Another day, another deluge of tariff headlines.
I’d describe Donald Trump’s aversion to trade imbalances as laughably simplistic, but I actually don’t think that’s the best way to characterize it. I’ve mentioned this before, but here it is again: It’s not obvious to me that Trump understands what trade surpluses and deficits actually are.
That’s not to apologize for his mercurial behavior, but then again, it kinda is. There’s a very real sense in which he genuinely doesn’t get it, and isn’t capable of getting it, not so much because he isn’t smart (although you might fairly ask if the president doth protest too much when it comes to brain sizes and IQ test scores), but rather because Trump’s mind sees everything as a zero-sum game.
Smart people (smarter people than Trump and I) can debate the best way to characterize trade imbalances, so rather than make definitive statements about what surpluses and deficits are, it’s easier to state, definitively, what they aren’t: They aren’t evidence of “winning” or “losing.” Not in and of themselves.
To the point above, Trump’s incapable (honestly incapable) of conceding that, because his operating system doesn’t permit him to reason along lines that would lead him to any conclusion other than the one he consistently comes to on this, and pretty much every other, issue. Everything’s a contest, you either win or you lose and there’s nothing in-between. Trump lives and governs by a version of the Ricky Bobby credo: “If you ain’t first, you’re last.”
Of course, as Bobby’s father tells him towards the end of Talladega Nights — which is unavoidably funny even as I wish to God it weren’t, because I despise the idea that I might be amused by something so daft as that farce of a film — that credo “doesn’t make any sense at all,” you have to be “high” to espouse it in the first place and cretinous to live by it. When Trump’s in office, that credo governs global trade and commerce.
Nobody hates Ricky Bobby. In fact, everyone loves him, and if Trump’s only deficiency as a US president was his overtly slapstick conception of trade, it’d be easy to laugh off, or at least to laugh off when it’s not costing you money in the form of higher prices for everything not produced entirely within America’s borders.
Unfortunately, that’s not Trump’s only deficiency as president, so it’s quite hard to laugh on most days, Tuesday being one of them for me, although I’m laughing right now, as I write these lines.
“I deeply regret the US decision to impose tariffs on European steel and aluminum exports,” Ursula von der Leyen sighed, lamenting the onset of what’s guaranteed to be a mostly pointless, but wholly exhausting, back and forth between Washington and Brussels over Trump’s new levies on metals. Von der Leyen said the EU will respond, and certainly not because the bloc wants to, but rather because they have to. Trump’s actions, she said, “will trigger firm and proportionate countermeasures.”
Those countermeasures open the door to more Trump tariffs, and around we (may) go. “At issue is the fact that the definition of ‘unjustified tariffs’ cuts both ways, leaving open the potential for yet another round of new levies from Trump,” BMO’s Ian Lyngen remarked. “Hence, the problem with an ever-escalating trade war.”
If this continues, it’ll dent confidence among households, small businesses and in the C-suite. Indeed, the NFIB’s gauge of small business moods deteriorated at the margins in January, according to the latest update, released on Tuesday morning.
As for big business, Goldman reminded investors that on the bank’s math, “every 5ppt increase in the US tariff rate would reduce S&P 500 EPS by roughly 1-2%,” and then there are the impossible-to-preemptively-quantify second-round effects on financial conditions, policy uncertainty and consumer behavior.
“Commentary from [Q4 earnings calls] suggests many managements are planning to push higher costs through to consumers,” the bank’s David Kostin said, adding that while households “were largely forced to absorb higher prices during the 2021 inflation spike, it is unclear how willing consumers will be to accept higher prices this time around.”
Meanwhile, The Wall Street Journal ran a great article earlier this month profiling the fortunes of tiny Newberry, South Carolina, an ostensible protectionist success story. The Samsung washing machine factory which opened there early in Trump’s first term created 1,500 local jobs and generates a cool $1.5 million (with an “m”) in annual tax revenue for the county.
Sounds great, right? Well, yes and no.
As the Journal noted, the partial revival of manufacturing in Newberry “spurred some growth in the county [but] it didn’t transform the local economy.” And Trump’s washing machine tariffs can be traced to price hikes which ultimately cost US consumers some $1.5 billion (with a “b”) every year.
Here’s how I explained why trade deficits aren’t necessarily bad to my Republican mother-in-law. It’s a useful heuristic should one find oneself in a situation where they need to explain trade deficits to, say, their Republican mother-in-law.
Imagine two families, one upper class, one middle class. The upper class family spends half a million dollars a year on stuff. The middle class family spends one hundred thousand dollars a year on stuff. You wouldn’t say the upper class family has a $400,000 spending deficit to the middle class family would you? It’s completely unsurprising that they spend more. They have more and they make more! Suggesting they’re somehow being taken advantage of by a family that makes less and spends less would be nonsensical. The same is true for trade deficits. Of course the United States spends more than China. That’s a sign that we’re winning; that we’re doing better than they are. It’d actually be a terrible sign if we weren’t able to spend more than they.
Awesome!
Excellent comment. Now to close out this line of reasoning, you need only explain that tariffs will act as a flat consumption tax if costs are passed through to the populace and will act in a regressive fashion to those who can least afford it. Using the upper vs. middle class comparison, the upper class will find it an inconvenience where the middle class will find it far more difficult in choosing what to buy. If your mother in law is on a fixed income, that might resonate…
I usually just shrug my shoulders and say they send us a bunch of stuff and we send them pieces of paper with numbers on them.
If that doesn’t satisfy them you can then delve into exchange rates, interest rates, GDP growth, etc. until their eyes glaze over and they settle for we send them pieces of paper with numbers on them.
I’ve come to the conclusion that it doesn’t matter if Mr T understands trade deficits, tariffs or anything else he’s implementing. The point is, that’s what he told his voters he was going to do, so he has to do it. Those voters want a tough, take-charge, fix-it guy, and he’s delivering in their minds. Damage doesn’t matter. He, and all the other Republicans serving him, will tell his / their voters that his policies are a success, and they will believe him. Remember it is those same voters who believe certain doctrines and teachings which are patently absurd and usually fail to follow the more subtle but hardest of all to implement teachings about ethics. Hence terrible cruelty and, historically, rivers of blood are the result.
+1.
I don’t know what to do with my hands!
Trump will come at you like a spider monkey! He’s all jacked up on Diet Coke!
Consumers won’t have any stimmy to absorb the higher prices this time. It’ll be a not-so-invisible tax while Republicans try to figure out how to square the circle on a reconciliation bill. I fully expect Trump to steamroll the courts, but how the heck will the treasury operate if a bill isn’t passed? Can Trump ignore Congress on that and just keep paying bills selectively? That’s a genuine question – I no longer assume anything is off the table at this point.
Great H! I would add to his zero sum approach – lose/lose. This dramatically changes the old win/lose paradigm. He often starts lose/lose before moving to zero sum win, power orientation. There are models to influence win/lose players to cooperate, I don’t know a good one (retired a long time ago) to get his approach to cooperate without also playing lose/lose and Dems are too chicken sheet.
I read somewhere a guy was creating these laws that have actually hung around for several hundred years. In the vernacular one of them said: “For every action there is an equal and opposite reaction.” Since Donald never went to a proper school (proxies were always sent in his place) he didn’t learn this one. That’s important because it keep tangling up his mighty brain, especially with econ problems. Mostly no one seems to be telling him that he can’t do this or that without something unexpectedly bad happening. It’s not so much that everything is or isn’t a zero-some game, it’s that nearly every action he and XI and Musk think are rational turns out to have bad consequences. He can’t seem to make all the bad go away. That econ stuff is just nasty and confusing (even to the economists)
Been teased for years for liking Talladega Nights. Glad I found a fellow fan.
I would love to see him weave in a bunch of insights from The Big Lebowski.
For me it was the scene where Ricky digs in on the virtues of praying to baby Jesus at the dinner table. I watched that scene while channel surfing once, and the humor of it finally clicked. Ferrell employs such an ‘in your face’ humor tool that those (like me) who are looking for nuance in their comedy completely miss it.