I didn't get the Trump tariffs at first. It seemed like a hastily implemented half-thought economic trainwreck. Or at least that's what the stock market says. But now I think I understand some of the logic.
The basic problem-model Trump is responding to is that we are buying cheap goods from China by borrowing money from China. I don't know if this model is fully accurate, but I'll make the case for it:
The US government spends too much money. The treasury spending deficit is balanced by selling debt. The over-spending causes an excess of US dollars and US debt. People downstream of this government spending, and downstream of them, then spend this money on goods, often from overseas. We make some stuff to export in return, but not enough to balance what we buy. So the net result is dollars flowing overseas. Those dollars are either held directly as a claim on US assets (the "strong dollar") or debt in the bond markets. When the overseas markets buy debt, the money makes its way back to the Treasury. Net result: goods flowing in, debt flowing out, mostly China these days.
US dollars abroad also come back in unblanced ways when they are spent on stuff like US real estate and US stocks, which is to say we are also selling off our land and economy on the margin to fund our consumption habit. Goods flowing in, equity flowing out. Same idea as with the debt but more sharia-compliant.
(This simple picture is perhaps complicated by the "strong dollar" thesis, which is that foreigners really want USD for some reason other than buying US debt, real estate, and equity. It may also be complicated by the money printer shenanigans which I don't really understand. If someone could explain those to me I would appreciate it.)
Endlessly buying goods on credit and by selling equity is generally considered a bad habit. We've got to break it. Seems there's a few ways:
1. Decrease government spending, which would decrease the amount of debt and dollars flowing out into the (world) economy and thus decrease amount of goods flowing in, by decreasing American (debt-financed) buying power and consumption.
2. Increase trade value export, which would balance the trade deficit and stop the outward flow of ownership but would still allow the excess debt/dollars to build up domestically.
3. Increase taxation to balance the treasury deficit, which would result in fewer loose dollars and less debt, smaller economy, less buying power, but more realistic accounting.
4. Decrease the trade deficit by reducing consumption of foreign goods. Again, weaker economy and less nice consumption for us, but more disciplined accounting with no more new production of foreign creditors.
5. Extract tribute (eg taxes, favorable trade) from foreigners, using military might and other negotiating leverage instead of debt to balance the trade deficit.
While not as comfy as simply increasing the productivity of the US economy and making government spending somehow efficient and productive (idealized option 1 and 2) the tariffs are a clever way to bite the bullet on 3, 4, and even 5: by shifting taxation to directly tax the trade deficit ratio (which is what Trump's tariffs do), we reduce excess (debt fueled) consumption, reduce excess debt outflow, improve treasury balance, and hard-press foreigners to find more balanced ways to trade with us. We may also make it possible to reduce domestic taxes. Doing so independently with each foreign country seems to be a way to force individual negotiations for more favorable trade balances.
So yes, this is going to hurt the economy (decrease consumption of foreign goods). That's part of why the tariffs are hurting our portfolios. But this pain now appears to me to be a necessary correction to a debt-fueled unsustainable lifestyle. It had to come sooner or later.
I have seen intellectuals propose quite a few different galaxy-brain explanations for why a philosopher-king might do something like Trump's tariffs. Each of these explanations is internally coherent, but they're quite different from each other and often contradict the other apologias, and don't seem to match anything Trump has done or said in his life. What's the evidence that this is Trump's plan, rather than just another unrelated argument which you came up with post facto?
>>2833 I don't know what they are thinking, I'm just trying to make sense of it if there's a logic there. You're right this is post-facto. I think we do see a logic that makes sense. The details and rhetoric around it also seem inconsistent and half-baked as you say. It's unfortunate because there probably is a good policy somewhere around here that would actually work, and something in the area seems necessary.
Here's Yarvin with basically the same mercantilist necessity, differing on the details of Trump's tariff plan but with the same overall intent: stop running trade at a loss. I don't disagree with his take until he gets to his AI-take-your-job speculations which seem beside the point. My apology for the tariff plan as is is much more for the intent and necessity of something in the area than it is for the details. Yarvin proposes an arguably superior mechanism for the same intent: https://my.webchiver.net/share/5mxp2ofif/article-1981843.html
On the other hand, here's Hank Oslo saying they basically fucked it all up and they need to go back to the drawing board and find a way to save face. I won't bother to disagree on the matter of execution except to note that he's talking about trade barriers and economic opportunities, not mercantilism: https://theamericansun.substack.com/p/nobody-panics-when-its-according
>>2834 >I don't know what they are thinking, I'm just trying to make sense of it if there's a logic there. The logic could just as easily be "This keeps the media reactive and confused and keeps me driving the news cycle". Or "I'll be able to use this to negotiate concessions and I don't have to go through with it for very long". Or "I liek tariffs". Or "I told Bob I'd do big tariffs in return for his support in the election so now I'm doing it". Or "This creates chaos and I'm better at navigating chaos than my enemies are". Who knows?
Trump is a smart guy, but he has a lot of goals, and coherent long-term economic policy has never seemed like the top of his stack. Assuming that he has one in mind seems like quite a leap.
I've lost interest in the "what's Trump's secret plan" game. We've watched this guy for 10 years. No sensible person would describe Trump as calculating, disciplined, patient, structured, or methodical. He's not a man with a plan.
He's a person who just tries things. He puts out feelers. Read "The Art of the Deal". Here's a condensed excerpt from page 1: > Two weeks ago, we started buying stock in Holiday Inns. Word is out on the street that I've been a big buyer, and there's speculation that I am planning a run at the company. The truth is I'm keeping my options open. I may ultimately go for control of Holiday, which I think is somewhat undervalued. A second option, if the stock price goes high enough, is to sell my stake and take a very nice profit. The third possibility is that Holiday may eventually offer to buy back my shares, at a premium, simply to get rid of me. If the premium is big enough, I'll sell.
The book is full of episodes like that. Call a vendor and threaten non-payment to see if they offer a discount. Start buying land options to see what you end up with. Announce a project to see how it's received. It's the real estate developer mindset.
I actually admire it. It could be good to bring some more of that to international diplomacy. But the key to Madman Theory is that you're not actually a madman. In his first term, that instinct was kept in measure by sympathetic but grounded advisors. This time his people have a mystical faith in his 'instincts' and are giving free reign to his pathologically disinhibited personality.
I think (very possibly) the reason Trump has suggested multiple contradictory aims of the tariffs (revenue, protectionism, negotiating leverage, etc.) is that the tariffs are an option play and he considers these aims to all be acceptable options.
He didn't turn to tariffs because they're the best tool for achieving any particular aim. He's attracted to tariffs because they are the most powerful non-military action he can take unilaterally. He decided to take a big swing with them and see what options develop.
Very possibly he's been surprised by the hard line that Europe and China are taking and by the violence of the market reaction. Unfortunately, economics is a challenging technical field, and completely unforgiving. A lot of long-term damage is being done while he looks for his exit.
>>2836 >Trump has no plan w/ these, the real estate mindset didn’t stop >He’s attracted to their power and is giving it a swing to see what happens.
Definitely agree here. These tariffs have a lot of leverage, so perhaps he can make something happen . But like you said economics is complicated and very unforgiving. I hope it gets cleared up soon. I saw China put a 30% tariff back on the US and Trump said if it’s not gone then he’d bump the tariff on China to an effective 104%.
I enjoyed Yarvin’s thinking on it. (Linked in >>2834) To summarize: tariffs to reshore manufacturing can work, but they shouldn’t be used when we aren’t ready. He calls for the USG to use VC teams and govt $ to help start bringing manufacturing home. Without a guiding hand, the tariffs are just a consumption tax while manufacturing is still so regulated(OSHA, EPA, etc.) and not very attractive or easy to do quickly.
A possible good outcome would be to see regulations sunset or special manufacturing/economic zones created utilizing the leverage on politicians.
Hope something happens and we don’t just have increased prices without any benefits.Trusting the plan has worked in the past, we’ll see if it does here as well.
for those in the replies that do not know if these tariffs are part of trump's plan — have they not been listening to what he has been saying for years? he doesn't want to maintain a structural trade deficit, enabled by an artificially strengthened dollar via its reserve currency status. it tricks americans into thinking they're wealthy when they're not, meanwhile china uses its massive stockpile of US dollars to pursue the belt & road initiative, buying up all the ports and infrastructure across africa and eurasia — and it is america's navy that protects china's ships at sea, primarily china's by the way, since they're the main trading force on the planet anyway. america's great privilege of cheap debt and strong dollars which, as wolf says, allows it to finance depreciating chinese goods with american assets, doesn't make sense anymore. the tariffs break the trade deficit, they lower the value of the dollar, thus american goods become more competitive (though we won't see the benefits of this for many years), america's financial and economic position in the world will become far more stable and defensible.
getting there, however, will be painful, especially because of the way that trump is executing these tariffs. if I'm china, or any other country, I'm starting to think — how far will this guy go? will he stop paying the debt obligations he owes me? already nations around the world are losing confidence in america as a trading partner — and there's a real cost to this — it's higher interest rates. not to mention the tariffs will raise inflation because we have inelastic / inflexible demand for so many of the goods we import, think steel, robotic arms for new factories, electronics, etc. it makes the cold start problem of rebooting the american industrial base that much more difficult. the glut in spending and liquidity will impact growth. slow growth with inflation is called stagflation, which is where we are headed. typically interest rates are raised when inflation is high, but in this case raising rates only kills growth even more, so you're in a really tricky quagmire. they solved staglation in the 1970s by raising rates to 20%, while using policy levers like deregulation and tax cuts to support growth. trump has already signaled doing the latter, we are yet to see where rates end up in all of this.
unlocking as much growth domestically as soon as possible is really key to all of this. america's debt burden is growing and will continue to grow because of the lopsided demographics in this country and the unproductive industrial base. for the decades financing the debt was easy since everyone wanted to buy us treasuries anyway. now, for reasons mentioned above, this is no longer the case. it will be far more expensive to pay for the social security, medicare, medicaid benefits that all are entitled to. this is why internal growth is the only way out. perhaps a cleverer, more subtle approach might have been taken instead of shooting ourself in the foot while trying to pull off this delicate maneuver?
This is a great thread though we seem to be having three simultaneous conversations.
1. An economic model of America's deficit problem and why tariffs are meant to alleviate them. >>2832 >Endlessly buying goods on credit and by selling equity is generally considered a bad habit.
I am struck that this frame feels like the most accurate feeling of modern America. How is America different that 50-60 years ago? Americans own less of America. Overall, citizens feel like they have less ownership because they literally do. This combined with ideological capture of all our leading institutions by the rabid left since the 60's seems to be the most erosive factors for America today.
2. Why is Trump doing what he is doing? I think >>2836 lays out the most compelling explanation of the facts. I also think people may intuit the fact that on some level Trump is "just playing a game" which is why they support his actions so much. When enough people are pissed and going nowhere in modern America, any radical change would've been welcome because they don't care whether the results are optimal or even good. They just want their enemies to suffer like they have. On that front, I believe Trump is succeeding.
3. What is the best approach for the future? This is probably the most interesting question, and >>2838 correctly points out that the only happy path for America seems to be rooted in high growth and deregulation. Personally, I am optimistic that this will happen and usher in a new prosperous age. Though, I expect the next few years to be painful and characterized by seemingly disjoint actions from the top to attempt to control the narrative. Hopefully it will pay off in the long run.
> pain now appears to me to be a necessary correction to a debt-fueled unsustainable lifestyle.
Left-wingers have environmental doomerism. Right-wingers have global macro doomerism. In both cases you have complicated technical details stretched over a basic moral narrative: our way of life is bad and unsustainable and we need pain and de-growth to set things right again.
Of course sometimes something really is unsustainable. But when environmental or global macro doomerism is felt by something who isn't an expert in the complicated technical details, that feeling is primarily a psychological phenomenon. For most people (including people here), the moral narrative comes first and the technical details come second, to explain what the person has long "felt intuitively".
I find it easier to think when I set aside grand narratives about the "global trading system" and the "post-World War II economic order". That's Substack shit.
>>2844 this criticism sounds wise but it has no substance. Who even is invoking global macro doomerism, moral narratives, or the "global trading system"? CTRL-F tells me its only you, anon. The basic subject at hand is the financial unsustainability of a trade deficit and how the tariffs do or do not address it effectively. There are macro doomers who think everything has to collapse to get fixed, but just as in the environmental case, psychologizing them does not address the matter of what to do about CO2 balance or trade balance if anything, and how much those do or do not need to hurt. All it does is let you feel smug about being so much wiser than the rest of us without actually saying anything.
