Definitely read Matt Klein and Michael Pettis on why the current policy doesn’t make sense. They were the leading proponents of the need to rebalance but are opposed to the current trade policy. Just one example is that we put massive tariffs on Vietnam and Cambodia but not on Singapore. But because many us goods that go to Cambodia and Vietnam are shipped through Singapore and count at Singaporean imports. So they get no tariffs and vietnam gets 45%. The actual balance of trade between our countries isn’t reflected in the data.
It is a hard problem to solve, and hard problems require smart solutions. Trump’s doing the opposite.
-Tariffs should be targeted by industry: Unless we care about becoming a textile or toy-making powerhouse, there’s no reason to tariff those items. There’s no reason at all to tariff bananas. All we’re doing there is increasing prices and misallocating labor.
-We should work with allies to box out China - it’s not a bad thing for manufacturing to happen in Canada, Mexico or France.
-We shouldn’t antagonize allies in general - defense is one of our remaining huge manufacturing industries for us. It relies on us being a trustworthy ally - which Trump has blown.
-We should subsidize and nurture key industries in other ways, like Biden was doing. Trump would rather undo this than improve it.
-Maybe most importantly, Trump should be very clear about his strategy and show that it’s stable so that manufactures can play long term domestic investments around them.
At the end of the day I think whether tariffs are good or not depends largely on how the revenue raised from them gets spent. If it’s used to lower income taxes I support it. If it’s used for more government spending I don’t.
I’m in a strange spot on tariffs because one minute I’m telling people I don’t like trade wars (why does Noah smith want to destroy China, I wouldn’t mind buying a cheap Eve from them). The next I’m defending them against people who hate them simply because Trump supports them.
I don’t think East Asian export economics is a good thing long run for anyone. It’s dumb that some poor factory worker in China is saving 40% of his income to buy treasuries with a sub 2% real yield so that his government can keep the currency peg. I don’t think that strategy works out great for them or us in the long run. As best I can tell the main issue is that East Asia in general and China in particular just doesn’t fucking know what it wants to consume, so it just tries to copy us or build ghost cities. Probably they should consume having more kids, maybe they could afford it by spending some of the 40% of their income they are saving on children.
Anyway, my ideal policy is that trump implement some universal tariff on everyone at some reasonable level (10-20%) and used the money to give payroll tax breaks to parents. If China wants to pay us to have children for them then fine.
Great read, especially your comments about how it might not be strategically sound to allow global manufacturing to concentrate under one sphere of influence. And that some manufacturing overcapacity isn't the worst thing in the world. Cardinal sins in the field of economics.
Definitely read Matt Klein and Michael Pettis on why the current policy doesn’t make sense. They were the leading proponents of the need to rebalance but are opposed to the current trade policy. Just one example is that we put massive tariffs on Vietnam and Cambodia but not on Singapore. But because many us goods that go to Cambodia and Vietnam are shipped through Singapore and count at Singaporean imports. So they get no tariffs and vietnam gets 45%. The actual balance of trade between our countries isn’t reflected in the data.
Same is true of Mexico and Canada. It's a hard problem to solve
This is a phenomenal take. Warren Buffett's idea compelling.
A 22-year-old idea…makes too much sense to gain traction politically (kinda like sensible entitlement reform).
This is truly well-reasoned and presented...even if I do have an admittedly formidable bias.
It is a hard problem to solve, and hard problems require smart solutions. Trump’s doing the opposite.
-Tariffs should be targeted by industry: Unless we care about becoming a textile or toy-making powerhouse, there’s no reason to tariff those items. There’s no reason at all to tariff bananas. All we’re doing there is increasing prices and misallocating labor.
-We should work with allies to box out China - it’s not a bad thing for manufacturing to happen in Canada, Mexico or France.
-We shouldn’t antagonize allies in general - defense is one of our remaining huge manufacturing industries for us. It relies on us being a trustworthy ally - which Trump has blown.
-We should subsidize and nurture key industries in other ways, like Biden was doing. Trump would rather undo this than improve it.
-Maybe most importantly, Trump should be very clear about his strategy and show that it’s stable so that manufactures can play long term domestic investments around them.
At the end of the day I think whether tariffs are good or not depends largely on how the revenue raised from them gets spent. If it’s used to lower income taxes I support it. If it’s used for more government spending I don’t.
I’m in a strange spot on tariffs because one minute I’m telling people I don’t like trade wars (why does Noah smith want to destroy China, I wouldn’t mind buying a cheap Eve from them). The next I’m defending them against people who hate them simply because Trump supports them.
I don’t think East Asian export economics is a good thing long run for anyone. It’s dumb that some poor factory worker in China is saving 40% of his income to buy treasuries with a sub 2% real yield so that his government can keep the currency peg. I don’t think that strategy works out great for them or us in the long run. As best I can tell the main issue is that East Asia in general and China in particular just doesn’t fucking know what it wants to consume, so it just tries to copy us or build ghost cities. Probably they should consume having more kids, maybe they could afford it by spending some of the 40% of their income they are saving on children.
Anyway, my ideal policy is that trump implement some universal tariff on everyone at some reasonable level (10-20%) and used the money to give payroll tax breaks to parents. If China wants to pay us to have children for them then fine.
Great read, especially your comments about how it might not be strategically sound to allow global manufacturing to concentrate under one sphere of influence. And that some manufacturing overcapacity isn't the worst thing in the world. Cardinal sins in the field of economics.