Trump still wrong about Trade Deficits


Trump shows Pence and Peter Navarro he can count to 10 — or 5 twice!

❝ President Donald Trump has a logically coherent strategy for achieving the goal of reducing the US trade deficit, one of his stated priorities. The problem is that his strategy is based on totally wrong assumptions about trade deficits.

❝ Two logical chains are leading the president and his team to erroneous conclusions. The first is based on the mistaken assumption that foreign barriers to US exports cause the US trade deficit. If that assumption were true, the strategy of trying to lower foreign barriers by threatening to raise US barriers would be defensible. But both theory and evidence demonstrate that barriers reduce exports and imports equally, with no lasting effect on trade balances…The second logical chain starts with the assumption that tariffs inflict more pain on foreigners than on domestic residents…But longstanding economic theory says that both the home country and the foreign country roughly equally bear the cost of tariffs. Tariffs raise costs for consumers and producers in the importing country. Moreover, there is no reason why the war must be fought only through tariffs. US businesses have considerably more direct investment in Chinese operations than Chinese firms have in US operations. On that front, the United States has more to lose from commercial conflict than China.

RTFA. For that matter, wander on through some of the goodies published by the Peterson Institute for International Economics. Unless, that is, you prefer relying to dummies like our fake president.

Trump’s ignorance is costing the U.S. billion$ in foreign investment


The cult of Trump

❝ Beyond the cost of President Trump’s trade war with longtime US friends and rivals, his policy of economic nationalism has taken a toll in another important sphere: Net inward investment into the United States by multinational corporations—both foreign and American—has fallen almost to zero. As I pointed out in a posting in Foreign Affairs this month, this shift of corporate investment away from the United States will decrease long-term US income growth, reduce the number of well-paid jobs available, and accelerate the shift of global commerce away from the United States.

❝ A few months ago, I developed in Foreign Affairs the potential emergence of a post-American world economy resulting from Trump’s aggressive bilateral bullying and abandonment of the rules-based international economic order. Today this post-American economic world, one where all investment is more uncertain and politicized—because the US government acts toward businesses as any self-enriching autocracy would—is increasingly on its way. That is apparent in business decisions about large, long-term investments, such as the building of major production facilities; foreign takeovers of, and mergers with, US companies; and investment in research facilities and workers.

Any time I note an upcoming appearance by Adam Posen on Bloomberg TV I try to remember to set the DVR to record. Often, he’s on Tom Keene’s Surveillance early morning show. That’s early morning in NYC – 2 time zones ahead of northern New Mexico. Fortunately, the Bloomberg folks are pretty smart about recognizing demand for top-shelf economists and the analysis they provide – and snip and save those episodes for their app.

Playing the trading game is too much work for an old geek retiree like me. But, I never intend to stop learning about the world around us and he’s a helluva source on the economics side.

Withdrawing from NAFTA Would Hit 187,000 US Exporting Jobs

❝ An analysis of US jobs that rely on exports to Canada and Mexico finds that withdrawing from the North American Free Trade Agreement (NAFTA) would cost 187,000 of those jobs over a 1 to 3 year period…The most affected states are Arkansas, Kentucky, Mississippi, and Indiana. The most affected sectors are autos, agriculture, and manufacturing (non-auto).

❝ These estimates are based on the latest available World Trade Organization’s most favored nation tariff rates that would apply to US exports without NAFTA — and the fact that higher prices of US-made or grown exports will dampen sales to Canadian and Mexican consumers. The analysis assumes that firms would then cut production, leading to US job displacements. These estimates do not take into account the potential disruptive impact on supply chains from an elimination of NAFTA.

Just a reminder to Trump’s chump voters who think they benefit from Trumponomics.