The unconventional economic theory behind Trump's sweeping tariff plans

[Yo_Mama_Been_Loggin]

President-elect Donald Trump’s plan to impose tariffs on all foreign goods relies on an economic theory that challenges traditional thinking about what causes chronic U.S. trade deficits and what can — or should — be done to shrink them.

For most of the past 40 years, the United States has imported more products from abroad than it has exported to other countries. Many economists say the resulting trade deficits contributed to the loss of more than 5 million factory jobs beginning in the late 1990s.

The standard explanation for the chronic deficit blames Americans for living beyond their means, by consuming more than they produce. The U.S. personal savings rate is less than half what it was in the early 1990s and government budget deficits are much larger, lending support to that assessment.

But an alternative view, championed by Michael Pettis, a Wall Street veteran who teaches finance in Beijing, holds that industrial policies that generate trade surpluses in countries like China are the root cause of U.S. deficits.

https://www.msn.com/en-us/money/markets/the-unconventional-economic-theory-behind-trump-s-sweeping-tariff-plans/ar-AA1uesa8

The dumbest theory since Supply-side Economics.

[Lonestarblue]

1. Every voter needs to read about the other Republican tariff theory, the Smoot Hawley Act.

It helped cause the Great Depression and made it worse.

[SunSeeker]

5. Republicans are a fountain of bad ideas. nt

[struggle4progress]

2. "Putin says: Jump up and down while clucking!"

[ThoughtCriminal]

3. Shipping Containers

The adoption of standardized intermodal shipping containers drastically reduced the time and cost of bringing goods from countries where labor costs were low.

For all the attention on trade and tax policies, it was this innovation that led to a massive shift to manufacturing overseas.

[SunSeeker]

4. But even Michael Pettis disagrees with Trump's approach.

Kicking off his presidential campaign in 2023, Trump unveiled tariff and tax proposals that he said would “rebalance the global trading system.” Trump promised to apply 60 percent tariffs on imports from China while levying a 10 to 20 percent tax on goods from all other countries. The president-elect says that making foreign goods more expensive will encourage greater domestic production in the United States.

But the new tariffs would cost a typical U.S. household between $1,700 and $2,600 per year, depending upon whether the universal import fee is pegged at 10 percent or 20 percent, according to an August study by economists Kimberly Clausing and Mary Lovely of the Peterson Institute for International Economics.

A universal tariff is one way to reduce the trade deficit, Pettis said. But he prefers imposing a tax on the foreign investment flows coming from nations that generate a surplus from their trade with the United States.

[keep_left]

6. The elephant in the room: Republicans hate the very idea of "industrial policy".

OMG!!!1111!!!!1!!11!!! That's communism!!1!!1!!111!!!1!! Central planning! Creeping Bolshevism!

The reality is that if we really do want to "make more stuff over here", we're going to need some government industrial planning and policy, not more tariffs. Note that early on, Trump actually paid a bit of lip service to the idea of industrial policy (it was around the time that he sold out the workers at Carrier, who had their jobs sent to Mexico--which shows you how unseriously Trump takes such things). My guess is that Trump was told to zip it, but whatever happened, he never spoke of it again. "Industrial policy" is understood by most of the world as necessary for an economy, but it is Kryptonite to big-business Republicans.