tries to do anything as incredibly dumb as instigating a trade war? Especially so if doing so saves them all, including Trump, a fortune in personal wealth?
3
Hilarious.. I see your frustration mate. Have to deal with. God saves the world.
1
Given the fact that Trump has filed seven or more times for bankruptcy proves that his business acumen is sub par. In terms of economics his approach seems to be take extreme risks, bully your adversary, and hope for the best. If the venture fails he can write it off. I doubt that Trump knows the difference between elastic and inelastic, except when it refers to his waistline. We will once again suffer from his ignorance.
6
It's possible that those bankruptcies were strategic on his part. Or his lawyers. Being bankrupt means he doesn't have to pay his bills. A common tactic among slime ball property developers.
4
While I can't find fault with Krugman's analysis of the destructive effects of protectionism, I strongly object to economists and politicians describing current conditions as "near full employment." How can that be, when millions of Americans have been chronically unemployed for a decade or more, and with little if anything being done to change that? Answer -- only by the deception of classifying these people as "no longer in the work force," or "no longer looking for work." This false narrative is a major contributor to the resentment that discredits Democrats and brought us Trump!
3
12% interest rates here we come!
Donald Trump will reek havoc with our Canadian economy yet I support Donald Trump he makes clear the USA cannot be trusted.
Reagan was elected and our neoliberal Prime Minister Brian the all-American Mulroney played Reagan like a dime store fiddle but the Canadian electorate lost control of industries that allowed for Canada to follow our own road.
We are a 21st century liberal democracy without the freedom to follow our own ethics and morals because we are owned by a nation whose motto is "Greed is Good."
I know that the majority of Americans are decent , moral ethical but everyday America is more cynical and amoral as you follow the same path that the USSR followed with the death of Communism.
The daily soap opera we see every day reminds us that the USA is becoming more like Putin's Russia and less like Canada.
Russia and the USA have become two peas in the same pod. Power is more concentrated in the hands of the corrupt and those that acquiesce to participate in a system that writes new rules every day that benefit the rich, the powerful and the corrupt. Every day the flag and the religion grow larger.
I realize the Canadian values and democracy that have blossomed in the last 40 years cannot continue by being owned and controlled by the USA. If you want to see Kleptocracy and Nationalism in action visit what should be the greatest city in the world Montreal. It is a Trumpian Heaven where people who hate cities and all their diversity are in control of a city they detest.
2
"Which makes it quite likely, as I see it, that Trump will indeed follow through."
The problem with your op-ed pieces is that it is always as "you see it."
However, Trump's tweets aside, his policy instincts have thus far been fairly good.
1. Tax reform;
2. Forcing a national conversation on immigration;
3. Filling empty Supreme Court and lower court vacancies with excellent jurists;
4. Eliminating Obama era stifling business regulations which prevented even modest infrastructure projects from advancing;
5. Recognizing Jerusalem as Israel's capital, which both parties paid lip service to but never did, and which was the historically correct move which does not pander to the Left's anti-Zionism and which may work to bring a dose of reality to the Arab-Israeli negotiations;
6. Standing up to North Korea now and not letting the matter drift, as did our favorite past "excellent" presidents, and ratcheting up the economic pressure on the dictatorship;
7. Taking a long hard look at the "Iranian Nuclear Deal" while the Iranians are now on Israel's northern border;
8. Insisting our allies pay more for their own defense;
9. Putting Americans back to work;
So if, as Mr. Krugman posits, Mr. Trump's policy initiatives are "dumb," what does that make the policy initiatives of his predecessor, who spoke much more convincingly, and failed so miserably?
2
I want some of whatever you are taking or smoking. 1) Tax reform-good for business, bad for the deficit; 2) A national conversation on immigration, including the slurs and defamations of minorities; 3) Excellent jurists, if you love a return to the 19th century; 4) Eliminating regulations-does this include favoring testing and drilling for oil that we don't need on our coastlines? 5) Recog Jerusalem,,,I'm sure that Netanyahu will now be our best friend forever (especially since we are still giving the Israelis over $8 billion dollars a year-why don't they ever listen to us?; 6) Pressure on North Korea is OK , but do we need the rhetoric? 7) The Iranian nuclear deal-how about the dissing of our other allies in the region (UAE, e.g.); 8) allies paying for defense-one good idea; 9) Americans who need to go back to work? How about retraining the lost job generation for modern employment instead of dreaming about the resurgence of "king coal?"; 10) How about retiring Mitch McConnell and his cronies, who stonewalled for eight years because they were biased against President Obama? Yes, pass that over here.
7
1. Tax "reform" ended up as a deficit exploding revenue destroyer. There were ways to reasonably lower the corporate tax rate without destroying revenue, and the Republicans screwed that up massively.
2. The conversation was ongoing and would have happened without the destructive things that Trump has done on immigration. DACA would have come to a head with the court cases that were ongoing when Trump took over.
3. "excellent jurists" is open to debate, and the true effect won't be clear for years. It'll be interesting to compare Bush II and Trump's judge appointments to see if they are "excellent" or subpar.
4. I don't know where you get your information but infrastructure projects that had funding were built during the obama years. If you mean stuff like removing regs on Coal, that just makes the industry more profitable by foisting the costs of coal prodcution on the neighbors of coal plants.
5. If by reality you mean the Palestinians demanding new middlemen, because they no longer see us as neutral, yep, more reality is there.
6. So far Trump has done nothing productive on NK. Nothing has changed.
7. There is no better solution to the Iran nuclear problem than what was achieved in that deal, like it or not.
8. This is no win, as we benefit from being the protector of Europe and Japan for rather obvious reasons.
9. Thank Obama for that, as the job growth of the last year is just continuing the job growth of the Obama years.
Donald Trump Trade Logic:
1. China practices unfair trading practices & enjoys huge surplus over United States.
2. US enjoys trade surplus with Canada, a close friend who practices fair trading practices.
3. Therefore U.S. will punish Canada by imposing yet another round of stiff tariffs.
4
This is what we get when we elect a president who knows nothing.
Even Hoover was against the Smoot Hawley trade bill, but signed it anyway.
It was a disaster for the US and the entire world. Ushering in dictators and trade wars.
Mexico will elect Lopez Oberador, a left wing populist and Britain might start to have Brexit remorse when it looks at what a trade deal with the US might bring.
It looks like trump's pal Icahn was tipped off that the tariffs would be announced and dumped his stocks in steel consuming industries in time.
I wonder if some investigative journalists at the NY Times or Washington Post could go and have a look if Jared Kushner also took advantage of his early and inside knowledge that this was coming?! Because that kind of scheming would be right up his alley, and if he did it right it could net him a few hundred million dollars, which would take quite a bit of pressure off of him.
4
If we thought Trump capable of planning one might think this kerfuffle was designed to give Jared just such an opportunity.
The FBI needs to look into Wilbur Ross as regards possible violations of 18 U.S. Code 208 (and subject to the penalties recited in 18 U.S. Code 218) because:
1. Ross apparently has an appreciable finacial interest in a steel producer with substantial US assets, and
2. Ross arranged the meeting between Trump and Steel manufacturing CEOs last week to influence Trump to apply importation tariffs for steel.
If 1 is true, Ross is using his position as Commerce Secretary to influence a decision that affects his personal assets.
https://en.wikipedia.org/wiki/Wilbur_Ross
International Steel Group (ISG)
In 2002, Ross founded International Steel Group after purchasing the assets of several bankrupt steel companies. ... Ross sold International Steel Group to Mittal Steel Company for $4.5 billion, half in cash and half in stock, in April 2005.[19]
end quote
https://nypost.com/2016/11/19/possible-commerce-head-ross-knows-how-to-d...
Quote:
Ross, through his Mittal stock, is again being hurt by cheap Chinese steel. ...
“The company needs the countervailing tariffs that had already been in place and are already proposed to return in both Europe, the US and elsewhere to deal with dumping from China,” Ross said.
4
The Superman was born eighty or so years ago, then, the mythology
began to kick in … The remaining cartoonish characters - Superwoman,
Supergirl, Superboy – came later.
The whole nation got the message and without a shame self- proclaimed
itself an “exceptional”. A chant “we are the champions” was just a natural
consequence. A peculiar brand of democracy defined by lobbyists and
facilitated by corruptible lawyers was in a healthy pursuit.
Unexpectedly, one could have said, the result is quite peculiar too,
the top 0.1% of this super society is worth now as much as the bottom
90% ! The miracle had happened…, indeed…
Billionaire Trump, epitomizing Superman, became the President, by the
magic of minority vote and supernatural power of the Electoral College.
It was a gimmick of super democracy proudly delivered. Unknowingly,
he followed Roger Cohen’s wisdom: “Delusional certainty tends to be the
domain of those with ambitions to lead the muddled crowd. Politics
depends on the promise of change. That’s its elixir.”
Trump delivered all this on arrival…, in some incoherent way, of course,
but the crowd liked it anyway. The world, as we know it became intoxicated
and went off orbit… The “fake” news, the “alternative truth” hit the air.
Confused, we and they were expecting more from nothing.
Now, we know beyond any margin of doubt that the Character is “surpassingly
stupid”… But, but, …why it happened?
2
Today's WashPost has an article in which WH Economics advisor Peter Navarro makes some claims supporting Trump's tariff.
I wasn't familiar with Navarro, so I googled him and read the Wikipedia article.
If you can possibly stand becoming more upset with the current administration, I encourage you to read it.
Navarro is well educated, but the impressive part of his resume stops there. He is portrayed in the article as the most extreme economist in the country, alone in his views and disparaged by the profession, often in scathing terms.
He has long been a hawk on China trade, but his work has been called by experts and laden with inaccuracies and illogic.
He writes, but not for peer-reviewed journals.
In other words, he is portrayed as the lunatic fringe of the profession.
He was brought in to the WH at the suggestion of Jared Kushner, who reportedly found one of his books on-line while researching China. So, the administration doesn't only get its information from Fox. It also uses Google.
He is as extreme as Pruitt.
This isn't about politics or economics. It's about Personality Disorder. Trump doesn't know anything, but he likes an extremist who is raging anger at conventional wisdom.
In case you thought you couldn't be any more upset.
5
To all those who say Trump has the right idea, even if he's aiming at the wrong target; even if we agree there's a problem, solving it with such unnecessary pain speaks more to a masochistic impulse borne from Trump's utter ignorance of things economical, than any honest attempt to right this wrong (of trade imbalances). In other words, the 'cure' is far worse than the disease!
Trump would rather score points than actually do the job of rebuilding American manufacturing, which would take years and outlast his term in office. And it could be done purposefully and profitably, rather than painfully.
But then, Trump didn't run for office to actually DO anything with government (other than make it meaningless). He ran for office to BE something, just so he could say he was.
3
Given our labor force participation rates, which are still down 4-5 percent from the peak of some years ago, are we really sure we're at close to full empoloyment?
1
Why would a country dump goods at prices (P) below its full costs? Breaking costs into their variable and fixed components helps to grasp the problem. Then, break-even analysis, can be applied.
1) Variable costs (VC) are expenses for direct labor (DL) and direct materials (DM) that vary with output. Fixed costs (FC) are manufacturing expenses that do not vary with output over a yearly period. They Include, for exs, building and machine rentals that are constant per period.
2) Contribution Margin (CM) per unit sold is defined as: [CM = (P - VC)]. For ex, if a firm sells a product for a P of $1,000 that has $200 in DM costs and $400 in DL costs; its CM would equal $400, computed as follows: VC = (DL + DM) = ($400 + $200) = $600. So, since
[CM = (P - VC)], and VC = $600, then [CM = ($1,000 - $600) = $400]. Thus, $400 is contributed, first, toward FCs; and then to profit.
3) The breakeven point equals FCs divided by this CM, or [BE in units = (Total FC/CM per unit)]. With rental FCs of $100,000, then the BE point is: BE = [($100,000 in FC/ $400 in CM) = 250 units. To check: [(Unit sales x CM) - FC] = $0; or [( 250 units x $400) - $100,000] = ($100,000 - S100,000) = $0 profit, or breakeven.
If China could sell these products in the US at a P per unit above its CM but below full costs, should it? With excess capacity, and with a price of $800 per unit, and VCs of $600 per unit, should it dump the good at $800 to partially meet its unvarying FCs?
M 3/5 10:35a Greenville NC
1
Should something be done about steel production? The current output of China is absurd - they make half the world output:
http://money.cnn.com/2018/03/02/news/economy/steel-industry-statistics-u...
This is obviously not good for anybody else's security - or probably economy. Why weren't the people now squawking about Trump's tariff action - which will have little effect on this situation - addressing the problem before or during the 2016 election? Suppose Hillary Clinton had devoted some attention to addressing the real problem of world steel production and other real trade problems, instead of leaving it up to Trump to make promises about China trade which he had no intention of fulfilling, or is not competent to fulfill? The basic attitude in the media then and now is that world "free trade" can't be touched. Again, the underlying assumption that this trade has been beneficial overall to the US is simply not true. Growth of GDP and productivity have actually slowed while inequality has continued to increase.
3
Trump's most prolific skill as a businessman is filing for bankruptcy.
He's done it on six separate occasions, and now he's doing everything he can to make sure the United States is his seventh. Sure, Trump says that he's only filed four times because he counts the first three as one. Now the idea that 3 actually equals 1 comes as no surprise to those who truly understand Trump's "genius".
Can anyone remember the last time a US President was a Russian dream come true?
3
The article is correct -- of course! But it misses the point of the trade war, and its long-term effects.
Yes, the economy will be damaged. Even many red states will suffer. BUT the critical constituency-- white workers in places like western Pennsylvania -- will be fired up to keep their states Red in 2020, and will deliver him a 2d term.
It may not work, but it's the perfect strategy, and it just may work. THAT'S what matters, to Trump (or so it appears to me), and certainly to the rest of us.
“…the Fed would raise rates sharply to head off inflationary pressures…The rise in interest rates… would drive up the dollar, inflicting severe harm on U.S. export sectors…”
The Fed normally only raises short-term rates. The Treasury would have to raise bond yields (long-term interest rates) in order to attract buyers for US Treasuries to fund the increase in the federal budget deficit caused by the tax cut. Both have the effect of driving up the dollar, causing imports to increase and exports to decrease, driving up the trade deficit.
The Fed would have to raise short-term rates to discourage interest rate arbitrage. This is when speculators obtain short-term loans to buy bonds and profit from the difference in interest rates, a recipe for financial disaster.
I am of the belief that Trump's declaration is short lived and will be rescinded sometime after March 13, 2018. Why? Because I believe this is a move to help sway the Pennsylvania 18th Congressional District special election that takes place on that day.
The Pennsylvania 18th Congressional District geographically is the Southwest corner of Pennsylvania, from the Pittsburgh suburbs to the Ohio / West Virginia borders. This is a traditional heart of the blue collar worker steel production and coal consumption region, one that is also traditionally heavily GOP voter centric.
But this year, as in so many other elections we have seen lately, the Democrat party have been performing well in GOP areas. And the polls for this election, between Rick Saccone (R) and Conor Lamb (D), are also much closer then anyone would expect in 'normal' times.
This is a move by Trump to excite the voters and let them know that he and Rick Saccone (R) have their backs, by continuing the false claim that the jobs are coming back as a result of instituting these tariffs.
4
Dr. Krugman, is there ever a good trace action? For instance, if China has been engaged in mercantilism, is there a useful U.S. response, tariff or otherwise, which could prevent whole U.S. industries from being decimated?
I don't know but I think there must be some good trade action, if you're a nationalist.
2
“…is there ever a good trace action?”
Great question.
The answer is yes. Here are two:
1. Eliminate the tax cut:
“…The Trump tax cuts will add more than $1 trillion to U.S. fiscal deficits over the next decade, putting upward pressure on interest rates and the U.S. dollar…will soon lead to a rising dollar, putting continued upward pressure on the trade deficit,..”
http://www.epi.org/blog/increased-u-s-trade-deficit-in-2017-illustrates-...
Without the tax cut Chinese steel would have been 20% more expensive anyway in a year or so. No need for tariffs, quotas or trade wars.
2. “Foreign-based” American corporations that sell goods and services in the US have been able to avoid paying over $1 trillion in US taxes by keeping their US earnings abroad waiting for a tax holiday.
If those companies had been paying their US taxes the federal government would have been able to increase spending on infrastructure, on retraining displaced workers, and on other services, for example. That would have created direct and indirect jobs that would have offset some of the job losses from trade and automation.
Also, the dollar would not have been as strong. We would have had less imports and more exports.
“Foreign-based” American corporations should pay their US income taxes in full every quarter, just like their US based competitors do.
1
I agree that domestic output would not increase because the jobs that would be created are still not going to pay well since most companies are public and beholden to their stockholders. The major companies will continue to depress wages.
1
As I understand Trump's argument, he is saying that we need a domestic steel and aluminum manufacturing industry as a social matter.
True or false?
Excellency, Trump doesn't have arguments. He doesn't consider the facts and history of an issue and then work his way through to a logical position. You can't therefore, "understand" or even respond to his arguments because they're without any form or substance. The most frustrating thing about the Trump era is listening to folks on NPR debate what Trump thinks, or reading NYT or WSJ editorials that attempt to parse his policies.
1
The current account deficit tends to self-correct. It increases the supply of USD to the currency markets, which drives down the exchange rate. Foreign goods become more expensive in the US (imports decrease) whereas US goods become cheaper abroad (exports increase).
However, an increase in the federal budget deficit increases the demand for USD in order to purchase US treasuries to finance the deficit. In this manner, an increase in the federal deficit (tax cut) strengthens the USD and produces an increase in the current account deficit (Google “twin deficits”).
As an example, one year ago a 30,000 EUR European car would have cost USD 31,746 in the US at the then-current exchange rate of 1.0582 USD/EUR. At today’s exchange rate of 1.2358 USD/EUR it would cost USD 37,074, a 17% increase in price. All that without any need for tariffs or trade wars.
One year ago $1,000 would have bought approximately 1 ton of Chinese steel. Today that same amount would cost $1,088 because of the weaker dollar. That is almost half the effect of the new 20% tariff.
The tax cut, by increasing the federal budget deficit, will result in an increase in the current account deficit. It won’t be China’s fault. We did it to ourselves.
6
Sometimes I think Trump is trying to do the exact opposite of what Obama did or would have done or Trump’s administration is willing to try every half baked economic theory ever invented starting with the massive corporate tax cut. The probable outcome of reducing the corporate tax rate to 20% and the dividend’s repatriation rate to 6% is a ballooning deficit. American corporations have already shown that they will use the tax savings to buy back stock while creating no new jobs. Corporations probably won’t even pay higher dividends. This tariff idea is in the crackpot category. More symbolic than effective at creating jobs.
7
No, it is a fact. Trump is trying to do the exact opposite of what Obama did. He has detested Obama all these years. Now he is, sadly, in the position to damage or undo his legacy, no matter how senseless his actions might be. Those who voted for this narrow minded current occupant of the WH should certainly be proud of their "win" while the majority of us (and the world) suffers along.
If US metals receive more orders, is there any unused capacity in steel and aluminum production?
Does the additional energy required to produce more metals add to our greenhouse gas emissions?
Could more orders lead to more efficient production; like minimills?
Minimills use a lot of recycled steel. More demand for used metal could raise the return on steel and aluminum recycling. Isn't that a good thing?
If production increases wouldn't that be good for wages of steel mill workers?
Higher wages for mill workers means more buying in the consumer economy. Doesn't that have an effect on other wages?
2
About the tariffs to be imposed by the president, as Paul Krugman noted the decision was made to use national security as the reason for the imposition. This means that Congress will not be able to contest the tariffs and the tariffs are not subject to World Trade Organization rules, so countries cannot appeal to the WTO as was done when George Bush imposed steel tariffs in 1982. The WTO ruled against the Bush tariffs and they were withdrawn immediately.
2
I'll happily defer to others on the subject of how the trade deficit numbers are derived. One study recently published by Bloomberg claims that half or as much as 75% of the US trade deficit is due to US companies hiding their foreign profits from US taxation. Others, like the WTO claim that the manner of counting trade in manufacturing is outdated, such as a single country is sourced for the entire cost of a product manufactured in many countries. Does anyone have more detailed information of whether the US even has a deep trade inbalance?
4
The graph, which is important but was difficult to draw:
https://fred.stlouisfed.org/graph/?g=iPOe
March 3, 2018
Balance on goods and services as a share of Gross Domestic Product for United States, 1999-2016
1
Were you trying to score some partisan points because, ahem, the sharp downward turn began in the last year of Clinton? Silly partisans.
Krugman is a Hayekian who may be right about the impact of lack of regulation on GDP and profits, but the market is up 40 times since 1982. Krugman once estimated that the average income, benefits, and welfare measures were up 40% in that period.
I know that the rich NYT readers like those figures. but they might look at Brexis, Poland, Hungary, and now Italy and ask themselves if political stability should not concern them. If Trump fails, the beneficiary is not going to be the Clinton-Obama-Citigroup New Democrat, but a more dangerous populist.
1
I dunno if the claim about Krugman's being allied with Hayek, or the hit-and-miss spelling,mis worse.
1
What's the point of stating the obvious, Jerry? The election is over. Most of us here didn't vote for Trump. The reason why many of us voted for Clinton (along with a majority of Americans) was PRECISELY BECAUSE we DO think 'political stability' concerns us. Trump isn't going to fail because we don't agree with him and won't endorse his silly justifications for this 'policy'. He will fail because its the wrong policy for what he seeks to make right! We're here just trying to minimize the damage we all knew this ignorant man was capable of inflicting.
1
If we think of supply and demand as a gimmick, devised by those who control production, to reinforce its stimulation by an open market, then the equally artificial closing of the market by implementing protective tariffs might have the effect of encouraging investment in foreign companies, if the domestic market cannot provide enough profits for business to maintain an equilibrium. The "other things" of "Ceteris Paribus" such as wage price controls will likely stimulate a rise in foreign prices and so increase competition with the result that both foreign and domestic markets would suffer inflationary trends, not to mention the loss of an increment of profit due to each country's reactions to the tariffs, i.e. forcing them to look elsewhere for a viable place to do business. Well, whomever it is that controls production, from whatever perspective, seems to try to imitate the natural proclivity to attain an equilibrium by divers other artificial means, thus creating an atmosphere of obloquy and disingeniousness which seems to forever foster indebtedness. Trump loves debt. He must be a usurer.
1
Well reasoned. I would add only the gang of three(Mnuchin Ross,Cohn and their companies) have made billions on distressed assets, bankruptcies. Their specialties.) That is why they are there. And the rest of the cabinet,interior , housing and environment, are ready to make their claim.
Instead of tariffs, how about some government office use the best econ/business research we have to help areas of the country hardest hit by depleted industries to develop or court new, green, sustainable industries and train local folks to excel at and take pride in them. European countries developed and support the Slow Food Movement in part to keep good local jobs available for young people in producing desirable foods unique to various regions, like Parmesan cheese, balsamic vinegar, Iberico ham, etc. They don't have to leave the region to get a job, enjoy respect, have a meaningful life.
10
Exactly, PEA. Some planning and investment would do the same thing but without the massive pain and dislocation of our workers, industry, and foreign policy. This is a classic case of possessing a hammer, and seeing everything as a nail. But then, with Trump, was there any reason to expect something different? Doing the right thing for the right reasons is just too much work for Trump, who exists to find loopholes to exploit, and cut corners to claim success. He's the guy in class who thinks the way through all the hard work toward a degree is to cheat.
2
we used to call that price increase at each step keystoning.
you believe, Doc, that the endgame is Trump's restrictive tariff idea is a dumb policy, bad for our economy and bad for our country. yet people who stand to suffer, perhaps the most, egg him on, and 85% of Republicans believe he's doing a good job.
what conclusion would you draw from that?
1) Republicans are so consumed with fear and hatred of the "other", and so blinded by avarice, that they can't see straight?
b) Republicans were once as smart as anyone else, but now they are stupid?
1a) Republicans say they support Trump's policies, but they are lying?
b.1) all of the above, especially in landlocked states?
9
If the numbers on the graph are percent of GDP, then shouldn't the factor be 0.01 and not 0.1 as written on the top of the chart?
Navarro is convinced that accounting identities are real money. You can’t fix stupid. Listening to Wilber talk about how pricing works on raw material price increases shows he’s an idiot. In most industries a raw material input increase of say 3% will result in a 6-8% increase in price. Again, you can’t fix stupid.
Maybe that should be the Trump motto?
12
Calling this "idea" stupid would be elevating it to a stratosphere it is not even close to. It is self-destructive and the damage has already begun.
15
You are quite right, of course. Nobody will be better off for this 'notion' that came into Trump's head last Thursday (I wouldn't even dignify this with the word 'idea' or 'policy'). It is hurtful and causes loss of trust, and worse. Just yesterday I was thinking of all the produce we get from California, and the thought crossed my mind that I could survive without it.
I would love to see Trump's transcript from whichever part of Wharton (Penn) that he attended. I can't say he studied there, only attended. In spite of his "very good brain" he is a jerk. We will continue to pay the price for our electoral college idiocy.
21
“word is that his doctor has told him to eat fewer burgers”
Sure, but opposing his doctor is Melania who keeps ordering up double hamburgers and fries hoping that Trump’s heart attack is a ‘widow maker’.
9
I would be most pleased if all of that pent up rage was directed at mass bingeing of cheeseburgers.
8
I'm going to try something new--by NOT reading this column. Going out on a very short limb--my guess will be that Krugman will call Trump stupid, ignorant, etc...and will generally will not be in favor of instituting tariffs on trade cheaters.
First things first: If Obama had taken this stance--Krugman would be waxing poetic about a heroic move to protect American workers. Krugman's hatred of Trump taints everything he writes--and he seems to be unable to write about anything else.
Secondly...countries exporting to the U.S. need us more than we need them--especially China--and the reason we know this is the huge trade deficit we run with them. Exporters want access to our market. We are in the drivers' seat in dictating terms. Finally, we have a leader who gets that.
2
He just put a tax on exporters who want access to our markets (well, actually a tax on us at the end of the day). The tax money wii go to stock buy backs for the domestic steel and aluminum producers.
Jesse the conservative,
Now that you've posted an irrelevant argument, can you read the article and try it again? Also read some other articles; China is not the one who will be hit by these tariffs. Finally, we have a leader who is 40 years behind the times going along w/ Ross, who misses the whole economic as well as retaliatory perspective and Navarro, a 2nd rate economist who makes his living writing 20 year out of date popular books. He hasn't published anything for decades showing academic insight or even common sense.
I look forward to your reply.
"I'm going to try something new--by NOT reading this column."
What a surprise.
"Going out on a very short limb--my guess will be that Krugman will call Trump stupid, ignorant, etc...and will generally will not be in favor of instituting tariffs on trade cheaters."
There was considerably more analysis than that, as would be expected from a Nobel laureate economics professor. But you aren't very curious, so why would you care?
1
Can you address his concerns that our trade deals and policies are “stupid”? Are they?
1
Ger,
Did you read the article? It was why tariffs are stupid. Take a look at the arguments for engaging the WTO and inserting American perspective in trade deals like the Transr-Pacific Partnership. But that takes a lot of state dept & commerce commitment and long-term focus to stop China's IP robbery and marketplace bias. That is not the Trumpian way so I don't think Trump has much credibility calling others stupdi.
My current car is pretty old so I will be in the market soon for a new car. It sounds like I should be preferring foreign-made cars, no? After all, foreign cars will be made of free-market steel, whereas domestic cars will be made of expensive goverrnment-protected steel. Those Trump voters in Michigan and Wisconsin and Ohio will be in for a rude surprise if Trump really follows through on his surpassingly stupid tariff proposal, because free marketeers like me will vote with our dollars and we'll be shying away from Detroit's products. (Tip of the hat to Krugman for "surpassingly stupid".)
9
The rational behind Trump's thinking is based upon nothing. He knows nothing about how the world works, let alone economics. He has never read book or newspaper, except if it's written about him. He made his money as a cheat, borrowing and not paying anything back. He believes that if he thought about it must be a good idea. The rest of us will suffer for his stupid ignorance.
12
Don't forget the American shipyards and RR workers. They will be hurt, too, by less shipping.
5
Looks like the price of bourbon could come way down. Can anyone say Jack at $10/bottle?
The photo at the top told me more than the words below. Rows of machines and spools of wire and only two workers. In response to the tariff I guess Insteel will layoff one of the workers.
7
Trumps ham-handed introduction of these new tariffs reminds me of the vengeful and dimwitted gangster who sprays a packed restaurant with an AR-15 in an attempt to eliminate a rival. He misses his target but kills and injures scores of unsuspecting innocent customers. Despite failing to take out his target, the very act of shooting up the restaurant provides the gangster with immense primal satisfaction. His hysterical act also excites and mobilizes his fellow gang members and further cements his position as their leader. In Canada we understand that our world can produce such an ignorant, immoral and depthless man. We can also empathize with just how embarrassing, disheartening and shocking it must be for millions of Americans that such a man was democratically chosen to lead their government and represent them internationally. Nevertheless, our sympathy is wearing thin. Canada is on your side. We are a staunch and loyal ally of the United States. That said, we are angered that your President and government are increasingly unmoved by this fact and so enthusiastically engage in unhelpful rhetoric and breathtakingly reckless policy that only further undermines our historically close relationship.
19
You've described the mood perfectly...
Trying to find a rational may be a waste of time ... But talking tariffs sure put the gun debate to rest, specially after Trump spoke about moderate gun control policies. NRA bigwigs went to the white house to talk sense to POTUS and we have a trade war the next day. The trade war may go nowhere but it worked in changing the conversation, a"wag the dog" strategy ... The NRA showed the White House who is your Daddy in the USA !
9
In addition to having to cut down on burgers, when's the last time Donald has had any quality time with Melania? He's hungry and lonely. Watch out!
1
“The U.S. is at full employment”, Paul with all due respect for an esteemed economist such as yourself, you and your liberal elite brethren just don’t get it. Trumps appeal to the working class is about “quality” of jobs (lost) that have been replaced by barista jobs at Starbucks(held by many with advanced degrees), box stuffing at Amazon or in the great, right to work state of Governor Scott’s Florida, valet parking for tips at hospitals. I don’t agree with Trumps decision to include Canada or European countries in proposed tariffs, that’s plain stupid, those folks have better standards of living for the rank and file than America has had for a generation, I do however feel that tariffs concerning China are long overdue, and incidentally France has been hitting Asian countries with tariffs for along time so for them to cry foul is a bit hypocritical. There is no doubt you or the fed can overwhelm everyone with statistics, today’s column being a good example but I would humbly suggest a better form of measurement would be to drive across this very divided nation, look at the boarded up factories, indeed boarded up towns, it doesn’t take a Princeton education to realize, no matter how well intended and no matter the benefits to millions of citizens of China, globalization and fifty years of trickle down economics, endorsed by both parties, have destroyed the futures of the majority of Americans who for the first time no longer look forward to doing better than their parents.
2
What you are looking for will not come from the steel industry or coal mines. Those days are over
What value or benefit is there to support China economically?
If forced to produce domestically, we 'd figure out a way to produce it here cheaper.
So why can't we tell China to take a hike?
And while we are at it, let's raise the tariff on those that Illegally enter our country by trespass from mexico.
Build the wall, enforce the employer e-verify and deport those with legal permission.
Send them home to start a revolution in mexico. Clean up their own country.
Force the 1% that own and control 95% of the mexican economy to resign or kill them off in a revolution.
Stop enabling mexico to use the United States as a 'relief valve'. End the invasion.
OK, Bob..."if forced..." no, we wouldn't. Have a chat with your neighbor Warren about this and get back to us.
Question: What would make a narcissistic US president lose sleep at night?
Answer: To be treated as a minor footnote in US history!
Question: Can he do something about it?
Answer: Of course! He can always start a major war in Middle East!
Question: What if his generals tell him that his war is not militarily winnable and history will view him as a "big loser"?
Answer: Well .... There is always trade wars!
7
I see that as always, Berniebros can't figure out that any day they find themselves agreeing with the likes of Donald John Trump is a bad, bad day.
This tariff is getting slapped on through a national security clause in legislation, allowing the Prez to impose tariffs to protect this country's ability to produce weapons of war. Right there, that ought to set off alarm bells for any decent socialist.
Then too, the tariff's coming out of Trump's being in a massive snit, and without the slightest attempt to coordinate anything. This is good how, exactly? And THEN, the tariff ends up primarily hitting OUR ALLIES such as Canada and South Korea.
Are you crazy?
Underneath it all, though, it's crummy Marxist theory, built in the notion--pretty much as Trump's theory is built on the notion--that it's still 1955 or so.
Marx' old superstructure/base model, revolving around and around an industrial capitalism from 1887, premised on the idea of First vs. Primitive World, simply doesn't apply any more.
Sorry.
President Trump’s threats to impose steel and aluminum tariffs and target the European car industry would no doubt lead him toward keeping his 2016 campaign promise to "impose tariffs on many imports." But it could also impact - positively and negatively - other campaign promises, including #16 (Create 25 million jobs) and #15 (Grow economy 4-6%). For information on the status of Promise #13 (Impose tariffs on many imports) and other related 2016 campaign promises, see the Trump 2016 Campaign Promises blog @ http://trumpcampaignpromises.blogspot.com
Can the bureaucrats who would have to carry out Trump's tariff order all retire en masse? A Saturday Night Massacre in economics?
Who can say "NO" to POTUS?
1
Any economics undergraduate learns that Adam Smith and David Ricardo laid the framework for eliminating the destructive effects of mercantilism. But as Trump reinstates mercantilism, we have to ask how his chief trade advisor, Peter Navarro, came to embrace mercantilism against all common sense that it reduces global economic welfare.
So, the Harvard Economics Department should reflect on which of its faculty supervised Navarro's PhD dissertation, and the influence of that spawn on Trump's terribly dumb trade policy.
3
The trade imbalance seems to have been made worse by the short-lived Bush's 30% steel tariffs in March 2002.
Of course Trump will follow through, both because it's a "truly terrible, dumb policy idea" and because it's one of the only ideas he's had for some time.
The impact will be devastating in midwest states such as Nebraska and Iowa. They have cut or are about to cut taxes (Nebraska is already slashing public programs such as higher education). The damage to the dollar will undermine the pillar of their economies, and retaliation by China, Brazil and others will directly target the agricultural sector.
All this begs the question: why hasn't his economic team, starting with Donald Cohn, resigned en masse?
2
Donald Trump will reek havoc with our Canadian economy yet I support Donald Trump because the USA cannot be trusted.
Since Reagan was elected and our neoliberal Prime Minister Brian the all-American Mulroney played Reagan like a dime store violin the Canadian electorate lost control of industries that allowed for Canada to follow our own road.
We are a 21st century liberal democracy without the freedom to follow our own ethics and morals because we are owned by a nation whose motto is "Greed is Good."
I know that the majority of Americans are decent , moral ethical but everyday America is more cynical and amoral as you follow the same path that the USSR followed with the death of Communism.
The daily soap opera we see every day reminds us that the USA is becoming more like Putin's Russia and less like Canada.
Russia and the USA have become two peas in the same pod. Power is more concentrated in the hands of the corrupt and those that acquiesce to participate in a system that writes new rules every day that benefit the rich, the powerful and the corrupt. Every day the flag and the religion grow larger.
I realize the Canadian values and democracy that have blossomed in the last 40 years cannot continue by being owned and controlled by the USA. If you want to see Kleptocracy and Nationalism in action visit what should be the greatest city in the world Montreal. It is a Trumpian Heaven where people who hate cities and all their diversity are in control of a city they detest.
1
Wilbur Ross appears to be heavily involved in the Steel industry:
https://www.mintpressnews.com/wilbur-ross-may-have-the-biggest-conflicts...
Apparently conflicts of interest don't matter to this administration. Wilbur may be surprised that he doesn't have the same protections as the president. At the very least he should recuse himself from issues regarding the steel.industry.
2
If Mueller doesn't come up with a Trump removal plan in the near future we are stuck in limbo waiting for our non president to impulsively blow up the economy and the government.
We have no one to look to for stability and have no escape plan out of this Trump conceived nightmare!
3
It doesn't take a Nobel Prize winning economist to figure this one out. What will really happen is in 18 to 24 months the rate at which money changes hands will start to slow down. People will buy less items like foreign cars if the buffoon in Chief places a tariff on imported cars, but people will just buy less stuff as prices go up on everything. You might pay less taxes next year but you also may find your line 37 is less and your net worth is less. And here is the real effect. You steel and aluminum workers might be happy today, but inflation can also bring recession. And don't think just because your company may produce more steel in the short run your wages will go up. They won't. And a recession will diminish the work force. We've tried this stunt before. We even tried it during the Depression. It failed miserably then and it will fail miserably now. It's about the only thing in economic theory that can reliably be predicted.
2
Steel is not the best metal in 21st Century world of things with better tensile strength.
Trump has been calling for tariffs and trade wars his entire life. He railed about it in a graduation speech at Lehigh University in the 80's that had the same coherence as Wayne LaPierie at CPAC. *Which makes one ponder the question, "Is bad-hair a positive indicator of lunacy?"
No turning back now as the Trump-voters have spoken, putting the economy into the hands of a businessman with an outstanding record of bankruptcies, not business successes.
*Just for argument's sake, check out the hair styles on anyone you know who voted for Trump. Flowbee-worthy? I knew it! It shows in their decision making!
1
Dumbness seems to be a hallmark of trumpism, hold on it is going to be a bumpy ride.
1
I'm glad Krugman can explain macro-economics to us, at least those that will listen.
When he speaks of, 'terrible, dumb policy', I think of our entire system which has created this modern-day Gilded Age with oligarchs and plutocrats with hundreds of millions and tens of billions of dollars. I think the top 10 richest people in America are 'worth' about as much as half the country. But, that's not the truth. If you have no home, no stocks, no savings, then you really have nothing, short of paycheck-to-paycheck desperation. Our 'policy' has produced a very diseased democracy.
We need clear, concise answers to this. Straight talk. Sorry, we may be 'losers' electorally, but at least be truthful. Higher tax rates on those with millions and billions. Single-payer health care, just like the military receives (they deserve it, and so do we). Public-financed mass transit, education, housing, infrastructure, clean energy, with all of these of 'affordable' natures.
No, I can't listen to the greedy, self-centered right-wing capitalists, masquerading as patriots and/or Christians any longer. I've seen my country fall, fall into criminal seas of inequality & inequity. I've seen the country I love follow greed into destructive levels of concentrated wealth, income, property and power. I've seen the most fake claim to love this land, then take as much as they possibly can. My God, we elected their leader.
So, we follow the madness of moneychangers, until the reckoning, that I pray comes.
3
Does all this have more to do with increasing the costs of other real estate developers rather than helping the Rust Belt? How much cheap Chinese steel built the frames of Trump Towers across the globe?
1
Thank you again, Prof Krugman, for your straightforward analysis - especially in this, your Nobel-prize-winning area of expertise.
2
The President of the United States is using the wrong figure for the trade gap.
The President of the United States said guns should be seized, then due process followed.
The President of the United States is a runaway train.
Trump wants to say he "renegotiated NAFTA," whatever that means. I think he's using the steel and aluminum tariffs as leverage against Canada and Mexico. He's deflecting onto China in the hopes that people directly affected by these tariffs don't catch on that he's also using their jobs as bargaining chips.
What he doesn't seem to realize is that he's shutting down trade between the world and the US and making it very easy for other countries to fill the void. China is, as it usually is with Trump's trade tantrums, set to be the winner in this again.
Mexico and Canada will likely hold firm. Mexico won a trade dispute over trucking a few years back so there's precedent that retaliatory tariffs have some effect. And, Trump has been so abusive to Mexico's politicians that there's no way they'll just roll over.
Hope you like sorghum and Harley's Trump voters. You're going to have to buy a lot of that kind of thing to keep American's working once those products and others are blocked from selling outside the US.
4
The horror show continues. Complete abdication of responsibility.
2
Never mind your data-based rational analysis. We Americans are tired of facts. We operate on emotions and sticking it to other countries who have taken advantage of our timidity to inflict a devastating trade deficit upon our once great country and, together with brown skinned foreigners, have conspired to keep us from being great again would be so satisfying! We would be great again regardless of the numbers.
For those who're counting (hello, Paul), the trade deficit in 2017 for Goods and Services was actually $566 Billion, which is up 12.1% from 2016 and 28.9% from 2009-1010. The trade deficit in Goods alone, to which Trump refers, WAS $810 Billion last year, up 7.6% and 14.2%, respectively. Courtesy US Census Bureau.
Now, about that underemployment rate, Paul. Politicians and lazy economists love to use the U-3 rate which is hovering around 4%. Honest analysts prefer the U-6 rate which is around 8%. Sticklers also add a fudge factor for the deep structural underemployment that creates a further drag on the US economy.
Trump's tariffs are not going to start a Trade War, because the War has been raging for decades, and we are the losers. Just look at all of the macroeconomic indicators.
In the long run - that long run your economic idol referred to - our current economic policies will cause widespread dislocation that will make the Great Depression look like a vacation in Bali.
The only thing that can really explain this is that he and his smaller and smaller administration are working for foreign powers to destroy our economy and make a pile of money along the way for themselves. Those are the economics driving this administration.
1
Trump's diet. Right.
Anything to ignore 1.5 billion elephants in the room.
Trump is right. Globalization failed. And the "world trading system" has failed.
He's dangerous, but, in this particular case, he's right about the big picture, which is more than the globalization zealots can say.
And it's about to cause widespread social unrest across the developed world.
Can't wait for somebody--anybody--at the NYT to comment on the content in the Economist's stunning cover story this week about "How the West Got China Wrong" in the context of all this "TRUMP'S TRADE WAR!" hyperbole.
The world's biggest neoliberal, free-market capitalism, globalization cheerleader just said that Trump is right, and all the "experts", including Krugman, have been wrong about China and globalization for the past 25 years.
That bears repeating.
The Economist said that Trump. Is. Right.
It is a scathing indictment of our economic system, our trade policies, and the extraordinary scale and scope of the naive recklessness of the past 25 years.
It turns out that the "ignorant trade hawks" were right. And 99% of our elites were dead wrong.
It is a staggering admission, and the repercussions will be dire.
"The West has lost its bet on China", said The Economist, which had the courage to admit it has been spectacularly wrong about what historians may judge to be one of the biggest gambles in history.
The question is: Is there anybody at this newspaper courageous enough to do the same?
It is obvious that Trump wishes to destroy our government and he favors chaus and anarchy as he goes on his kleptocratic merry way. The question is who can stop this insanity and how.
Other than a heart attack or being hit in the head by a hard driven golf ball, only congress can stop this coming trade war which means includes the GOP majority.
It is time for a delegation of the of the leaders of both parties to take a trip to the White House. The message should be clear. This time you have gone to far. Mr. President. You shall not cause a trade war followed by a depression. You have a choice.
You shall forget about tarifs and trade wars and say so today or we will impeach you and there are enough votes to convict you in the Senate. And no, you will not start a nuclear war, because arrangements have been made. It is either that or the 25th amendment. Or your resignation. If you resign and only if you resign will president Pense grant you a pardon. Otherwise, we leave you for Mr. Mueller.
Dream on Sheldon. Two things about the GOP (1) its party over country every time and (2) once bought they stay bought, it’s a matter of honor. Oh well, we are heading for a government shut down anyway.
1
I am sure that Steve Mnuchin will come up with a set of numbers and algorithms and mumbo jumbo voodoo things to justify anything his boss does. As he says the changes to Dodd Frank will now help small banks from getting swallowed up. I do feel for small banks. I feel also for hedge funds and equity funds and pay day lenders. They are born as dreamers too. Don't forget that as we crunch numbers along with our Rice Crispies.
The true trickle down affect will be to hurt most lower income workers and those on fixed incomes. Inflation will drive down buying power and put greater stress on problems like buying food and paying the rent or mortgage. Those laid off by companies hurt by this tariff or companies that throw in the towel and relocate overseas will put stress on unemployment benefits. So why don't we get even with China and shoot ourselves in the foot?
1
Trump is not a trade theorist so why bother. He will not be blinded by the facts.
2
This issue goes away on March 13th once the special house election in Western PA is over.
My guess is that Trump won't act. That little election in steel country is probably already impacted. He will try to delay any action until after March 13, and then he'll say, forget it. People of PA, if you are thinking to jump back into Crazy Trump's camp just due to this announcement, don't do it. Make him follow through before you vote! If you don't see this enacted before March 13, go and vote against this lying narcissist and punish him for trying to swindle you out of your vote! His buddy Carl Icahn has already made a lot of money on this, and you can get there are some Russian oligarchs profiting as well.
2
This is why Smoot is such a onomatopoeic word. Smoot just sounds like something awful.
Smoot is of the infamous Smoot-Hawley tariffs that helped start the Great Depression.
And Smoot shall bring him down.
1
Dr. Krugman, could you privately reach out to the Oval Office, as a patriot, asap, in the attempt to establish a crash, "back channel" economics seminar to educate you know who in some basic macro/international trade principles. If successful, re your potential 71 year old "student", you'll be a shoo-in for a second Nobel!
Now that the newspapers are full of articles about how dumb this plan is, there's no way Trump will back down.
Instead, America's economists and business leaders should have pooled their extra cash and used the money to negotiate a loan for Kushner with the stipulation that the tariffs go away.
1
I teach courses in 20th-century US history and have often told my students that the Smoot-Hawley Tariff of 1930 was the single dumbest (yes, dumbest) piece of legislation ever passed by Congress. It helped turn what likely would have been a garden-variety recession into a catastrophic depression. And now our president, who allegedly graduated with a Wharton School degree, offers us the second coming of Smoot-Hawley.
2
Autarky, a country with a self-efficient economy that imports nothing, was one of many loony ideas that Benito Mussolini had. Like most of Mussolini's ideas, it didn't work. But apparently Trump is going to give it another try anyway.
1
Trump tweets: "...[other countries] laugh at what fools our leaders have been. No more!" The dramatic irony here is so thick it would be a cliche if you saw it in a movie. The reality is that other countries are laughing at the fool in the Oval Office more than at any president in living memory, even as they proceed to play him like a violin.
3
I have to admit, no politician ever made me laugh that much. He's a self-caricature with autocratic tendencies, but he is hilarious. I still can't fathom how America could elect such a buffoonish man, but I have to admit his drain the swamp mantra makes sense. The funny thing is that the US spend an extravagant amount of money in elections that drives low to very low voter turnouts, and the US congress looks like corrupt to its core. You should stop veneering an antiquated constitution and start over before it's too late
Good last line, Paul. First time you ever made me laugh.
I think Trump'll back down. He's a total coward. But perhaps not until Obama's consecutive months of growth has been broken.
Trump is exhibit A for white privilege. And money privilege. How else could someone so dense make it into the White House? This is going to end badly and Trump's base supporters will I think pay the highest price.
1
Just more of Trump's and the GOP's operating principle: "If it's really stupid, we're for it", as Prof. Krugman notes in the last sentence.
1
Trump has demonstrated he is an anarchist. Dismantling government agencies is one thing but wreaking havoc on the world economy is quite another. Acting upon the ridiculous sound bites amplified by Fox News that resonated with some very ignorant members of his base has become the basis of his new world disorder.
I continue to pray to Mueller every night...
1
Dumb policy ideas are Trump's stock-in-trade. Everyone shoud be use to it by now.
1
How many times did Trump Inc declare bankruptcy? Six times! Now we know why. Stupid, irrational emotional decisions made in angst instead of a thoroughly evaluated choices made with plenty of valid data and expert advice. With all due respect to the office of the presidency, we have to come to conclusion that our current president truly is as dumb as an ox (with apologies to our bovine mammalian brothers). Maybe this is the catalyst for a consensus for impeachment by both parties. I mean, if all the Republican megadonors and everyone in his cabinet are going to lose their shirts now too, maybe it's time.
1
don't pay any attention to Wilbur Ross behind that curtain! I am the great and powerful Oz!
Seems like another disruption of U.S. activity that Vladimir would love to see.
PROSECUTE RUSSIAGATE!
1
Ignorance and evilness, what a mix!
2
So, are we supposed to just accept our 500 billion trade deficit as a permanent condition?
If not, what should we do about it? I'm hearing a lot of criticism of
Trump but I have yet to hear of a viable strategy alternative.
1
Here's one - focus on reducing your budget deficit.
It's the budget deficits that lets the US by more than it sells.
Unfortunately Trump is doing the exact opposite - he's exploding the deficit.
He's really a staggering fool, and his supporters are just disappointing. (mentally)
4
I'm no economist so maybe I'm missing something. But Trump's surrogate Wilbur Ross has been all over the talk shows,CNN, etc., telling us that consumers won't even notice the tiny increase in prices of finished goods (Campell soup cans, automobiles). Assume that's true; doesn't this prove too much? If consumers don't care or don't even notice the tiny increase in prices when manufacturers pass along the increased cost due to the tariffs, why do the manufacturers care about the tariff at all?
As I understand it, the purpose of the tariffs is to get US manufacturers of goods that incorporate steel or aluminum to switch from foreign steel/aluminum producers to domestic ones. But if the manufacturers can pass along the tiny increase in their overall costs to the ultimate consumer, what incentive do such companies have to switch steel/aluminum vendors in the first place? Especially since it may take a considerable period of time for domestic stee/aluminum manufacturers to build out new production capacity?
5
100 % correct. Tariffs are never a logical strategy.
They are like trickle down economics where wishful thinking is combined with innumeracy.
2
that's only if there are not retaliatory tariffs imposed by our trading partners. Europeans have already suggested tariffs on Levi's, Harley Davidsons, and a couple of other American iconic products ...... sort of like a hot real war ... once someone starts shooting, a lot more follow suit ... much harder to get it to stop than start
1
One thing I can't quite understand is the relationship between US having consumption-based economy and trade deficits. Compared with German society where people consume less and save more and, by design, also manufacture more, aren't we set for huge trade deficits by design?
6
I'm sure Trump thinks he can bully the Fed into not raising interest rates. With threats of firing them, at least the Chair.
2
If Putin wanted to sabotage the alliances, economies, and good will amongst Western allies, he couldn’t pick a better dirty bomb than Donald Trump.
19
President Trump showcased his authoritarian tendencies. Just as he praised the Chinese leader for ending term limits.
He is simply unaccountable because Republicans fell into a coma since that self-dealing tax bill.
It's a very big deal that there was no strategy to inform partners in trade or cabinet members.
That Thursday meeting was supposed to be a listening session. And not long after, an incoherent Wilbur Ross was televised holding cans, referencing percentages--- and you knew we were in big trouble. Bigly.
2
You got it exactly right. Because it is a very dumb policy the liar-in-chief Trump will follow through.
On the other hand when you talked about his trade war will inflict a large pain on the USA I think you may be wrong. No pain can be larger than the fact he is sitting in the Oval Office so I think the new pain will be very bearable.
1
The Nobel Laureate does not get politics.
2
" So it’s worth asking what would happen if Trump really did try to close the trade gap – it’s actually $500 billion, not $800 billion, but who’s counting – by imposing tariffs. "
Accounting apolitically is important. The March 1st column contains inaccurate math , understating the yearly " benefit " by $3 ( which en masse crosses the ' pretty soon we're talking about real money ' threshold pretty quick ) :
"...Ryan celebrated the tax cut with a tweet about a teacher saving $1.50 a week on her taxes; that’s like saying you should feel grateful for a “gift” that’s actually being charged to your own credit card. How’s that $75-a-year saving going to look when the teacher finds out that, partly because of that tax cut ... "
But nitpicking . The country at large's wasting some banally dim days slogging through this administration's swamp of inchoate , America Last policy .
1
A trade war is as difficult to manage as a shooting war, and even if well managed, neither side ever wins either. As had been said, "War is the continuation of politics by other means."
Which is to say that all wars are failures to manage the balance of power and advantage in real time. Have we failed in that? It's a complex question requiring complex judgement.
If we've failed here and there, then simple targeted rebalancing adjustments are required that should not trigger more than protest from the other side.
But Trump needs to impress his base. His goal is never the overall good of the country, but always a need to give an emotional boost to his Trumpsters.
He knows they need their daily fix and that they'll cheer even if it kills them. This is the reality and all the well considered commentary on trade policy is normalizing zombie behavior.
Over one-third of the country is brain-dead. They're addicted to anger and stupidity. Trump, like any good salesperson, is just channeling their reptile brains.
Our daily focus on Trump misses the real problem - that fake news programming is continually manipulating one-third of the votes. Where is the strategy to unwind this?
This programming is a far greater threat to our future than a trade war. It's domestic terrorism of the worst kind. One-third of our voting citizens have become addicted to a terrorism that's destroying our country - yet they each believe they're patriots.
6
Trump wants a trade war to feed his narcissist, bully, sociopathic ego which enjoys causing pain to perceived enemies. He's quite sick. WaPo is reporting chaos and madness in the White House these days and it will get worse before it ends.
Nations may retaliate by erecting tariffs on U.S. agricultural products, with brutal effect on our farm exports. Pain will be felt at every grain elevator in flyover country and hurt everyone out there with a MAGA hat.
Battered farmers will drive a tractorcade of combines up Constitution Ave as in the Carter era. When GOP pols see their farm boys whizzing in the reflecting pool they'll dust off the 25th Amendment and say: Donald, YOU'RE FIRED.
3
Perhaps Trump's goal is to inflict pain.....
2
Coming from a part of the country that was pulverized by NAFTA, I can fully understand that these trade deals never had in mind the communities and people left behind who were impoverished and demoralized. I am also very cognizant of the need for globalization. When Trump got rid of the Transpacific Trade Agreement, with his lack of wisdom and foresight, he handed China a bonus while keeping the US operating under trade deficits. It appears his new trumped-up plan to raise tariffs will have a more destructive effect and that doesn't even take into account the lack of credibility placed on America by our former trading partners.
5
The big enemy has been described as China. However China is #10 on the list of steel importers. Its Canada thats #1. Another important point is that the steel mills today are very different then 10 years ago. Automation is now the important employee not humans. There will not be the new jobs as thought.
The real job story will be the thousands of jobs lost by associated industries that will shut down due to decrease production from the tariffs etc. that will certainly follow.
1
Canada buys more steel from the usa than we sell to you. LIES AND DISTORTIONS. We have a trade deficit with the usa.
1
Trade War wow. Now the left is going to scare everyone with a new boggy thing. It will work really well just like opposition to T rumps tax cut did. There are two political points to make: first, the election is only 8 months away and it is not likely that a trade problem will effect most people by then. Second, much of the American working class as been hurt by the death of 1000 cuts that the deindustrialization of the US over the last 25 years and the emotional response is/will be "oh's about time that we pushed back". Democrats need to counter with a strong pro America economic plan (probably really targeting run away corporations and senior management pay) that both helps the country do well and helps people fell like We are uncharge of our own destiny again. We are in an age of new nationalism and to ignore that will perpetuate the power of the rightists who re now in charge.
2
We will soon see serious cracks in Trump's chaotic economy and the whole "nationalism" thingy will fizzle out. Promoting "nationalism" on borrowed money only gets you this far....
2
History documents that one of the principle causes of WW1 (The Great War) was nationalism played out through trade gouging amongst nation-states that lead to massive mistrusts.
3
There is no question that free trade benefits the American economy. The fact that a large part of the benefits go to owners of businesses and not to workers is not the point. If you want fairer distribution you need to tax the rich and redistribute to the working class. Anyone for free medical care and higher education? But instead, Trump has gone for the double whammy to the working class - higher prices for goods through tariffs AND bigger tax breaks for the rich paid for by borrowing money. And guess who is going to bear the cost of that massive borrowing? Not Trump surely!
15
Apparently the underlying issues continue to be that folks don't understand the interconnectedness of the world economy, and they refuse to let go of this, "Why, it's just like balancing your checkbook!" nonsense.
They also seem to think that it's a nifty idea to have a President firing off tariffs while he's in a massive snit--quite possibly because he's IN a massive snit--that maybe helping a total of 80, 000 workers while sticking it to millions more is a Good Idea, and that somehow, magically, we'll just start making all that steel and 'luminum here at home.
Folks, the magically-updated parts of Bethlehem Steel are not in mothballs someplace under all the Walmarts in Texas.
Oh, and remember infrastructure? Guess what modernizing infrastructure uses by way of raw materials.
3
There are moments when the lowest person in an organization knows more about the organization than the man at the top. But an organization is dysfunctional when the bottom always knows more than the top
2
Well, the possible trade war got the high school shooting and Trump's flip flops on gun control off the front page. Now, Trump and the NRA want to arm educators. Imagine the economic effects on efforts to recruit teachers, say in West Virginia where teachers are now on strike over low pay.
But, let's remember that trade wars can turn in to hot wars. Japan went to war over the U.S. trade embargo.
This president is a menace to the U.S. economy, the world economy, and to peace.
5
The generation which lived through the Depression and WW2 is largely gone. So the old lessons have to be learned all over again. This time around, with inequality at levels not seen since the 1920s, America has returned to a level of corruption in government which would make Warren Harding's cabinet blush in shame. No wonder then there is pressure for other measures harking back to the 1920s and 1930s: racially discriminatory immigration restrictions and "beggar my neighbor" tariffs. The world's last experience in the 1930s with a demented leader of a major world power did not end well, when 100 million are estimated to have died in WW2. We still do not know the bill in harm to humanity and the planet that will be presented as a result of Donald Trump's presidency. It will probably be large unless he is stopped soon.
6
"Because the US is close to full employment."
The pro-business liberals are still trying to get us to forget that we currently sport the lowest labor participation rate in several decades.
And is Krugman trying to play down the trade deficit which, in the past, he has admitted is a drag on the economy?
The truth is, tariffs are one way to decrease that deficit, and discontinuing strong dollar policies is another, preferable means - but the .1% are against either of those means because it affects their bottom lines, and really, the .1% don't care about the domestic economy. The economy is blowing oil, everyone knows that (not all admit it) but the .1% now have access to pools of desperate labor around he globe - and access to markets around the globe, so there's no sincere concern for the domestic economy.
So the establishment economists want us to believe that everything is fine with the economy.....nothing to see here folks.....go shopping...
1
Well, if other nations retaliate, then we would export less so the unemployment rate would stay the same. So, no problem!
Mr. Trump has already angered some 1.8 billion Muslims across the world with some of his foreign policy decisions. In the long run that anger is bond to impact US exports adversely. Add to that a major trade war, and you will be looking at a deep recession on the horizon.
2
Mr. Krugman, How dare you challenge President Trump's ideas about the Economy. He is a graduate of the Wharton School. And he is very very smart, probably a genius. He knows more than the economists. He knows more about everything than anybody. You just wait and see how well everyone does after Trump imposes these tariffs. And just in case things don't work out as he has predicted, that's o.k. because it is all Obama's fault anyway.
3
Yes, let's have that war and win it. This would be so that this country can look like the countries that I visit on vacation. It seems that everywhere else, mass transportation, parks, shopping, jobs, YOU NAME IT, these places are way ahead of us. I thought we were the Greatest Generation? The winners and the influence of the World to a better life. It seems that we are lagging behind. Europe is gorgeous. Have you seen the trains in Japan? How about China? You would be embarrassed.
5
They don't spend trillions on crazy wars.
2
If a 20% tariff is imposed on steel and aluminum imports, any US made products that use aluminum and steel become more expensive. In the short-run this means prices of those products go up, fewer of those products are sold and fewer workers will be needed to produce them.
In the long-run, manufacturing of those products would also move overseas. Unless specific tariffs are imposed on the various finished goods the tariffs on steel and aluminum will be bypassed by importing them in the form of finished goods.
5
Beyond noting that a) a writer gets to write about what they want to write about, and if you want to write about the microeconomics, write your own write, and b) i generally try to avoid lecturing Nobelists on their ignorance of the field they got their Nobel in...
Well, it's pretty hilarious to see that apparently Trump has been reading his Hamilton and other economists.
The efforts to pretend that these tariffs came out of consideration of anything other than hurt feelings, the insistence on turning back the clock to 1955, I find a lot less funny.
Especially since the onliest way those coal and steel jobs come back is through massive government subsidy, which last I checked is not exactly a Tea Party principle.
1
Here's how to get those steel and coal jobs back: repeal the laws of thermodynamics, and issue a law requiring the Earth to keep high-grade deposits of coal and iron ore at the same levels as those of the 1930s.
The First Law of Thermodynamics states that matter/energy cannot be created or destroyed - which means that when the ore is gone, it's gone. The deposits of high-grade iron ore in the US are mined out. Today's US coal mines are reduced to mountain-top removal to get at seams too thin to exploit through traditional mining.
Of course, we could plant peat bogs everywhere, and wait a few million years for new oil and coal deposits to form. If the Yellowstone super-volcano blows, maybe it'll bring some high-grade iron ore to the surface. Absent this, however, coal and iron mining jobs won't be coming back to the US any more than gold and silver mining jobs came back to those ghost towns in the West.
As to jobs in the steel industry, hauling raw ore from the mines in Australia and China isn't practical - cheaper to produce steel from the ore from mills closer to the mines.
The days of unlimited resources are at an end. Time to start planning for the future rather than trying to bring back the past.
5
Let's start from the end - the little rejoinder that globalists always throw in there ... " and the fact that we’d be alienating key allies ..." This expresses the idea that America somehow owes it to provide sustenance to the world even as it weakens her ... Well, America is discovering that she owes the world no favors. Liberals like Krugman love Europe. Yet, Europe somehow manages with a 10% tarriff on imports from Mexico and other cheap labor countries ? Given Krugman's prediction, why aren't they in financial ruin ? Oh wait ...
Second, he contradicts himself. He talks of inflationary pressures - "especially because a 20 percent tariff would directly raise prices by something like 3 percent". But then he says that the result would be to "drive up the dollar, inflicting severe harm on U.S. export sectors." The last time I checked, inflation tends to lower the value of currency - not increase it. Instead, Krugman is basing his "sharp at both ends" stick on a hawkish Federal Reserve. But weren't liberal economists encouraging prior Fed Reserve Chairman Yellen to accept some inflation as a warranted affliction on well-heeled bondholders and an elixir to facilitate some wage increases ? What is it they say about what is good for the goose ?
1
we could not follow this Princeton logic. America sells boodles of tax subsidized products all over the globe. We don't give it away. But if you know of an industrialized trading partner getting free bourbon, blue jeans, fruit, or rice, let us know. We could use a vacation, a stiff drink, some new jeans....
1
Thanks for weighing in on this issue. I suspect the President's announcement had more to do with domestic politics than macroeconomics and I believe he may also be seeing this announcement as a means of changing the discussion topic -- a distraction.
You are absolutely correct in your analysis. History suggests that this unilateral action (outside the WTO) will probably lead to inflation and a commensurate response by the Federal Reserve.
With that said, I think our 500 Billion trade deficit needs analysis so that a policy response can be formulated that will increase financial stability. The U.S. has the potential to out-innovate other countries in the highly integrated global market. There really is no reason that we can't create the highest value products in the World unless there are real natural resource barriers that give competitors a comparative advantage (cobalt).
We have the potential to create the lowest cost electric power in the World by investing in space solar. We also know how to use cheap electric power to create synthetic jet fuel. Cheap electric power can speed logistics with electric delivery vans transported long distances with a 300 mph, all-weather Maglev network and make our highways safer and less congested. Everything will be more competitive with cheap electricity.
Somehow, I feel that our established industries are resisting innovation. Clearly, we need to up our game, in all our global trade. Protective tariffs are not the answer.
2
Dr. K,
I have had the benefit of listening to Secretary Ross explain why the aluminum and steel tariffs are a good thing. He particular elaborated on the history of US trade since the end of WWII and explained how we had let our trading partners get away with unfair practices that allowed them to move their products into our markets but established barriers in their markets that disadvantaged American suppliers. I think that there is some truth in his history but I believe his analysis is lacking.
My case, simply, why aluminum? why steel? there are hundreds of categories from other countries that either hold a larger share of the global market or a larger share of the US market, There are some activities out 1000's of trade categories that may be receiving subsidies or protections that create an unlevel playing field that should be dealt with in the public forum as violators of free trade, or as unfair competition (dumping below the cost of production a perineal problem in cement). We have had plenty of those cases since WWII and some are tough like the long-standing political opposition to US agricultural products in Japan but these can be settled without resorting to tariffs and the risk of a trade war, which benefits no one.
This would mean more if there was more of a rationale for these two commodities. Aluminum and modern steel making is very sensitive to the cost of electricity. Canada has an advantage in very cheap hydroelectric power that benefits all.
2
Does this mean tariffs would be added to Ivanka's clothing lines that are produced in overseas sweatshops?
2
@ susan...my favourite comment in all this severely depressing news from a Canadian perspective. And do not forget old man trump's garbage that he also manufactures in China.
1
What I'd like to know is which of his "brilliant and passionate" Cabinet members and advisors - each of whom I am told is committed to "[making the USA] independent and creat[ing] vast new wealth [and] millions of new jobs.. for our Nation" - told him that making our supplies of raw manufacturing material constrained and more expense would "make America great again"?
I'd also like to know which Wharton School of Business professors circa 1968 wish that they'd have sent him down before he had a chance to soil their School's good name?!
2
For a better understanding of what propelled Trumps popularity I would suggest a look at British photographers Mark Powers photographic documentary “the collapse of the American Dream”, a much better metric in particular if accompanied by Mr. Chandlers essay and for good measure a healthy discussion on the “Quality” of jobs created and how for the most part the gig economy, as opposed to the old economy that tariffs just might bring back if enforced, does not allow a decent life for most Americans. Wonks can blather on endlessly with their statistics and can always find a set of stats that support their position from a think tank that supports their point of view, that’s all up for debate but spending five years crisscrossing America as did Mr. Powers and documenting with pictures where we really are in the “ full employment” scenario discussed by Dr. Krugman lends an indisputable amount of gravitas to the debate. As a footnote, in ironies of irony, there was an ad for a personal jet above this article on Mr. Powers in The F.T. No doubt aimed at the one percent of newly minted billionaires resulting from globalization and the complicity of economists to continue the support of policies that have so damaged America and Europe’s working class, perhaps they should keep them at their ready to escape to one of their much chronicled “bolt holes” around the world should anarchy arise as a result of their greed.
This was a good explanation of what would happen with across the board tariffs, but Trump is proposing tariffs on steel and aluminum, not across the board tariffs.
What are the effects of that?
I just thought of a simple situation. Say I was a manufacturer of refrigeration equipment with facilities in several countries and I distribute my products worldwide (like Carrier).
If I see my raw materials prices going up, I would shift the manufacturing to the other countries (and I wouldn’t feel the least bit sorry for taking those jobs away, because you changed the rules).
4
Isn't it possible that some American manufacturers could move overseas in order to maintain their cheaper supply chain? Why would they stay here, with our uncertain trade policies, when they could find the stability they desire abroad? This whole exercise could wind up costing us jobs.
4
Campell Soups just closed their Canadian plant in Ontario and moved it to the usa. Spitz seeds...a Canadian developed firm bought out by pepsico just closed their new plant outside Calgary and moved it to the usa. Personally I opposed NAFTA...I feel.it has hurt Canada.
But if NAFTA dies the usa will lose many Canadian nurses and doctors and other professionals....NAFTA Visas.
1
I'm glad I studied economics in college, because this post was really wonkish and probably opaque to people who are not familiar with macroeconomic theory, charts, etc..
Nevertheless, thank you for making necessary points about the immediate and ripple effects of Trump's horrible tariff policy.
He appears determined to steal George W. Bush's place as the worst president, and worst Republican president, of the last 100 years.
5
Isn't it possible that domestic steel and aluminum producers will do nothing except raise prices? Investing in new production capacity may be too much of a gamble if a change in government policy can make the investment not pay off.
As a side note, from the graph showing much increased trade deficits just before the financial crisis, is it possible that this big dollar drain from the US economy was a factor in creating the crisis?
1
They will raise prices AND increase plant utilization (activate mothballed equipment and hire some people to run it); proposed tariff of 25% is not large enough to justify huge new investment since the cost to build a new steel mill here is greater than elsewhere in the world by more than 25% (permit delays, cost of environmental protections, contractors' profit margins and to some extent the cost of construction labor).
And yes, the influx of "stupid" excess dollars from abroad was one of the factors contributing to the financial crisis via increase in demand for bad financial products like CDOs.
Perhaps, some added growth could come from those who are out of the work force finding jobs in one of the newly protected manufacturing industries. This might have a neutral affect on the unemployment rate, but a positive affect on inflation. On net, the Fed would likely respond as Dr. Krugman suggests in order to properly keep the economy on an even keel. Would that tamp down real estate? In areas that rely on low cap rates and high leverage like New York, San Francisco, Washington, DC? Probably, particularly since construction becomes only more expensive with pricier inputs. But in other parts of the country where real estate isn't so "go go" and there are numerous folks out of the work force? Perhaps the sector gets a "shot in the arm." All of the above assumes, as Dr. Krugman does, that all other things remain equal, which is impossible.
3
Maybe T-Rump is reading Alexander Hamilton and Friedrich List when he is not twittering. There was innovation, automation and productivity gains in the 19th century, but also growing employment and rising wages.
Yes, the tariff is a tax, but so are income and sales taxes, excises and luxury taxes. All raise prices, directly or indirectly. T-Rump was in favour of lower taxes. Isn't that good?
BTW, the entire issue of trade hinges not on macro but on micro-economic outcomes. The alleged benefits f trade accrue not to everyone; many are severely hurt. As well, the share of capital income in GDP has risen markedly since the Reagan era: globalization of finance and trade and suppression of wages in advanced countries, e.g., the US.
Unless Krugman attends to the distributional effects of trade, he really has nothing of value to say to the average voter.
2
No, Trump is not reading Hamilton and Friedrich List while not twittering. He's watching TV - and there is not a lot of economics to be learned from Fox News.
2
These charts are all well and good, but good economics does not always make good policy. Economists see rising standards of living throughout the world because of free trade, but they don't mention they sacrificed many blue collar American workers along the way. Just a lot of hand waving and talk of automation and "retraining". The trade deals we have with China and Mexico are not good nor fair, and should have been fixed years ago. But now Trump wants to take on the whole world, and that will end badly for everyone.
9
The world does NOT owe you a living: that includes blue collar and white collar workers. It is up to each of us to find an occupation that is in demand, and seek out employment. There are not very many blacksmiths left in the United States. Times and occupations change. We are fortunate that we have education opportunities for all kinds off occupations in the United States.
1
Sigh. It's not hand-waving to notice that mature and developng economies are different, that automation matters, and that it's not 1955.
But by all means, DETAIL what's wrong with NAFTA. For extra credit, explain why if TPP's so bad, China is now happily leading it.
1
Rather than free trade, we should be aiming for balanced trade, smart guy. You throw large amounts of middle America out of work, and you get Trump.
Higher rates and prices, tighter labor, all work in Trump's business interests and those of his closest friends. Some only look at Icahn and Schwartzman but there is Kravis and Friedman too (all those affiliated hedge funds). Many others. Go back to 2008 and follow the money. Higher rates will push more to the rental market, finally salvaging post 2008 crisis, still under water residential and commercial real estate. Something the Trump consortium needs in order to finally exit all those housing and strip mall tracts they packaged into REIT's that until last year remained balance sheet challenged and hard pressed to sell. What a gift. Same goes for Trump and Pence donors (also interesting 13F patterns since the election-- follow those Indiana donors most of all) who benefit on the infrastructure and energy side as prices continue to rise, again salvaging depressed valuations. You waste far too much time in the red herring, Trump's obvious deflection strategy works well. There won't be any trade war that doesn't benefit Trump and his friends directly.
10
And you're making the mistake of believing, against all evidence, that Trump is a competent businessman and conspirator. And in control.
1
Does anyone else note the great irony of Trump inveighing against trade agreements, when these FTAs have been put forward and made law at the express initiative of the multinational corporations? The same multinationals that support Trump because he maintains and exacerbates the huge gulf between their wealth and the serfs on the ground here in the USA? Can we say, disingenuous his support for autarky, an economic basis that simply does not work in our modern era?
14
Import duties and trade wars will not help American workers. They sound good, and that’s really all Trump understands and cares about. What would really help American workers is to enact universal and portable health care, family assistance policies, and enhanced labor rights. Of course, Trump and the GOP are doing exactly the opposite since they really care about one thing only, making the rich richer.
16
It takes two to tango. Right now the partisan talk of a trade war is fear mongering. Trump has unilaterally announced tariffs to reduce trade deficits and make it attractive to create jobs in the manufacturing sector and even the traditional democratic vote bank, the unions seem to have applauded this step. There is panic but no one else has retaliated and if they do then there will be a trade war. Until then silence the drum beats of trade war.
3
The stock market crumped, every nation that'll be hurt by this promised to retaliate, and unions said no such thing.
1
Dear Professor, When is the last time you read the writings of Adam Smith on the problems with Capitalism?
If I build a spoon factory here in San Francisco, I have to wade through years of regulations that detail down to the level of the type of light bulb's I use in the plantthe show zero emissions from the plant, that show nothing is going down the drain, nothing is going into the air, nothing going to a landfill that is harmful in any way. I will have to pay my workers a minimum wage, give them health insurance, pay workers compensation premiums, give them have time off for a number of things. And on and on.
All the while, ANYONE who wants to open a legal case in a local court to make sure that I do all those things and the courts will make sure I do them.
Now as a general proposition, all of the above things are a good thing to have to do. But!
At the same time, a person can open a spoon factory in a number of countries around the world and will have to "in fact" not do any of those things.
My spoon will cost a $1 each and the spoon's made elsewhere will cost 10 Cents each.
Since North America, Europe and a few others places actually have an enforceable Rule-Of-Law how can a positive Capitalism really function if 80% of the players can undercut our professed way of life? Are we destined to a entropic Capitalism? What will America look like in 50 years if we continue to have one set of rule in the USA while trading with people that have another set?
14
JD, wrong example.
Do we want to make spoons or high precision instruments and machinery? The natural evolution of our capitalism, and its portfolio, is move away from making simple and dirty things and progress to more advanced gadgers with high content of cutting edge technology, know-how and AI. We have the best academic potential in these areas in the world, and this potential is not fully realized. Of course you need nation-wide policies driving this technological evolution and a strong emphasis on educating the workforce to provide the necessary boost.. We don't have any of that and will not have it until college is free. We need a different governing system for that progression. The biggest obstacle is American Conservatism which ideologically is stuck in 19th century. It is destroying the country.
2
We are NOT opening a new Factory. This is about retaining existing businesses.
Yes they will have to conform to evolving environmental and OSHA concerns but so should spoons from china otherwise its a rigged game and in that situation tariffs a re a fair solution. You cannot have "Free" trade when one side ignores labor and environmental practices we call necessary, If this is so the US should only deal with bilateral trade agreements. The US Governments Job is to facilitate the US and only consider "Elevatimg" other nations if it is in the US best interest - The US and not the Kochs, Shwartzmas, Gates etc.
Don't open a spoon factory in SF!
The fact is, whether you like it or not, as countries move up the value chain, they are rewarded for producing goods of higher value.
Case in point: 3% of American Workforce produce food for the entire US and probably as much surplus left over. On the other hand, in India (where I am from originally), >50% of workforce is engaged in Agriculture. The US is just more efficient and hence rewards production of goods of high value.
This might seem unfair to people who want to open spoon factories in SF but that's why people harp on re-training.
As Mueller's investigation circles closer and electoral prospects for a much stronger Democratic presence in Congress get better, one worries that Trump's tantrums won't be limited to trade wars. With no one left in the White House, or it seems the entire Republican Party, with the gravitas and the backbone to rein him in, a shooting war, maybe nuclear, looms as a real possibility.
Trump can be irrational in the best of times. What will he do when cornered?
17
As quite a few have noted, we should be grateful that Trump directs his narcissistic wrath by adopting such a singularly stupid economic policy as a tariff increase, since he could, of course, unload on the North Koreans instead.
It is deeply sobering to realize that our survival depends on the forbearance of Kim Jong-Un. If Kim refrains from further obvious missile tests etc., we may escape unscathed. Why am I not reassured?
Those who wanted to "stir things up" in November, 2016 have gotten what they voted for. The rest of us, alas, are also stuck with this maniac.
10
Well, I'd agree with Dr Krugman except it's probably more likely that the trade war will be just like the gun claims and the tax breaks that Trump made since next week the Chinese will yank the chain of the big box stores outta Arkansas, then said store will yank the chains of the republicans and blue dog democrats who'll yank Pense's chain and he'll tell Trump that we can't actually have a trade war because it'll the republicans money. The Chinese aren't like Putin, they use their economic power to get what they want and that store plus a whole bunch of others get everything they sell from them, while Putin has something on Trump.
The solar panel tariffs were the Kochs yanking the chain of the republicans so that one went thru, but Trump just doen't have any real power (and neither do we) since money, money, money drives our gov't.
Trump is a lot like pyrite and the two novice treasure hunters of the Sierra Madres. Unfortunately his followers will believe that he's actually starting a trade war.
5
Krugman and the NYT must be Trump supporters, because they sure are pushing the Trade War nonsense. Unbeknownst to them, the Trade War has been going on for decades. We are losers. That's why we have these huge trade deficits that are getting bigger every year. How long before the trade deficits equal GDP?
Comparative advantage has never hurt anyone but those who refused to modernize and compete. However, when countries like China, Vietnam. S. Korea, UK, Germany, France, etc, erect trade barriers to protect their home industries, pilfer yours by selling below cost, driving them out of our country into their arms, that's unfair.
Since the end of WW2 America has gone along with trade deals officially and unofficially that, with open intent, meant to seed the world with its industries. Globalization was a theory that was supposed to lift all boats and for the financial sector who crafted a lot of the financing, it has. But for the American middle-class family its been a catastrophe.
The great expansion of the middle classes around the world has been great. So many have been lifted out of poverty. Yet for Americans its been a race to the bottom working harder longer for less with pensions and the social safety net dissolving in front of our eyes.
Something has to change and I applaud (I'm a Bernie Democrat) Trump for taking a firm stand.
7
I agree things need to change, but this is hardly the way to go about it. The number of jobs it would create is smaller than the number of jobs that will be lost. Meanwhile, he is busy making your healthcare more expensive and trying to cut the safety net. he also just gently widened the income gap and increased the debt with his tax cuts. The Republicans will soon return to their talk of privatizing Social Security and Medicare, with cuts to both as well as cuts to Medicaid to deal with the debt.
2
Globalization is a 'fact', not a 'theory'. We cannot 'un-globalize' the world's finance and communications. Yes, the U.S. has done a miserable job sharing the benefits of global trade and could well copy the more equitable social systems of our successful world partners. Instead, we choose to emulate the struggling oligarthies of the world and will likely share their struggles. Lastly, I sincerely doubt that Bernie would share your enthusiasm for starting a destructive trade war and ostracizing the U.S. in world markets.
3
And this ought to tell you exactly what's wrong with Bernie's economics, too.
Stupidest thing Hillary Clinton did, last election: come out against TPP, when she knew better.
I don't think this impulsive new tariff is good economics or good diplomacy. But I do not think it is just an angry fit of spleen dumped on the world by our chaotic president. It strikes me as more of a political strategy aimed at shoring up republican support in the rust belt states for the mid term congressional election which is only months away. It is a campaign promise kept.
14
it is working as a political gig
The statue he is using is that he can impose tariffs in the name of national security only. He cannot unilaterally tack on tariffs otherwise - so what does imposing tariffs on steel and aluminum have to do with national security - especially when the leading importer is Canada - a NATO ally and one of our most trusted partners? This entire mess is another example of Trump's complete ignorance of leadership.
14
Actually, one could imagine a national security case might be made for tariffs on steel and Al - one needs that stuff to build tanks and planes (not that I agree and Canada is problematic). It is questionable, however, and we'll see if it passes muster with the WTO.
BUT, that said, there is no national security case to be made for his threatened tariff on European cars - an example of his ignorance of the law.
1
Given the fact that so many people on both the left and right believe that what Trump is contemplating doing would be really stupid, wouldn't it be appropriate for Congress to adopt legislation that deprives Trump or any President of the power to impose tariffs on anything and thereby start a trade war without Congressional authorization. Maybe there is enough votes in the Senate to not only overcome any filibuster of such legislation but enough support in both houses to override a Trump veto.
5
This so called president is proving beyond doubt that we need a congress willing to protect their prerogatives as a co-equal branch of government and to enact legislation that will further restrain executive power in the future. Unfortunately the cynical Republicans currently in control care only care about their party, not the country.
1
This is a great, fast read to highlight the silliness of Trump's idea. We are getting what we deserve as Americans - a president with absolutely no understanding of economics, but even worse, one with absolutely no interest in trying to understand economics.
4
I'd be interested in reading the conservative economists assessment of this ridiculous policy. I always thought that the Republicans were the ones who promoted free trade but under Trump nothing is "normal" any longer.
3
Fair enough. But, Paul, is your point just that Trump's idea is dumb, or is there something other than the unacceptable status quo to do?
Trump won because, yes, there's something better than the status quo to do. Just because he's trying something that won't work doesn't mean that the American public won't, in 2018 and 20, reward action over passive handwringing.
So what's the answer, Paul? Just steady the course? If so, that's how Trump will win again. We need a real comprehensive plan for change.
2
Trade is a complicated issue. Krugman argues that the Fed sensing inflation would raise interest rates costing income in the U.S. Why is it that the worlds dominant trading powers in their day (Great Britian, China, the U.S,) favor free trade and the less dominant, (France, the U.S.A now, the U.S.A in earlier times) was protectionist. What is necessary here is some sort of quantitative and empirical argument, drawing from historical evidence. Economics acts too much like their discipline is theoretical physics. Its an empirical science and comparisons between countries who do the "right" and "wrong" things should be available.
Right, and Trump is a "real comprehensive" type of guy. It ain't gonna happen during his administration.
1
I agree Trump is not going to do it by why not Krugman say or any other economist. Instead we have tariffs are bad (Krugmen) and tariffs maybe good Bivens. The public deserves at least references which would be better.
Our baseline should be the fact that Donald Trump has absolutely no idea how international trade works on a macroeconomic level. He does know, however, how to look busy without doing anything constructive.
Add to that the fact that Donald Trump needs spectacles to distract from a growing public disgust with chaotic personnel changes in the Trump administration and with the scandals, particularly in the White House. Most Americans are also fed up with Trump’s coddling of Vladimir Putin.
Americans understand when prices of consumer goods go up, they immediately feel it in their wallets. While the image of Donald Trump imposing tariffs may satisfy his desire to be a tough guy, the reality of the increase in prices will not win him friends, other than with the owners of a few favored industries.
Interest rates are rising, and Trump does not grasp that the rise in prices from tariffs and from the trade war he seeks will force the Federal Reserve to raise rates some more.
Most Americans know that individuals and businesses suffer from higher interest rates and that the only people who like it are the beloved commercial bankers.
The stock market is in a correction, largely because equity prices were too high from the bragging by Trump’s inner circle about the prosperity (which he actually inherited from Barack Obama).
Donald Trump needs to look as though he is accomplishing something, and he is betting that all of America’s trading partners are going to back down. Wrong.
3
Remember how much mileage Republicans got out of pretending to be deficit hawks and peddling the insipid lie that employing stimulus during a recession was exactly the same as not balancing a personal check book? Plenty. Republicans entirely derailed or diminished Democratic administration initiates like infrastructure bills and the Stimulus/ARRA, which would have created jobs and helped working Americans. What Trump said (or rather tweeted) is exactly what many working class Americans already believe: US trade deficits only exist because of bad trade deals agreed to by political leaders, and further, former US leaders gave other countries the wealth and jobs of working-class Americans. These people will applaud tariffs and a trade war. Trump succeeds because his argument will "feel right" to many Americans, especially as Trump is assuring them that he'll revive the U.S. aluminum and steel industries and get rid of the US Trade deficit all via tariffs. That it's patently untrue doesn't matter. Krugman's detailed explanation as to why even without "foreign retaliation/emulation" Trump's plans will cause a loss of jobs is both coherent and cogent. However, being right doesn't mean you win. Trump's targeted audience will find Krugman's explanation unconvincing. It will be difficult for many to understand, but the real problem is that they will not want to believe it, especially since while Trump makes grand (false) promises about getting long-lost jobs back, Krugman makes none.
4
Mr. Krugman makes many valid points. Unfortunately Donald Trump is not interested in valid points. Donald Trump is only interested in Donald Trump. WHY have protectionist tariffs not been economic policy for many decades? Because they don't work.
2
No one forces a company or factory to move overseas. Corporations do so because their jobs are to make money. US policies have made this very easy, but no there is no easy way to turn the clock back and regain those lost industries. We can only move forward. When companies leave, those at the bottom (workers) may eventually find new work, but the pain they feel is very real. Recognize this and continue with robust social support, not cuts to basic services and education. The problem our short sighted economic policies. What policies and laws motivate companies to move operations abroad? What laws enable large organizations to move profits to off shore banks? How much do laws encourage innovation? For example, we have a perfect opportunity to lead the world in solar and wind energy but remain stuck in the twentieth century. We could develop ways to mitigate the threat of climate change but stomp our feet and refuse. We could develop robots for textile production. Perhaps the problem is right in front of us, contained within our own greed, lack of imagination, and refusal to see today as it is, and plan for tomorrow.
4
Trump is full of truly terrible. dumb ideas and his desire for a trade war is just one of them. According to the American Iron and Steel Institute, steel production has dropped from a high of 137 million metric tons in 1973 to 87 million metric tons and the number of steelworkers has dropped from a high of 650,000 in 1953 to 142,000, due largely to automation. In the 1980s, it used to take an average of 10.1 man hours to produce a finished ton of steel; now it only takes 1.9 man hours. In 2002, the last time then-president Bush imposed tariffs on imported steel, the resulting price increase cost 200,000 jobs in industries that use steel, such as construction and car making, and many members of the Steelworkers Union -- the very ones Trump is trying to cater to with his stupid tariff idea -- are not involved in the extraction of ore for raw material but are actually employed in construction and the recycling of scrap metal. Of course, not only steelworkers would be affected by a trade war but all sorts of other products that we produce and export abroad would be subject to retaliatory tariffs in our export markets, with disastrous effects on our economy.
7
Dr. Krugman has long been been an exceptional advocate of knowledge based policies and practices, something that has been missing from Washington since Trump became your president. In fact decisions became less factual when republicans took control of congress.
For some countries, like Canada, we have been subject to trade threats from the U.S. since Trump targeted, not only steel and aluminum, but NAFTA, which is a key foundation of our economy. Softwood lumber and other products are also threatened. Profits flowing to U.S. corporations from branches operating in Canada actually push the balance from all trade between the countries to the U.S. advantage. You are in a surplus position, but that appears to be inadequate for Trump.
Dr. Krugman mentions the U.S. dollar increasing in value with serious negative financial consequences to the U.S. trade balance. The flip side is how will other countries react? When the Canadian dollar devalues, your source of travellers diminish. We are your largest source of visitors. Canadians will reduce purchases of American cars, appliances and other goods and services. However, we have also developed other trade relationships with Europe and Asia. A low value Canadian dollar serves us better in those relationships than as your president's decision is also likely to lower their currencies.
A trade war is a no win situation, exceptionally so when devised to divert attention from Trump's latest self created crisis.
3
Doesn't seem like Paul Krugman reads the Comments section unfortunately. It's not only manufacturing that was affected, outsourcing damaged domestic IT industry resulting in a shortage of home talent and big breaches in the recent years.
Likely accountants, lawyers, graphic designers, and anybody else whose job can be done over the wire were also affected and will be affected even more. There must be more done in this area. How can they replace whole departments with cheap foreign labour and not pay any penalties?
4
I strongly disagree with one of Krugman's main premises:
He says that because the economy is at full employment, we won't see the increase, in domestic production, that Trump and other people in favor of high tarriffs envision.
However, I disagree with the premise that we are at full employment. True, we usually say the economy is at full employment when the unemployment rate is down to about 4 percent and today it is down to about 4 percent.
However, that 4 percent unemployment statistic is very deceptive. For example, the number of white males collectimg social security disability insurance or SSI (and hence not counted as unemployed) has been going up for the past 30 years. Very simply, more and more people dropped out of the labor force and are not counted as unemployed.
Since Krugman's premise is false, his conclusion is erroneous.
As a progressive, I would have expected Krugman to recognize that our unemployment rate of 4 percent is deceptive. Maybe he is conveniently not recognizing what he would normally recognize because he wants to conclude that Trump is wrong.
I understand why he would want to believe Trump is wrong; Trump is reprehensible on just about everything. However, on trade Trump is spot on. Leave your New York condos and visit the Rust Belt and learn something.
4
If Trump could even spell "macroeconomics" correctly, it would be a good day. Given the much referenced small size of his hands, however, it's more likely that his concern is driven by the micro. His guiding lights in decision-making appear to be his resentment, his ego and his anger, rather than any informed, considered and rational judgment he might employ in the process.
As important in economic terms, is Trump's own "indifference curve," which doesn't, in any way, represent a rational approach to determining outcomes of equal value. It represents, apparently, only his own, personal biases, rather than considering what's best for the country and for American consumers, who arguably behave more rationally than Trump.
Trump's disregard for the concept of economic equilibrium, or any kind of equilibrium for that matter, flies in the face of traditional laissez-faire economics long adhered to by conservatives. If you were hoping for classic realism in a president, you could be waiting for a long time, just like Godot.
1
Trumps words incite volatility in the markets, which excites lots of traders and makes option trading more attractive. A trade war would seem to deliver on his protectionist promises to the rust belt voters and still leave the door open to drop all trade sanctions immediately after re election in 2020. It might be like the fed raising rates quickly, only to lower them once recession arrives. Both actions could be affording wiggle room if the economy really does tank. If it goes into free fall worse than 2009, at least Trump and the fed can say, “We tried everything.”
For a non economist I would have liked that you explained the graph a little better. What is the dimension of 0.1*Mil. of $/Bil. of $ GDP? The value of 1.0 is not even on the ordinate. What happened in the period 2005-2007?
2
I don't think any of that matters to Trump or his base. They're driven above all by a sense of resentment, pure and simple: we're being taken advantage of by other people, by other groups, by other countries, by the "elite", who look down on us and exploit our naïve good will. If we can punish them for their condescension, it doesn't matter if we suffer in the process ourseives, or indeed if the whole world blows up -- so profound is our resentment.
And it's not just his base that feels this way; actually, many of them may have some grounds for feeling resentful. But for some strange reason Trump himself, despite the privileged life he's led since birth, apparently feels the same way. Now he has the power to act upon it. And he doesn't care if he brings the whole country down in the process.
3
with all due respect and the admiration I have to professor Krugman his abhorrence of President Trump hampers his analysis like it did when he predicted stock-market crash when Trump won the election. Professor Krugman overlooks 2 basic things; First is the very slim chance that a real trade war will develop and second his analysis about the inflationary pressures. A trade war in todays world, with all the risks involved, will hurt the rest of the world, especially China, Canada and Europe, much more than the USA because at this moment in time, when world economy is still struggles to recover from 2008 crisis, the US economy is still the only real lifeline. So, a lot of hot air will be blown but agreement will be change for the benefit of the US because every leader in the relevant trade partners of the USA knows that Trump is right in saying, "Trade Deficit because of our “very stupid” trade deals and policies". As to inflation and "Fed would raise rates sharply to head off inflationary pressures" I am sure professor Krugman understand that as long as the Technology Revolution moving forward it holds inflation pressure down. not only this but even if the new trade tariffs will be raised manufacturers will absorb the tariffs.
1
Protectionism is the very definition of a 'lose-lose' situation. Trump enacting tariffs on some commodities to protect some industries is also the very definition of 'government picking winners and losers' - with one guaranteed loser in every pick being the American consumer. Circle back to the Russian investigation for a 'conspiracy theory' moment - if Trump is a willing dupe of Putin, what better way to degrade the United States internationally than to spark off a trade war that is certain to degrade the economy, probably trigger a recession, and upset our allies worldwide? More mainstream, although even that's plausible, is that Trump's tariffs see sure to scatter unintended consequences widely while being ineffective at "saving" the industries he's trying to protect - a typical Trump outcome. He's "saved" a few thousand coal jobs, a very few, while deepening the risks from climate change greatly. He's "saved" a few solar panel manufacturing jobs while destroying many times more solar panel installation jobs. Now he's going to "save" a few steel jobs, while raising prices for millions and millions of American consumers, and destroying many jobs in steel-importing industries. Trump can't think beyond the day's cable news shows, and is always and only concerned with crafting an image that he thinks "looks good", no matter how ignorant and big a buffoon he reveals himself to be.
1
I think Trump is somewhat correct about past trade policy. Previous administrations were slow to respond to dumping and government subsidization of businesses by other countries. They'd occasionally lodge a complaint, and then sit down to discuss making an agenda for future discussions on what the scope of discussions will be. The process would take years, at which point the loss of a U.S. industry would be a fait accompli. However, trying to force a reversal of fortunes for those at this point would, for the most part, be akin to closing the barn door after the horses have all hoofed it out of there. That's not to say it wouldn't be worthwhile to impose targeted sanctions against specific industries in specific countries that are known to be dumping, subsidizing, or otherwise cheating. But this across-the-board indiscriminate stuff makes no sense.
Trump promised tariffs; he is delivering tariffs. Trump never promised that he would pursue rational policy, only that he would give steel workers and coal miners back their jobs.
Ideas like retaliation, or the fact that an increase in steel prices might lead to decrease in demand for products - and reduce manufacturing and constructions jobs elsewhere - are not part of the overall thinking.
Personally, I'd rather explore a VAT that essentially taxes foreign and domestic labor access to our market the same, and I'd like to explore disentangling health from payroll to create incentives to use American labor. Both have pitfalls, but the they don't have the primary pitfall that they are dead on arrival.
Trump likes everything simple and the world is not simple. But the tariffs will make his base happy, maybe get a GOP Congressman elected in PA, and the fallout will be noticed after he leaves and blamed on his successor. For Trump it's a win all around.
2
Trump and his supporters often "go with their gut" rather than thinking things through. We should not disparage such instinctive actions, as this may be the best option for those with limited analytic skills. Hopefully, as Trumpian trade and tax failures play out, the "gut voters" will start to become a little queasy with the results, and will turn to more stable, if less exciting, policies.
1
Who has made money on this announcement by Trump and who will make money if it goes forward? The S&P dropped 2% last week. Most Americans who own mutual funds and most pension funds lost money. But a handful of savvy or crooked traders made a fortune by shorting foreign steel and by shorting manufacturers that use steel. Most Americans do not know that money is made when securities go down by betting that they will go down by selling them short.
Right now lobbyists for steel manufacturers and lobbyists for companies that rely on steel to manufacture cars, refrigerators, jets are all pumping money and promising more money into campaign funds of elected officials. Money is also flowing into large law firms who represent nations, steel industry, and all those industries that use steel to make their products.
It is strange to watch this absurd struggle devoid of any mention of the money to be made, just on the controversy. The tariff, gun control, and DACA controversies all produce a cash flow and an industry of lawyers and lobbyists and competitors and currency traders and commoditiy traders who will make a buck.
With the resources of the New York Times and the analysis of great economists like Krugman it would be refreshing to “flesh out” covert motives that escape the usual news coverage. The Times did report the timely trades of Carl Icahn in context to Trump’s announcement. SEC and FEC records may contain substantive evidence of criminal activity and alert the public.
2
So much of Dr. K's analysis on economic things is based on his belief in the presence of FULL EMPLOYMENT in America. This is so totally divorced from the on-the-ground reality of the common people. This economic statistics calculation stands as likely the least accurate of all the typically published representations of the U.S. economy. An 18 hour a week, $9 a hour, virtually no benefits part time job in a retail or restaurant setting is a WHOLE job, counted as one by the economists. For the common person, this is 1/3 of a job. It is in reality.
The sociologists know the truth. Look at their studies of the number of adults living and depending on their parents, the number on disability (faked or real), the part time job market, the underemployed, the crisis in home buying, car buying, and student debt.
Add it all up and we are approaching Depression levels of employment dislocation, with is accompanied by social dislocation and terrible human suffering manifested in many forms.
Economic viability for common people is the biggest and most important challenge on earth.
3
Agree... a job needs to be defined up to represent a job that supports a decent life.
Despite Krugmans unusual example of hyrdropower in Canada producing good more cheaply, the problem with international trade is the problem with capitalism - it puts profit first. We need to prioritize the environment, we cannot make trade agreements without enviromental protections to our first world standards - otherwise we are all going down the same path to environmental destruction - and of course, worker rights are part of the equation, simllarly ignored in trade agreements. there is just no other right way.
7
ummm...is the 3% assuming a 20% tariff across the board, since this is only steel... of course, to actually close the trade gap I suppose it would have to be across the board.
But isn't there a problem with shipping out an endless multi hundred billion stream of IOUs into the world. Sure, WS absorbs the glut...now. But if 2008 uncertainty were to strike...
(on the other hand a rapid devaluation of the IOUs has certain advantages...)
4
The trade deficit problem is the direct result of cheap energy. Cheap energy explains why we can buy apples in our grocery stores that were grown in New Zealand. If the world price of oil were say $200/Barrel we would have massive de-globalization, and it would give rise to much greater local production within the U.S. Cheap labor diminishes greatly in competitive advantage terms when transportation costs go up. In a way labor competes with energy. U.S. labor has a cheap energy problem.
12
True. It makes no sense that I here in Maine have Idaho potatoes in the store. In the real world of true costs there is no way transportation costs nothing.
(But in the real world, most of our supply chains also make no sense.)
1
Everyone has at least one master - even the President.
If the master is a Russian oligarch, then the President's trade war may be just another attempt to further diminish the significance of the US in all things global.
If the master is a US oligarch, then the President's trade war may be an attempt by the oligarch to capture wealth that otherwise flows to others outside of the oligarch's sphere of control.
In either case, the trade war is not and never will be about American jobs - that is just the cover story.
9
This president's master, besides the Russian oligarch, is his ego. He's been raging against trade deficits for decades. He believes he knows everything. He believes he's smarter than everyone. He believes trade deficits are, a priori, bad. No master is going to push him off that belief.
1
There are four questions here. What harm is the long term 500 billion trade deficit doing to the U.S. economy. Is the cost of doing nothing long term higher than the costs Krugman outlines. Second should the president by himself have the power to impose tariffs under normal circumstances, it appears he does and like the nuclear first strike capability is frightening. Congress should have a role in tariff imposition. Third the economy is at near full employment now. Why should tariffs be imposed now rather than in times of high unemployment (this is with the Proviso the employment numbers are taking into account long term unemployed who would go back to work. Finally protective tariffs shielded American Manufacturing until WWII, the U.S. developed under them and this was explicitly Hamilton's policy, when it was not the export leader. With China the world leader in exports does our policy need to change. This is Krugman's area of expertise but the whole topic deserves far more nuanced discussion.
3
The shifting global economy offers the U.S. an opportunity to surf the waves of change. We are well suited for adaptation. Technological innovation has been our thing for centuries. It's disappointing to have a president who stokes resentments and backward-looking ideas. We are now in a defensive posture instead of a forward-looking mode. I can't think of a move that will cause us to abdicate out pioneering spirit more than a self-defeating trade war. It's like closing the doors of adventure and opportunity for our young people who want to accomplish great things.
7
Th US has only been a technology leader since the 1920's. Not centuries.
I'm confused about the unemployment rate figures used, because two of the places with integrated steel plants in the US (Gary and Cleveland) have unemployment rates more like in the 7% range. Why is the overall US unemployment rate the one that is used?
5
@diggersandrainbows
Maine
Yes you probably are. He's measuring the effect on the entire US economy not that of any one place.
6
The more immediate problem is overt and covert retaliation. The latter particularly. There are lots of invisible barriers it's possible to raise against US exports of planes and ag products.
13
In many countries these covert and overt measures are congruently practiced to protect that countries perceived interest. This is a situation that already exist.
Not convinced Krugman's model is correct. If it works this way, why are many other nation's applying trade barriers? Pegging currencies and whatnot.
2
@Chris Herbert Manchester, NH
Whose pegging currencies? Certainly not any of the major ones. And which nations other than the US are raising additional trade barriers? Over the last few months we've seen the EU sign new trade deals with Japan and Canada while the TPP which the US dropped out of is pressing ahead without us.
No answers are expected of course.
35
To the extent that there are few nations using protectionist trade barriers, they are harming the overall welfare of their populations (1) in order to benefit powerful narrow domestic constituencies and interests, probably for purely political reasons, and/or (2) possibly trading lower overall welfare of their current generation in order to allow domestic industries to develop in the hope that once developed some future generations will have higher welfare (and then trade barriers can be eliminated to capture the gains from trade, but from a stronger set of comparative advantages).
Trump seems to just completely fail to grasp reality on gains from trade. But if he had a coherent reason for tariffs it would be no. 1 above--politically motivated benefit to very narrow interests at the expense of lower overall national welfare.
12
Not sure why no one will take this question seriously; it's a serious question, as I see it. China, for the past several decades has (A) maintained consistent and high import tariffs; and (B) managed the exchange rate of their currency, especially with respect to the US dollar. For the past two decades, China has maintained a tariff of around 20% on imported electronics. It is one of the reasons that Chinese visiting the US were so keen to buy Apple products here and take them back to China, even though the same products are both made (assembled) in China and available in Apple stores in China. They also maintain a very stiff import tax on cars. To argue that these policies have hurt the consuming population within China or killed jobs there is ludicrous.
It has become an unthinking meme in the US that free trade is economically optimal *regardless of what our trading partners do*. But why should we be perfectly happy for our largest trading partners to impose double digit tariffs on our products on Monday, but terrified that they might raise those tariffs further on Tuesday? It makes no sense. I would love to see a real, card-carrying economist take this question seriously and address both / all sides of the equation, the way a mathematician would if he took up the problem.
1
Wilbur Ross seems to imply the price increases would be minimal and consumers would barely notice it. Just like after, say, a big storm interrupts gas supplies. Prices don't rise when the supply loss is felt. Prices go up immediately and are higher than the costs need to be increased. Mr. Ross forgets about the fact that businesses may increase the price for their increased costs, but they will also tack on an additional increase "for their trouble" that will be added in to the profit side. The rationale is the consumer isn't savvy enough to know how much the price increase should be. They will assume all the increase will be cost, but they will be wrong. And I imagine Mr. Ross has a already positioned himself to profit handsomely from this. I very much doubt Mr. Ross has ever concerned himself with the cost of a can of soup.
64
Personally, I am hoping that Wilbur Ross is being investigated as part of the Mueller probe vis a vis his involvement in the Bank of Cypress.
"So it’s worth asking what would happen if Trump really did try to close the trade gap – it’s actually $500 billion, not $800 billion, but who’s counting – by imposing tariffs."
We as a country would get 1/2 Trill $ more every year and growing if Trump has his way. Paul K. whats wrong with that ? (The tariffs would be carefully selected not to hurt Americans living standards)
And why can't an 80-year-old billionaire find more gratifying things to do with his wealth and remaining time on Earth than messing with the general welfare of innocent millions who are just trying to get by?
Greed is a mental illness.
1
I came of age in the textile manufacturing south, and later served as a consultant in a firm that had several US textile firms as clients. While the dislocation resulting from the inevitable loss of textile manufacturing to low wage foreign companies took a severe toll on families in the region, ultimately the economy modernized and broadened, now including pharmaceutical manufacturing and research (NC), auto and tire manufacturing (SC, Tennessee and Alabama), etc., much of it due to foreign investment. The region is now more prosperous than ever as a result. Cold roll steel is an old and dirty industry, relatively low tech and relatively labor intensive, thus tailor made for foreign participants. As you have tirelessly explained, the world economy is increasingly interconnected, and inter-dependent. That is NOT going to change. Ultimately, the role of governments is (or should be) to facilitate fair trade, smooth transitions by providing a safety net and retraining for those suffering displacement, and front-end research funding for new industries. A zero sum approach in this world today will get you nowhere. At least nowhere any sane person would want to be, which is isolated and backward.
185
Your last sentence says it all. We do not have a sane person in charge, only one that is isolated and backward.
No but it would lower our own deficit by producing those goods here, more wages to tax, more profits to tax.
4
That is the simplistic formula Krugman has just debunked.
Industries dependent on aluminum and steel will pay more for them and will have to raise prices on their products.
That will lower demand for those products, resulting in fewer, not more, jobs.
The deficit? It will have no effect on the deficit, as it will improve neither the balance of trade nor the collection of taxes.
10
Hawk:
If Republicans really wanted to lower the deficit they wouldn't have passed a tax bill that increases it by $1.5 trillion
If Republicans wanted more profits to tax, they wouldn't have passed a tax bill that cut the corporate tax rate by more than one-third.
The more likely effect of Trump's tarriff proposals will be higher prices to pay until the recession, then unemployment and reduced tax revenues
3
unless foreign markets retaliate and our exports suffer. then the gap only widens, no jobs are produced, no taxes to collect. multinational corporations will set up shop in other markets when us market has no buyers.
Trump is the chaos president. The more chaos he stirs up, the more his support erodes among his base, and among the billionaire class that so far has supported him, and their Republican lackeys in Congress.
Chaos is poison in re-election terms. Nothing will hurt the reelection chances of a sitting president and his party more than chaos, political scientists tell us. Above all, voters crave stability and security.
So bring it on Trump. We welcome your chaos. Especially your new tariffs—they’re sure to stir up plenty. But speed it up, will you? November is only 8 months away.
57
I'm curious, Ron: all those "political scientists" on whose views you rely so greatly ... are they the ones who basically crowned HRC in October-November of 2016?
6
I agree that support by his big donors will likely erode, but the base? Unfortunately, low information voters - or those who are on board for single, social issues - are likely to double down in lock step with Trump. Voter turnout is the key to the midterm elections.
8
He lost by 3,000,000 votes. Turnout, at 55%, was historically low. He is the least popular president in polling history at this point in his reign of error. More importantly, the intensity of hatred and engagement his cruelty has elicited is off the charts. The average Dem vs. Rep. polling has the Dems up 10 points. The pendulum is swinging and there is no stopping it now.
2
If people are serioius about the US trade deficit, the best would be to give up the US dollar as a reserve currency for the world, and instead have a basket of currencies, such as the Euro, Yen and Chinese currency. How would this happen? Bretton Woods was the last currency alignment. Is it not time for another?
4
Bad idea, really and truly a bad idea.
How would you like 25% inflation?
That's what happens when the dollar is displaced as the reserve currency for the world.
1
Something that is not mentioned here is that “trade wars” are a symptom and not a cause. The world economy is relatively stagnant compared to levels of growth before 2007. Now, there is overproduction of steel and of the products that contain it. Overproduction usually means traffic congestion (Apple iPhone X failed to sell its expected number, for instance). This implies small margins for producers, which is related to relative low levels of investment and greater levels of share buy backs - like the major corporations are engaged in. This does not augur well. But Trump is not the cause - he is also a symptom of the bigger malaise. Neither those who blame or leonine him are right. The problem lies in an anarchic system that cannot rationalize production and consumption and is driven by short term and narrow goals.
Trade wars are nothing else than the illusions of getting a large piece of the pie when the portions are already divided by factors that those who start them fail to comprehend and which are not subject to the whims of the human will. Something else needs to happen. But that is not even considered in blogs like these.
15
Interesting comment.
Any suggestions as to what the "something else" should be?
All true.
And it is not considered here because Krugman is not a socialist.
@Enri,
You are so right. The media only gives two sides of the same coin over and over again. This is the blog for Democrats. Same old tired logic. Ditto for the Republican side. No mainstream media outlet covers economics from the perspective of political economy, so no relevant information ever really gets discussed.
For example, no discussion of tariffs and trade wars should occur without thorough investigation of the role of the U.S. petrodollar as the global reserve currency and the use of our federal budget deficit as the mirror of our trade deficit.
I remember your posts from the past. You are very insightful.
The notion that a tariff is going to increase jobs and makes steel a thriving industry is not necessarily so.
The domestic producer has several choices.
With the tariff, the domestic producer can raise his prices but still charge a little less than the import. Then he can expand his market share because of his price advantage, creating more jobs. That is the scenario behind the tariff.
Or, he can raise his price to meet the foreign price, now higher by reason of tariff, and pocket the new profit. No change in market share, no new jobs, but more money in management’s off-shore tax haven.
Which will he do? Expand his business or expand his off-shore bank account?
24
The first option is unrealistic.
Even with the tariff, foreign producers can engage in a short-term price war that domestic producers can't win.
Regardless, aluminum and steel will cost more and consumer prices will rise, reducing demand.
1
Whether or not Trump makes this happen, the fact is that turmoil that follows his every word. This man has no idea of cause and effect and no vision of consequences.
Of course, those working in American industries that are rapidly becoming obsolete is tragic. But, the idea that saving a few thousand jobs is worth putting perhaps millions of workers and/or small businesses out of jobs and livelihood is very real not to mention the global economy.
It is clear productive solutions and clear-headed progress will not come from this Administration.
44
Neither from the administration nor from the Republican Congress.
Citizens need affordable healthcare and education; the world needs renewable energy; Time is too long past since we have had a government that recognizes this reality.
There is too much money in too few pockets!
If there is a lesson in the trade tariffs story, it is the President has too much executive powers to change the impact of trade relations that impact voters in voting districts across the country. Congress has a direct mandate from Congressional districts to represent the people. The President is elected by who? The College of Electors. So California, for example, is the state with the most federal districts and representatives to the House. Would those representatives favor the Trump approach to surprise tariffs based on political spin directed to fly-over Base voters? The reason why treaties need to be ratified byCongress is the same reason that tariff changes should be also moved onto the legislative agenda and subject to House votes - the President has proven to be unconventional in economic theories of trade and application due process. Can anyone explain the rationale of punching-out Canada while trying to discipline the Chinese government. That's like dropping a Bomb on Lichtenstein to warm President Putin about restarting the nuclear arms race.
23
The United States has an outsize influence on world trade. My feeling is that the gap does not reflect the circularity of how products are partially finished in foreign countries, are reassembled in the United States, or then sold or resold throughout the world. United States products, services, foods, cultural products are omnipresent throughout the world. Films, movies, television, celebrities bring the products and lifestyle into every society. I am not an expert and could be wrong but I believe that many Americans are hiding their income- or obscuring it - and the trade gap is not what it is cracked up to be. Who wants to be taxed or declare it if they can hide it?
4
Many firms in the software business have offshore accounts that a very sizable. This is no secret, but I believe this is taken into account in the trade balance.
3
If US decide to close border for trades in few industrial products, it will certainly boost the input cost for the manufacturing and spur the inflation in medium to short-term. Whether this will have a long term effect or not is largely contingent on how open the US economy is for FDIs. The unemployment might be at all time low but since lot of employment is temporary, this figure is pretty volatile. If Fed decides not to intervene, i.e., it follows its pre-determined trajectory of interest rates hiking, it would mean depreciated dollar in short to medium term, hence cheaper exports.
1
I suppose that the absence of the usual cautionary “Wonkish” for this type of op-ed is explained by the fact that it’s at least as ideological as it is econ-wonkish.
The U.S. is only “close to full employment” if you choose to ignore our pathetic labor participation rate (62.7%). Increase domestically-satisfied demand by freighting imports with tariffs, and the rising wages we already see as the economy expands and corporations need to compete more intensively for skills and bodies likely will intensify, drawing a fair number of the unproductive back into the labor force. If that happens, then much more of that foregone GDP really IS transferred to domestic suppliers than Paul lets on.
And this is what I mean by “at least as ideological as it is econ-wonkish”.
But we’re not going to have a trade war. Why do some believe that Trump wants one? Because he SAYS so? (Ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha!)
I made my arguments for why we won’t, and for why I believe Trump’s LAST intention is for a trade war, in my response to the OTHER Paul Krugman op-ed today on this subject: https://www.nytimes.com/2018/03/03/opinion/trade-war-what-is-it-good-for....
4
The one false assumption by which the rest of your argument fails is that tariffs will increase demand.
Higher prices always reduce demand. This is more likely to result in job losses, not gains.
3
Labor force participation rate is defined as individuals "available to work" as a fraction of the entire US population age 16+, less the military and those who are institutionalized.
It takes about 10 seconds to find thee BLS data on that. Over the past half-century, the labor force participation rate has never been higher than about 67%. It went up as went up slightly as women entered the workforce, it is now going down slightly due to the retirement of the baby boom. Our "anemic" current rate is higher than it was throughout the 50's, 60's, and 70's.
So, take the roughly 97M people in that population who are not "available to work". Net out roughly 50M 65+ not in nursing homes (rough cut at retirees), plus 14M work-disabled individuals under age 65, and (say) high school and college students, and of course parents who choose to stay home to take care of their kids, and so on ... there really is not some huge surplus of capable able-bodied individuals ready to (e.g.) expand heavy industry in the US., but who are (e.g.) just too lazy to work.
Some, sure, but the notion that the 97M Americans is somehow a vast pool of untapped capable labor, that's just fiction.
2
Jerry:
I make no argument that tariffs would increase demand. Yet, if demand remains constant and far less of it can be satisfied by imports due to tariffs, then Paul's argument is that domestic production would be unable to step up and cover it due to our "full employment" status. My argument is that we're NOT at anything LIKE "full employment", and that we COULD step up.
The real reason trade has harmed the US is that “foreign-based” American corporations that sell goods and services in the US have been able to avoid paying over $1 trillion in US taxes by keeping their US earnings abroad.
If those companies had been paying their US taxes the federal government would have been able to increase spending on infrastructure, on retraining displaced workers, and on other services, for example. That would have created direct and indirect jobs that would have offset some of the job losses from trade.
“Foreign-based” American corporations should pay their US income taxes in full every quarter, just like their US based competitors do.
43
What can be done about closings of large manufacturing plants, which are big employers in towns and pay better than minimum wage? It's not a macroeconomic issue; it's a question of impact on the local level. Retraining hasn't been effective, apparently. But even if people can get new jobs, what about the local economies, the loss to the tax base for schools and public services when plants close?
11
My husband and I were both victims of one of those plant closings. Our school system was a victim of the closing as well. The poverty rate in the nearest town tripled in the ten years after the plant closed as the ripple effect spread through local businesses.
Retraining and new jobs is not the entire solution to the problem; those new jobs must provide an equal or better standard of living than the old ones for this to count as progress. I went back to school and collected degrees, some STEM, some not. After finishing my Masters last summer I now make about half of what I did when I had a decent union job. I do not contribute to our circular economy or to our tax base in the manner that I used to.
We often hear the buggy whips vs. autos cliche tossed around when the economic displacement of mfg. workers is discussed. Creative destruction is seen as positive. But when agricultural workers were displaced by manufacturing and when the need for buggy whips was displaced by cars there was somewhere for the affected workers to go and, in general, moving to new industries also raised their std. of living. The only place to go for today's displaced mfg. workers is down- to retail or fast food and we know all about the lack of quality of those jobs. Employers now require degrees for jobs that don't actually need them & then many of those jobs don't pay well either. To solve the problem we would have to change our predistribution of wealth & the entire mindset of our society.
20
Good question. Are you asking in relation to the proposed tariffs? Tariffs are more likely to harm large US based manufacturing facilities, not help them. The only to save - or protect - American manufacturing is to enjoin with other countries (1) to improve external labor and environment conditions (so that we compete on more proximate bases; (2) to provide an umbrella - much like the EU - to protect entreating nations from the China price. TPP was an attempt to do this - left (and Trumpist right) thought better of it. Very silly.
1
"What can be done about closings of large manufacturing plants"
You have to increase productivity, and that is done by automation, which leads to more unemployment etc.
In America, facts and politics parted company some time around 2016. I doubt they'll pay much attention to the negative potential impact to the US economy, and how this move is essentially a "rob Peter to pay Paul" that protects certain industries by harming others (like auto or construction.) Trump supporters are still cheering the move as a victory against China despite the fact that Chinese steel and aluminum make a tiny percentage of American steel imports. The main steel exporter into the US is Canada, followed by other long-time allies such as South Korea and Brazil. But Trump and supporters seem quite impervious to inconvenient facts.
82
Unfortunately, it is the MICRO economics of trade that is the real issue for voters. It is clear that the internal re-allocations due to trade are several factors of magnitude greater than the overall effects. People who gain or lose are the essential determiners of the value of trade.
If a country has overall labour costs that are one tenth of that in the US, then the productivity of the American worker would have to be roughly ten times (factor in transportation and other costs) that of the country with which the US is open to trade. The plight of American workers since the Reagan era is one largely based on exporting jobs to low wage countries.
As to the MACRO economics, if the US trade deficit were reduced by 3% of GDP, the pressure on employment and inflation could be reduced by an equal reduction in the federal deficit, now expected to be over 3% of GDP. Why not? The fiscal stance takes into account the demand leakage from the trade deficit. Cut one deficit and cut the other. Import less and save more (the deficit is dis-saving). Moreover, with the threat of offshoring removed, the squeeze on domestic wages will be relaxed and labour incomes will rise.
The Fed can continue to feed asset inflation, as it has done for the past decade. Short-term structural issues will be overcome in time, as supply increases domestically and new supply chains are created that substitute for those base on lowest wages globally. Win-Win!
Trump might be crazy - like a fox.
2
Labor costs are only part of total costs, and sometimes a small part. In steel for example, labor is about 10% of the cost. American productivity investments can reduce that small fraction.
It is much more complicated than "they work cheap." That is why many auto parts manufacturers are moving back here from Mexico.
16
I see no reason for wages to rise along with the cost of steel and aluminum.
I do see demand falling as prices rise of products produced with those materials, driving up unemployment.
1
Jerry Engelbach -- I see no reason for wages to rise along with the cost of steel and aluminum.
The only thing that could make wages rise is a real full employment, including the whole work force not just an artificial subset of it. How we get that does not matter to wage rates, just that we get it.
I'm no economist, which is why I follow you closely, Paul Krugman. I know what I don't know. (Thanks for keeping me in line.)
But I'm pretty sure that even my 16-yr-old Shih Tzu, Scrappy, would make a far better President than Trump.
88
And not only that, Scrappy would be respectful of all Americans and our neighbors, he will not embarrass us, he would have earned the full confidence of all Americans and make us proud, he would be knowledgeable of history and elementary world affairs and he would actually read briefs and stay up at night getting ready for the next day.
"When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. "
DJT
The first fallacy in that statement is the word, "losing." The US is not losing dollars on the trade. Dollars are exchanged for goods and services. Credit Inventory: $XXX, Debit Accounts Payable: $XXX.
A capital rich country has the advantage of exchanging dollars for assets with a poorer country that has a cheaper labor force and is rich in ore deposits.
Most Dow 30 companies have large international operations that would be subject to retaliation if the US mandates tariffs based exclusively on the trade deficit. It is likely that the richest country in the world can purchase more goods and services from poorer countries than they can afford to purchase from the US.
13
The current "president" is talking about metals now. That is not the percentage of GDP or price increase indicated in this article. However, across the board tariffs, without specific claims are completely political, instead of wise economic decisions. If this administration was talking about Chinese getting around quotas on their steel by sending to Malaysia and re-branding "made in Malaysia", that is a current and reasonable actionable item. Unfortunately, as Paul eloquently explains, this "current president" isn't smart enough to understand the effects of any economic policy.
9
@Bill Smale:
Maybe somebody should explain to Dopey Donald that he has a "trade deficit" with his grocer, his butcher and with McDonalds.
Since he can't sell much of anything to any of them, the only way he could cut that "trade deficit" to zero would be by ceasing to make any purchases from them.
Watcha gonna do Donnie? Eat dollar bills? Without ketchup and without a Diet Coke to wash it down?
I know that the professional economists and people in business all think the sky will fall down if there are tariffs. Maybe it will. But it's work considering why we are in this situation. I think the decline of manufacturing jobs (by 40% in the 5 years after China joined the WTO) was cheered by the selfsame economists and people in business. It's their political failure, that led to the destruction of communities across the Rust Belt, that brought us Trump. In other words, the conventional wisdom went down in flames because it caused economic disaster in too many communities. I, for one, am curious in the outcome of this tariff experiment. The professional economists etc have been wrong about so many things. Are they wrong also about tariffs?
7
What I think Krugman is saying is that if you can import raw materials cheap or free to make imported widgets, then your profits rises UNLESS you reduce the price, but US monopolies rarely do that. Or replacing the quality US widget, you could just import cheap trash with the same label.
Or better yet, if you can arrange for foreign slave labor AND use cheap/free raw materials then the base cost for your widget is insanely low.
US companies then realize outsized profits, hoarding obscene wealth, hidden from taxation.
So indeed "free trade" is great, for a few.
Wall Street then shares this enormous bounty with US consumers and the labor force they fired. Retraining for a better hi tech job. All winners. Right?
Or do they hoard it all and just leave all those domestic workers permanently unemployed. Rejects, invisible, outside the happy labor stats because they long since gave up looking for work. Around 10 million of them.
They hardly get a trickle, slowly dying from opioids and depression.
That's the ugly back side of what is really not "free trade", except for Wall Street and the 1%.
12
PK gave us sound reasons why tariffs implemented by our self imposed 'genius' Trump would have negative economic impacts, not only to us, but for the world economy. Yet, more emphasis should be placed on personal country relationships, trust, friendships, something in the past that meant something when two people shook hands. In Texas, we called it our word is the strongest bond between individuals. This is something Trump will never have because it is something he doesn't understand. It applies to foreign affairs, to countries as well. This action of imposing tariffs has raised the bar. It no longer is about building a wall, selling guns, outlawing abortion, reducing entitlement programs, tax cuts for the rich......it is about caring for people world wide. Again, something Trump has no feelings for, and it will harm America.
7
I lived in Texas for awhile and they had 'wet' and 'dry' counties where alcoholic beverages were outlawed. What inevitably happened is the liquor stores relocated just across the county line and the 'dry' county lost significant tax revenues and retail business. Trump's billionaire buddies have already told him they will relocate across the 'country line' if tariffs make them uncompetitive in global markets. It doesn't take a Ph.D. in economics to know there is no upside to Trump's folly. Rather than increasing American business growth, it would undo all the good work the Obama administration accomplished since the devastation of the last Republican president. Oh! Maybe that is the defining motivation for such insanity.
20
Every day I wake up, think, "What would I NOT do if I was president?" Then I read the NYT and see DJT has done it. I am starting to harbor crazy conspiracy theories about Trump being a secret Russian agent actually bent on the destruction of the country, because nothing he does makes any sense. At all. EVER.
I miss the days of competent, or at least semi-competent presidents. Even Dubya shines by comparison to the current Commander In Competent.
28
U. S. Steel operates one of the largest steel production facilities extant in Central Europe in Kosice on the eastern end of Slovakia. Will this tariff clobber one of our own companies' initiatives to integrate a former Warsaw Pact territory into the American economic sphere? Trump and his intellectual mediocrities can't even play checkers.
20
There can be no doubt that there have been losers as the USA has adjusted to the increasingly global character of economic activity. And the USA has not done enough to help those losers reintegrate into our economy. But there have been a lot of winners who have benefited tremendously from freer trade policies and they have prospered mightily.
Some of those who have been adversely affected voted for Trump based on his promises that he would "protect" adversely affected American industry and their workers from the consequences of a free trade policy.
Now he is apparently going to actually adopt protectionist policies.
My guess is that he is going to hear plenty from those who have heretofore benefited from liberal trade policies. If Mr. Trump actually thinks a trade war will be good for him politically, I think he has made a fatal mistake. He has made his bet; but I think he loses his shirt.
5
I do like the fact that the most common mentions of retaliatory tariffs are bourbon, cheese and Harleys. Please notice that Ryan and McConnell. PB
8
Quoting Alfred: "I just wish our government had dealt with the ramifications of closing some 60,000 factories moving most overseas to China, completely ignoring the employees losses, the effects on Town and state revenues while the importers made huge profits with increased gross margins."
Spot on!
In 1987, I was on a press tour of GM's truck plant in MI. It was the first automated automotive factory in the U.S. Among the 200 press corps was the now-late Helen Thomas. Manufacturing principles were based on Edwin Deming and Peter Crosby. Japan had installed a statue of Deming in Tokyo. I was fortunate to speak with Deming by phone for a few minutes, on his view of how to keep factories in the U.S.
Our cost of living, and CEOs' stratospheric compensation renders that notion that null and void. We cannot support multi-billionnaires who take far more than they give, while letting infants, children, people in need, the ill, people with disabilities and the elderly suffer.
The belief that America supports those in need... a by-gone memory, day by day.
*
Oh, and the vehicle at the Pontiac, MI truck factory?
It had a sedan chassis + a truck body on top = the SUV, among the best-selling vehicles of all time.
We COULD create much more manufacturing. BUT, those at the top, the multi-billionaires... would have to buckle their belt a couple of notches tighter.
We should learn from history.
"Nero fiddled while Rome burned."
Marie Antoinette: "Let them eat cake!"
21
So, in other words, the best way to actually improve the trade balance in a least disruptive way, is to start producing things other countries would want to import?
Isn't that what Germans actually do?
19
As with the withdrawal from the Paris Accord, any pressure on Donald ti not apply the tariffs will only goad him to do it.
Surely by now, all the leaders of the world's business and government understand that Donald isn't rational and doesn't speak for the nation.
Just bear with us fellow Earthlings, and we shall correct the error.
6
Paul...Great analysis of the dynamics that these tariffs would likely set in motion if they are enacted. Could you have an animator work on a simple “picture book” version to send over to the White House?
7
Elect a failed casino owner/gameshow host, get a pre-Keynesian economic point of view....What's next, pegging the dollar to our gold reserves?
8
The US trade deficit with China alone when Trump came in was $385 billion. Just China. Everything else was negative too, but the real problem was with China. https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republi...
We don't need a trade war with everybody, much less Canada. We need to do something about China, specifically just that.
However, this column again brings front and center the assertion that we are at or very near full employment. That is true in only the most limited sense, and the extreme limitations are shown by the lack of movement on wages.
The limitation in the Labor Dept's U-3 numbers on unemployment, and the other measures cited before by Krugman, are that they are short term comparisons, while the unemployment problem has been running long term.
We have many more who can and should be employed, but they are not classed as "unemployed." Many are not counted, because they've been unemployed for too long, and so have dropped out of the numbers. Many more are new workers who are underemployed, but don't show that by the usual measures because they've never had a good job, so they don't show as downgraded; they're just college grads doing low wage, low skill jobs.
If we fixed the problem with China, there is room in our economy to pick up that slack.
7
I'm not convinced that the argument that labor force participation rate can suddenly soar are valid and will allow for greatly higher growth. Think skills gap for previously laid-off middle age workers, automation, massive baby boomer retirements among other structural issues. As for college grads being underemployed, will they really be going into those manufacturing and mining jobs Trump wants to revive? Perhaps they would be more interested in more forward-looking fields like renewable energy, research and investigation and healthcare to mention a few. Funny, not much support for this from the GOP in general and Trump in particular.
7
We don't need parity with every country to have a balanced trade deficit. We can have a big trade deficit with one country and a trade surplus with others.
John Allen -- True. We are however unlikely to have a surplus with other nations on the scale of our deficit with China. That is entirely out of bounds, manipulated, run wild. We need to get that to some reasonable norm, in order to balance it off with reasonable normal surplus elsewhere.
There are many things that are wrong with the proposed steel and aluminum duties, but shrinking the trade deficit overall by bringing back a portion of the off-shored manufacturing is a net positive for the economy - and also a contribution towards lower inequality. Argument about low unemployment is quite weak: many now employed took large pay reductions and self-esteem losses compared to their old manufacturing jobs, and low-paid service jobs they are now doing could easily be automated or combined with others (or even not done altogether - in many Southern states the supermarket employee would take your shopping cart to your car and load your stuff into the trunk; in the Northeast we are doing it ourselves...). There is still a plenty of slack in the production capacity as well (the main reason why the companies don't invest... they can make much more with the equipment and labor they've got already). The main argument against the push for the lower trade deficit is simply realization of the fact that pricier goods in the stores upset many more people than the number of those that achieve more fulfilling and better paid jobs. It won't end well, however...
11
Professor Krugman: thanks for your column. I've been bothered by the lack of any concrete financial data and projections on how the reversal of the US from a net energy importer to an energy exporter will benefit our economy. The areas that come to mind are numerous. The effects of the reduction in energy imports should have a profound effect on our trade balance. If so, why are we still running such a large deficit? The Trump administration seems to be blind to the increase in US energy exports. I recently read that we surpassed a million barrels day of oil exports. And oil isn’t the only energy product we’re exporting. Do short-term and long-term projections exist on how these exports will increase and to what extent they will help our trade balance? I've read that increased US natural gas production and the associated decline in price has enticed new industrial plants to locate factories in the USA. Especially those that manufacture plastics. Certainly when they come on line they will contribute a real positive effect on our trade balance. So far, little or no mention regarding these plants has appeared. I’ve read that oil and its energy derivatives are used in the manufacture of over 50,000 products, many produced in the US. Our new status of meeting our domestic energy requirements should give our industry a one up on many, though not all, foreign industrial plants. Why aren’t the effects of these positives for our economy and trade balance being discussed by the media.
14
Hans von Sonntag commented on the predecessor column that the best thing the EU could do with Trump's tariffs, if they materialize, is ignore them. Do nothing. He writes, "Any (eligible) hostile answer means feeding Mr. Trump's ego. Thats all he wants. The most successful punishment is doing nothing and let the economy do the self-whipping." I.e., the U.S. will be the bigger loser, per Krugman's analysis, so let it have its way.
42
I keep hoping Mr. Krugman will explain the "twin deficits" phenomenon--that a nation's current account deficits often, but not always, occur in tandem with budgetary deficits. I sort of understand the theory, but I don't understand why it doesn't always work. I think his analysis might help us grasp the probable implications of massive U.S. deficits on the national and world economies over the next few years.
3
It would also be interesting to find out the production capacity utilization by the steel and aluminum manufacturers. If they are close to the max, the tariff will likely have a seriously negative effect as the domestic production will not be able to meet the demand. These industries do not likely enjoy a quick and flexible capacity adjustment.
The steelworkers, unions seem to favor this move as I heard on TV from a union leader. I am not exactly sure how and what kind of positive results they may expect from the tariffs. If they think it will raise their wages, I suspect they are sorely mistaken.
There are some concerns, quite possibly valid concerns that China may be dumping steel into the market. That is possible through government subsidies in most instances. What makes anyone think that they will not simply increase the government subsidies even with the tariffs in place and still dump their products at low prices.
Hard to see the logic of the tariffs and trade wars.
12
Good points. The US can't export metals....too expensive. The US can't mine everything we need to produce metals....too expensive. We can't keep funding troops in Afghanistan to get the $1 Trillion mining rights....too expensive. So, the US is stuck with supplying only domestic production demand. Taken that fact, if we can export more finished goods such as construction/farm equipment and other finished products we can come out ahead. But the tariffs will increase prices in those finished goods. And inflation is already creating a higher dollar so less competitiveness. If those products are not purchasable in other countries we win. If there is competition, we lose. My thinking is that tariffs should only be used when there is a clear sign of a loss of a strategic industry or clear proof of cheating on current agreements.
7
I should also mention the very strong possibility of US steel manufacturer rasing prices as well. If the imported sells for 10 why should I sell for 7? This is how trade wars hurt economies.
A point that always seems to be overlooked in discussion of tariffs: Every ex-im transaction is a balance between cash and goods. Even in aggregate, cash fills every gap. The importance of this is that a nation with which we have a deficit relationship amasses dollars. Where do dollars go? The logical place is a no-risk investment which doesn't require forex costs. Treasuries. If exporting nations are not returning cash flow, then interest rates rise regardless of what the Fed does. It will be more expensive to fund national debt, and inflation will rise.
5
Yea, and inflation is already here. Field hands returned to Mexico or are hiding so fruits and veggies are rotting in the fields in California and Arizona. Full employment is causing wages to rise, so more inflation. Already Japan is looking at having a black ink trade quarter due to the increased dollar rate. What bothers me is that there is no leadership in Washington and no sign of any coherent direction. Who knows where things are going.
1
Excellent comment. And the effect Mike is pointing out is above and beyond the hypothetical Krugman outlines, of interest rising to meet inflationary pressures, itself a scenario that assumes NO retaliation by trading partners, an unlikely scenario. That means the risk here, of Trump unilaterally imposing tariffs, is far higher than commonly understood. As if we need reminding, the US is a debtor nation already. Starting a trade war is about the dumbest thing for a debtor nation to do--even dumber by one having a de facto global currency status! Add to that the recent tax scam, with ever-shrinking receipts to a government Americans expect to be responsive to demographic and environmental challenges we know are fast approaching, and it all portends to a Perfect Storm of social unrest in tandem with economic chaos, should Trump follow through on his threats.
As if that isn't bad enough the positive feedback loop created by interest rates rising to squeeze the inflation threat resulting from increasing domestic prices, while trade policies reduce demand for US treasuries, pushing down the value of the dollar, creates a virtual black hole effect. At first it doesn't appear you're in much danger, the singularity being some distance away with no objects in the immediate vicinity, until you realize you've already crossed the threshold of no return. We become 90s deflationary Japan times a hundred. Then Trump will blame Obama.
1
This is just another little scam meant to appease some of his supporters. First the tax cuts, many payers will see a slight drop in their taxes for awhile, and a few dollars more on their paychecks. The catch is they do not notice the slight increase in their consumption costs, so they fawn over the Rump.
Now those steel and aluminum producers may see an increase in demand from them. Since their costs are higher that those countries Rump is complaining about, they can sell at the higher price, and that price will cascade into higher prices for just about anything containing AL.
We have a history to show what the effects of such actions. It was tried before with the:
https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act
there is divided opinion on this, but the general analysis is ti exacerbated the Great Depression and reduced exports, other countries retaliated.
"According to Paul Krugman, "Where protectionism really mattered was in preventing a recovery in trade when production recovered." He cites a report by Barry Eichengreen and Douglas Irwin: Figure 1 in that report shows trade and production dropping together from 1929 to 1932, but production increasing faster than trade from 1932 to 1937. The authors argue that adherence to the gold standard forced many countries to resort to tariffs, when instead they should have devalued their currencies."
4
Good points. I have talked to a few of the "Rump" supporters about their "reduced taxes". I tried to explain that in extreme deficit mode a "tax cut" is just taxpayers borrowing money from themselves, money they will need to pay back in the future to pay off the debit. On top of that, until it is paid back they will need to pay the interest. So, this "tax cut" is really a "tax increase". But no one can understand that. Unfortunately most supporters are very simple thinkers who don't understand that 1 minus 3 does not equal 2. Pointless to try to get the "religious" supporters to comprehend simple math. I suspect it is partly due to the "Great American Math Allergy".
22
One possibility that Dr. Krugman has not commented upon. What if the US pursued a policy based on balanced trade? This has been proposed before, but was defeated in Congress through the efforts of special interests -- oil importers mainly. To wit: Grant US exporters $ trade credits that US importers must buy on a regulated exchange before releasing equivalent $ to pay for goods and services intended for resale within the US. This originally was proposed by Warren Buffett some years ago in an article published in Fortune.
7
We have such a system. The credits are called “dollars.”
I'm not sure Trump can handle walking and chewing gum at the same time. I'm certain he can't digest the complexity between trade deficits, the value of the dollar against foreign currencies, and interest rates.
I'd say if anyone completely understood the overlapping dynamics there would never be recessions, just pleasant economies humming at 3-4% growth every year. But certain folks hijack that calculus intentionally and never seem to suffer the consequences.
They tend not to take public transportation to work on Main Street, rather they wear Armani suits in the backseat of their chauffeured limousines.
34
I think this, like other Trump's tweet-based pronouncements, is a diversion. Something else is going on and Trump doesn't want you to look there. Perhaps Hicks has decided to testify, or the investigation of the Kushner business with Qatar is getting close to the Oval Office, or something that is currently not in the news because everyone is focused on the latest tweet-storm.
Trump is pretty good at diversions hoping that the other problems will simply fade from view or disappear. Not likely but worth a try.
162
He is very good at diversions, and this may well be one of them. But he is determined to maintain his campaign promises (all of a sudden he cares about his word - truly ironic), and he also gets bored and has a short attention span and needs a new toy to break every day, if not every hour.
1
"Buy local" is a wonderful motto for farm to table food. But otherwise....
3
two issues with Paul's analysis:
1) He's either surprisingly ignorant, or so politically motivated that he completely ignores that this is a maneuver in the trade war that the Chinese started quite a while ago, and that isn't an escalation, but merely a response to their tarrifs on American imports
2) Paul (and the western press) completely ignore the purpose of this specific maneuver; to preserve our manufacturing capability. Without steel and aluminum production, our economy and national defense are completely vulnerable to a trade embargo. Homes, roads, buses, wind turbines, all dependent on the availability of steel and aluminum. Letting the Chinese destroy our steel production is negligent or malicious.
6
How about American public start buying more "Made in USA"? Even if it would be 5-10% more expensive?
In my experience it is what many Europeans actually do. In Germany I heard quite often that behind every German product there is a German worker.
Alternatively, how about American private enterprises exhibit more patriotism and invest domestically more?
5
As has been reported elsewhere, the three most important exporters of steel to the US are in this order: Canada, Brazil and South Korea. They are strong allies. In fact Canada is the strongest allies of all. Trump is starting a trade war with Canada. Think about this for a minute.
China is not even in the top 10 exporters of steel to the US. Mr. President, please explain.
7
Agree. IN fact, steel and Aluminum should be part of national security/safety.
Whether trump means well, did it with right methods to execute or merely to distract, is another matter.
Inability to have manufacturing in a large country with 300 million people is disastrous at best.
Krugman implies but does not explicitly state this: Any tariffs would make the dollar "stronger" (which Trump has said he hates), leading to reduced exports, and ultimately the same trade deficit. Tariffs cannot cure the heart of the trade deficit "problem" (most economists, including Adam Smith, don't think deficits in of themselves are a problem) -- trade deficits reflect the national savings and consumption rate. A reduction in personal consumption of about 3% would wipe out the trade deficit. I deficits are critical to him, maybe Trump should be telling his blue collar supporters in the Midwest to not buy excess amount of clothes, electronics, or gadgets, rather than ranting on Canada.
16
Labor market much too complex to be modeled by official statistics. Much unrealized capacity around; people switching from self employment to better full time work but one small example of unacknowldeged leakage in the official numbers. Imagine that someone gets a raise and economists start hyperventilating.
2
@Private
You ignore one big problem with that simplistic analysis ('just too complex for models'). Trump's (and the GOP's) recent tax scam plan just incentivized self-employment over 'full time work' (a euphemism for 'employee' of someone else's company?) by providing the "pass-through" tax break. So, that 'unrealized capacity' might just get someone hired for a lemonade stand, rather than at Amazon, Walmart, or FedEx. Or the unemployment line. Good luck talking to young people about any sort of future worth living for in that scenario. They're going to realize the rug has just been pulled out from under them, by their unserious, celebrity-addled parents and grandparents.
6
Geeze professor, you're suggesting a two function calculator when the Trump White House cannot get past the morning tweets much less care about trade and employment and industrial output. Besides, Trump has already broken the White House China, melted the silverware and sold arcade tickets from the West Gate.
12
Tariffs and quotas hurt US consumers even in the absence of trade wars because:
1. The disposable income of US consumers is reduced which will reduce demand for goods and services and result in layoffs.
2. The reduced demand for foreign products will cause foreign companies to lay off foreign workers, who will now be unable to buy US goods and services
3. Foreign governments will receive fewer dollars with which to buy US treasuries. Interest rates will rise and US investment in housing and other industries will be negatively affected.
This is a vicious circle, a “slippery slope.”
The trade balance is not a real problem. Tariffs (and quotas) are not a solution, but will create real, serious problems.
22
Professor Krugman, as always I really enjoy your analysis, but isn't President Trump correct when he says that the trade deficit is $800 billion? My understanding was that the trade deficit was $800 billion, and the current accounts deficit $500 billion (https://www.economist.com/news/economic-and-financial-indicators/2173755...
4
Not sure why you would only want to look at the goods deficit without the services deficit. Both are a factor in how many workers are effected by the proposed trade change. My concern is it will maybe a have modest employment effect for steel and aluminum producers but there are very few to start with, like 140,000 and automation continues to reduce the numbers. Industries that use steel and aluminum employ 16,500,000. Pretty risky policy move.
2
Krugman's minions are overwhelmed by his ability to determine correlations and derive inferences directly from those calculations. That's what macroeconomics is. It's also one of the reasons economics is a pseudoscience.
I agree the tariffs are a terrible thing, but the low unemployment rate is a specious argument. The reason the number is so low is that the gov't doesn't count anyone who hasn't looked for a job in a given period of time. If you look at the labor force participation rate, it's below 63%. Granted not all those millions of people are able and willing to work, but a number much, much larger than 0 is labor-in-waiting. The slack in the labor force is never talked about, but IMHO it's the mostly likely reason we don't have wage inflation, or more inflation in general.
Sure, you can make any number look better by excluding results that you don't want to count. We can declare that anyone who hasn't killed anyone in 90 days isn't a murderer either, and then cheer that the number of murderers has gone way down! But it doesn't mean we're any safer. So why do we not count the millions of unemployed simply because they're discouraged?
That said, I don't think tariffs boost employment.
25
Agree, and I would add underemployed to that. A lot of people I know are employed way below what their experience and expertise call for. I myself am getting paid for my skills less than 10 or 15 years ago.
19
I think Mr. Trump will be persuaded to back down on this one. There are powerful forces in the US that don't want to take away the punch bowl by raising interest rates.
1
What is the big deal? Our government is running based on deficit spending. If one looks at the extra GDP improvement reports every year, one sees extra GDP is less than the deficit every year. For example, if our GDP increases 3%, that indicates we generates 51 billion more output (0.03*17Trillion). But in the same time, our government may run a 500 billion debt to support the country. Use 500 billion to obtain 3% GDP indicates that our economy is inefficient and not that good at all.
1
If you look at the ratio of imports to exports, you see the countries that are doing the most to add to our trade deficit.
The worst countries by that measure are Russia, China, Indonesia, Malaysia, Venezuela, Algeria and Thailand. Those are the countries that exploit the opportunity to sell to the US while refusing to buy US goods.
Not one of those countries is a close US ally, and several are rivals of the US. The countries I have listed account for 57% of our trade deficit. A 30% tariff on all the exports from those countries would be a good start.
There are some other benefits to hitting Russia with tariffs. The White House needs to put political distance between itself and the Russians and tariffs would help to do that. Also, it is time to retaliate against Russia for their interference in our election.
19
They also aren’t major sources of steel and aluminum. The tariffs announced hit our allies not the states we have big imbalances with.
31
30% tariffs will blow up the WTO and create international trade and production chaos. I'm not a fan of the WTO as constituted but I'm less a fan of chaos, which is most likely to benefit dictators (like Putin and Xi) and nihilists (like Bannon).
6
Your assumption that this policy would operate in a vacuum is wrong. If foreign countries were to raise a 30% tariff on US goods do you think the US would have no reaction? The hint of escalation in a new trade war is already there. The one sure loser would be the consumer.
1
Try this, we are no where near what real full employment would be. Many could and would work into their 70's if appropriate work was available and needed.
14
And they'll have to work into their 70's and if they live so long 80's when the Republicons (sic) put the ax to Social Security and Medicare and Medicaid, as they are already drooling to do (according to Speaker Ryan and others).
77
Dude, I'm 72, and I ain't going back to work. I've put in my time; you try swinging a framing hammer for 55 years and check back with me then. I don't want or need appropriate work, I need a stable economy so my savings won't be depleted. I also need a stable president so I can sleep at night.
126
On second thought, maybe vulcanalex is showing a subtle sense of humor at the expense of Republicons (sic) like Ryan. It would seem out of character but we shouldn't underestimate people.
1
American steel executives were close to the Trump campaign, including a recently retired one. Their main beef was this: America now makes 1/7th of the steel that China does, down from a much larger share in earlier decades.
It's easy to blame this on China, whose currency and P & L statements have far less correspondence to real world business pressures. Since major sectors are state owned, they can play the long game, something they are better at on other levels as well.
The solution, however, is not to enact enormous tariffs, especially since downstream steel products have far more importance in our economy. Rather, the US steel industry should get government support to modernize steel mills, and place far more emphasis on recycled steel. US steel made from scrap is globally competitive, but our ancient blast furnace and coal heated steel is not. Better to limit scrap exports (most of our scrap cars and appliances on the West Coast go to Asian mills), build more minimills, and provide environmental incentives.
There is a huge potential domestic market for steel in the form of steel framed housing. We built thousands of them on the West Coast in the 90's, but demand from Asia raised prices, while a two by four remained at $2 apiece. Houses would last far longer, resist fire and earthquakes better, and spare us the continued liquidation of small tree remnant forests in the US and Canada.
It's not that hard.
[email protected]
236
I've often wondered why we keep framing things in wood. It doesn't make sense, does it?
3
Cheap, light, easy to work with, does not rust. Holds up better than steel to a fire. Look it up.
We buy wood and steel and aluminum from Canada. Building with steel?
Let me provide a real time example of what a disaster punitive tariffs are: The current softwood lumber dispute with Canada.
In normal times, Canada supplies about 30% of the lumber coming into the US. For about the past 30 years, the U.S. has accused Canada of dumping lumber into the U.S., for reasons 1,500 words aren't enough to explain. Every one of those disputes has resulted in duties, followed by litigation, followed by a settlement which results in minor relief for the U.S. producers and Canada getting back most of the duties paid.
Right now the U.S. and Canada are in the middle of one of those dispute/litigation periods. Lumber tariffs, which are comprised of a countervailing duty and an anti-dumping duty, are generally together between 20% and 30% for most Canadian producers.
So what do you think has been the consequence of these duties? Lumber pricing in the U.S. is currently at levels not seen for the past 30 years, if not longer. U.S. lumber producers are printing money. The Canadians are paying the duties but still making good money because U.S. pricing is so high. So neither side has any real incentive to settle the dispute. And many lumber producers have mills in both Canada and the U.S., so they are doing well on both sides of the border.
Who is winning this trade war? Lumber producers.
Who is losing? Anyone who is building, buying or renovating a home or business.
Now expand this across multiple products and industries, like Trump is doing.
302
Jack, maybe we should start building houses from steel (see my comment). If lumber subsidies were removed on both sides of the border, our great forests would have a chance to recover- and houses would last for centuries, instead of 60 years.
19
Mike, I agree that steel lasts a long time. But wood is a renewable resource and forest owners replant and reforest their land. Iron is not renewable and it takes a lot more energy to make the steel for a house than the lumber. Lumber mills usually burn the bark, chips and wood shavings to make the steam they need to run the mill--again, a renewable resource. Not so with a steel mill.
11
Surprisingly, steel does not hold very well in a fire, less well than wood, and it tends to rust. Wood is a renewable resource, steel is very energy intensive. It is possible to build wood houses that last centuries. Quality of build and materials are two different matters.
8
In Canada, some of the commentary has suggested the US wine industry as a focus for retaliation. Canada has a small domestic wine industry to encourage, and Canadian consumers have lots of foreign choice if California wines suddenly become 10%-25% more expensive.
The injustice of course is that California is hardly a hotbed of support for Trump. But that's an example of the unintended consequences, and insanity, of trade wars.
151
Canada's wine industry is growing fast, and some regions -- e.g., the Lake Okanagan region of British Columbia -- feature absolutely world-class wines (from some of the 200+ producers). I believe that wines are exempt from NAFTA and already covered by tariffs, in both directions, which is why it's hard to find much Canadian wine (aside from the occasional ice wine) in U.S. stores -- alas.
Initiating trade wars is indeed an act of insanity.
56
Not a very effective retaliation. As you mention, wine-growing regions in the US are among the least Trump and GOP friendly places. Also, in the US (as in Canada) wine drinking is seen as an effete coastal elite thing. When you add in the fact that Ontario, for example, already heavily favors locally produced wine in its provincial monopoly wine stores and in the large differential in tax rates on imported wine, the effect of such "retaliation" is minor to say the least. Many of us hoped the free trade would kill off the awful Ontario wine industry, which is maybe marginally better than the Finger Lakes region in NY state (which has the same climate), but I guess Canadian patriotism keeps it alive...
A better bet would be to go after distilled spirits, many of which are produced in southern (GOP) states and which have more of a working-class image.
4
Stan, are you saying Finger Lakes wines are only less awful than Ontario wines? Oh, oh. Trade-insults war coming!
There are excellent Finger Lakes wines. I can't speak to the average quality.
6
Trump in his infinite stupidity, has just announced that if Europe places import tariffs on our goods, he will place tariffs on their cars. Europe has done nothing yet, and Trump is threatening massive retaliation. So what's going to happen when trade sanctions are actually made in retaliation? That maniac is on the verge of starting a real trade war. The kind that results in global recessions.
I operate a small cottage industry manufacturing concern. Last year, my income was cut in half because of Trump. About half of sales go overseas. Last year, those dropped by at least 75%. As of Feb. sales have rebounded strongly and most all of those were for export. My European and Asian customers started buying again. If he starts a trade war, that business will certainly dry up.
I have parts made for me out of aluminum. Those have been rising in cost anyway. Understand this. The 10% tariff is much higher when the product hits the customer. Here is how it works.
Let's say my fabricator's material costs rise 10%. He will then raise his prices by 20% because he can't eat the cost of tying up more money in inventory. All fabricators use a multiplier based on raw costs. When I buy the part, I have to add in my multiplier for the same reasons. If there were a retailer in the chain, they would do the same.
The tariffs are then highly inflationary which will trigger higher interest rates.
We will end up with both inflation and a global recession. MAGA!
424
And Trump has done nothing yet either so why are they threatening anything? How foolish you whine about one thing yet the same thing when done by others is nothing.
7
Bruce: Thanks for this perspective. Unfortunately, in order for Trump to understand the effects of tariffs as you describe them, he would actually have to be a real businessperson, instead of just a fraud and a conman.
5
interesting comments. thanks.
you wrote "I operate a small cottage industry manufacturing concern. Last year, my income was cut in half because of Trump. About half of sales go overseas. Last year, those dropped by at least 75%."
but you did not indicate whether your loss of export business was due to Trump's trade policies, or due to other reasons.
could you elaborate ? thanks.
I just read that the orange one wants to impose a 25% tariff on European cars. A lot of American buyers of cars like Audi BMW Volvo Volkswagen Mercedes and so on won’t be happy. What about the American cars that are made in foreign countries like Mexico? Will there be a tariff on them? Are Japanese cars next? Who knows what inside that head.
50
And what about all the foreign-branded cars made in US factories?
1
Cars made in Mexico will probably be covered under NAFTA.
Besides, wouldn't you rather purchase a vehicle assembled by UAW labor? Solidarity forever!
@DMC: Those foreign-branded cars made in the US are providing good jobs in right to work states. A Honda built by non-union labor in Ohio or a Ford assembled in Chicago, which will progressives purchase? So much for solidarity.
We fear it is too often forgotten that His Unhinged Unraveling Unfitness came to office with a Chief White House Political Advisor (supported by the likes of the Mercers) who famously declared:
“I’m a Leninist. Lenin wanted to destroy the state, and that’s my goal too. I want to bring everything crashing down, and destroy all of today’s establishment.”
https://www.thedailybeast.com/steve-bannon-trumps-top-guy-told-me-he-was...
The Orange Jabberwock is from the same cloth, is incurious, and has a compulsion to upset things/overturn the chess table - witness his intervening in DACA just as a deal was about to made, killing off any chance for such a deal. Witness his intervention this week just as a deal (tiny as it may have been) was about to come together on gun control. And then we got to witness his same propensity to 'disrupt' when it comes to international trade.
This guy has told us who he is for 71 years, is impervious to fact, and has the completely unenviable track record in business proving all of it - we should believe him, and it's time his Cabinet (Wrecking Crew though they are) stepped up to invoke the 25th Amendment.
Bone Spur Donny will become more and more desperate/irrational, the more it looks like Dems will take over the House in November.
Anyone want to venture a guess as to what this guy's limits are ?
360
I'm no fan of the Wall Street Journal, which has functioned as one of Trump's most steadfast water-carriers. But you have to give credit where it's due. On March 2, they put out an editorial that spells out in detail what a truly horrific idea these tariffs will be. One of the points they make is that Canada and the US are currently in NAFTA re-negotiation talks. Trump promptly, out of nowhere, announces the tariffs, thus casting the negotiations into limbo. The editorial asks the obvious question: Why would Canada now believe anything Trump says? Their editorial board seems to have caught up with everyone else. About time.
506
Why do you assume (you know what that makes you) that Canada would be effected. As you indicate NAFTA might over rule any tariffs and there is currently no details for the president's proposal. Keep calm and carry on, as a famous person once said.
Vulcanalex, Canada is the US' biggest supplier of steel, followed by Brazil and South Korea. Yes, Canada would be greatly affected.
3
vulcanalex:
Thank you for jerking you knee, again.
You can fight with Trump advisor Peter Navarro.
https://www.washingtonpost.com/news/post-politics/wp/2018/03/04/trump-tr...
Headline:
Trump trade adviser says no exceptions for allies on new aluminum and steel tariffs
Quote:
White House trade adviser Peter Navarro appeared to draw a firm line against case-by-case exemptions as he defended President Trump's sudden imposition of new trade premiums, which are likely to hit Canada and Europe hardest.
“That's not his decision,” Navarro said when asked about the possibility of exemptions. “As soon as he starts exempting countries, he has to raise the tariff on everybody else,” the adviser said when asked about Canada and the European Union. “As soon as he exempts one country, his phone starts ringing with the heads of state of other countries.”
In a separate interview on CNN, Navarro suggested that Trump could indeed grant exceptions if doing so would serve U.S. interests. And Commerce Secretary Wilbur Ross said that although he does not expect Trump to change his mind, he does not rule it out.
End quote
Navarro says you are wrong. Are you going to rebut him? (I would love to be a fly on THAT wall.)
But, as usual, even Trump's pals say that Trump may need a mulligan (once somebody hits him upside the head with FACTS).
Who wudda thunk it?
3
I just wish our government had dealt with the ramifications of closing some 60,000 factories moving most overseas to China, completely ignoring the employees losses, the effects on Town and state revenues while the importers made huge profits with increased gross margins. Not one penny of that profit was ever shared with those who suffered. Upstate NY, CT, Ma, Ohio, NJ, North Carolina, Tennessee, etc, etc. Some 24 million blue collar jobs lost as well as 6 million white collar jobs and a whole slew of support services. If government had taken action to protect our own, Trump would not have the excuse to cause this trade war. I don't defend Trump, but I can't defend our country letting the middle class suffer the huge loss of wages, pensions, and benefits. And by the way we can see how CHina is just so appreciative of us funding their economic expansion. We can see they are building a massive military to defend us, and are vying to provide their own support to helping us keep our reserve currency status! So glad we helped them (and not our own).
37
The unspoken economic model that evolved and exploded during those years, complete with a bubble every decade, that called for a reset, was a model of wealth and waste.
Waste is the way to beat diminishing returns, the fact that over time, all profitable activity will approach equilibrium. Fire workers, steal their pensions and benefits, fold companies into companies by mergers, and the high cost of the last unit is transferred into revenues. The result is what we witnessed: massive waste. Cities and factories abandoned in order to increase profits and revenues.
Tariffs are a tax. Trump is raising taxes after giving corporations a tax cut. But this tax on imported goods, iron/aluminum, increases domestic prices. Public revenue in tax cuts is transferred to the private sector. As tariffs, higher taxes create revenue and profits through artificially raising taxes/tariffs. The public treasury and the private citizen pay for corporate greed.
The irony here, it turns out, is Canada, not China, is hit the hardest! Recall Ross Perot's giant sucking sound.
109
Alfred
Government doesn’t stop from moving overseas. Cheap labor is what closes factories- that is capitalism 101. I understand your feelings about lost jobs here at home but companies and shareholders are interested in one thing: profit.
52
Trump was not president then, and not doing anything about those things is one reason he is now president. Some want more jobs in the US for citizens and less cheap stuff.
5
"Trade wars are good and easy to win.”.
Such advice isn’t easy to spin,
A “genius” self-proclaimed,
In good health, brain not maimed,
With these words can do himself in.
Empty barrels do make the most noise
And the Donald is lacking in poise
But he says he is smart
One more lie in huge part
That impresses all the Rust Belt boys.
133
Years ago the labor wing of the Democratic Party shouted "Buy American!" and "Out of a job yet? Keep buying foreign.". Democratic candidates for office never seemed to pass up the opportunity to whip up the crowd with slogans along the lines of: "You're the skilled hands that built this country!". They also claimed that higher labor costs would not hurt manufacturing in this country or cause higher prices..
Now folks like Larry, Hillary and Krugman have deemed the "Rust Belt boys" regressive and deplorable.
And why must we open our doors wide for imports? Because it's too expensive to build the products in the US!
What a world, what a world.