On Trump and trade

I think my views on President Donald Trump’s grasp of most complex issues is pretty well known … I think he is slightly dumber that Prime Minister Justin Trudeau who I assert is the 2nd least able leader in the modern world.

I also don’t think that I need to prove that I am an ardent free(er) trader so I believe, at my very core, that tariffs are almost always stupid and self defeating.

As for today’s news I think I will let American Nobel Prize winning economist Paul Krugman speak for me:

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Oh, What a Stupid Trade War

Thursday, May 31, 2018

Paul Krugman:

Oh, What a Stupid Trade War (Very Slightly Wonkish), by Paul Krugman, NY Times: So, the trade war is on. And what a stupid trade war it is. …

The official – and legal – justification for the steel and aluminum tariffs is national security. That’s an obviously fraudulent rationale… But Trump and co. presumably don’t care about telling lies with regard to economic policy… They would see it as all fair game if the policy delivered job gains Trump could trumpet. Will it?

OK, here’s the point where being a card-carrying economist gets me into a bit of trouble. The proper answer about the job-creation or -destruction effect of a trade policy – any trade policy, no matter how well or badly conceived – is basically zero. ….Why? The Fed… Even if tariffs were expansionary, that would just make the Fed raise rates faster, which would in turn crowd out jobs in other industries…

But I think this is a case where macroeconomics, even though I believe it’s right, gets in the way of useful discussion. We do want to know whether the Trump trade war … would add or subtract jobs holding monetary policy constant, even though we know monetary policy won’t be constant.

And the answer, almost surely, is that this trade war will actually be a job-killer, not a job-creator, for two reasons.

First, Trump is putting tariffs on intermediate goods…, some of which themselves have to compete on world markets. Most obviously, cars and other durable manufactured goods will become more expensive to produce, which means that we’ll sell less of them; and whatever gains there are in primary metals employment will be offset by job losses in downstream industries.

Playing with the numbers, it seems highly likely that even this direct effect is a net negative for employment.

Second, other countries will retaliate against U.S. exports, costing jobs in everything from motorcycles to sausages. …

Finally – and I think this is really important – we’re dealing with real countries here, mainly democracies. Real countries have real politics; they have pride; and their electorates really, really don’t like Trump. This means that even if their leaders might want to make concessions, their voters probably won’t allow it. …

So this is a remarkably stupid economic conflict to get into. And the situation in this trade war is likely to develop not necessarily to Trump’s advantage.

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Canada is one of those “real countries” that have “real policies” and we will retaliate and it will cost both American and Canadian jobs. According to an article in the Globe and Mail: “Canada is retaliating “dollar-for-dollar” against the United States for punitive action against Canadian steel and aluminum producers, Prime Minister Justin Trudeau announced, saying Ottawa plans to slap levies against $16.6-billion of American imports on July 1 … [and] … The proposed target list of American products will include U.S. steel and aluminum as well a slew of goods including sailboats, whisky, plywood, refrigerators, washing machines and herbicides.

President Trump has now opened trade wars with Canada, China, the European Union, Mexico, Japan and South Korea ~ that’s eight of America’s top ten trading partners. I am 99% sure that’s bad policy, in fact I’m about 75% sure it’s insane.

2 thoughts on “On Trump and trade”

  1. I feel sorry for the Yanks they are going to have to live with this for a bit, What a Stupid Man trump is.

  2. One of the difficulties that the rest of the world seems to be having when Trump applies tariffs to commodities is finding things they import from the US to apply tariffs on.

    Trump applies tariffs to steel and aluminum and cars. Europe replies with tariffs on Levis and Harleys and Canada replies with tariffs on playing cards and sleeping bags. I wasn’t aware how much of the US economy hinged on its ability to produce playing cards.

    To me, the difficulties associated with finding things to tax might suggest that there is a trade imbalance that currently seems to disadvantage the US.

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