I have an explanation for the dumb moves that you describe. Which, I also elaborate more on in my own writings :)
But anyways, the blanket 10% is not nuanced at all but that is the point. To get the point across, and to not spend time quibbling over details, you make it dumber and less nuanced and more blunt. 10% is the baseline, we might go over the penguin islands later, but it also doesn't really matter either way.
Secondly, Trump has taken what amounts to a disparate impact approach to trade. It is akin to school busing or EEOC lawsuits against companies for racial discrimination. Prima facie fairness isn't enough. If there is a disparity, that means that there is discrimination, racial or trade.
Again, disparate impact is a blunt approach that steamrolls nuance and attention to detail. But the point is to be blunt and impactful.
Excellent post! Draws torgether a lot of threads, thanks for digging up the Trump ad.
Regarding the Iraq analogy the key difference is character. Bush respected the architects of their brash and unrealistic plan, Cheney in particular. The brains were forming the policy.
Trump respects no one. The smarter people in his administration have a theory of sorts, but policy revolves around Trump's personal shortcomings (incuriousity, need for revenge, inability to conceive of a positive sum interaction, greed, etc.). Unlike Bush the dummy is generating the policy, Navarro/Bessent/Vance are reduced to supplying post-facto justifications.
One thing about the tariffs issue that I don’t understand. Why don’t all the countries affected simply call Trump’s bluff and offer to eliminate all tariffs on US exports if the US does likewise? What’s wrong with totally free trade between our countries? Most all of them have a huge competitive advantage in their lower wages so why do they need protection from high wage US workers?
Any reason for not mentioning Peter Navarro in your piece? His ~2016 economic plan for the first Trump administration seems to have been taken down, but considering his central role in trade, and the close alignment between his economic beliefs and the current white house policy and statements, and I would consider that to be the best lens to view the future actions.
The two key quotes to pull out are "When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth." and "Suppose the US had been able to completely eliminate its roughly $500 billion 2015 trade deficit through a combination of increased exports and decreased imports rather than simply closing its borders to trade. This would have resulted in…a real GDP growth rate that year of 5.97%."
This is obvious nonsense. But if you were in charge and honestly believed in that, the logical response would be giant tariffs on any country with a trade deficit with the US with the goal of either growing a trade surplus or eliminating free trade altogether. Whatever short term pain such a policy would cause would not matter, because you would supercharge GDP growth going forward and create an economic miracle. Meanwhile, you would see the current policy as trade deficits as an extremely expensive welfare policy to the rest of the world.
In my mind, all the above sound like a perfect match for recent statements and actions from the administration.
The point is not to compete with China for foreign trade, and certainly not in every industry, but to ensure that we can sustain our defense and standards of living if trade with large parts of the world become impossible
Can we sustain our standard of living if trade with large parts of the world become impossible? How does that work? Economies of scale and comparative advantage remain things in the real world.
Noah writes" We are able to run these deficits because the dollar is the global reserve currency, which means there is persistently more demand for dollar-denominated assets than assets denominated in other currencies."
This is wrong. The dollar was the global reserve currency under the Bretton Woods system, which ended in 1973. After 1973 there was no longer a requirement to hold dollar-denominated assets. Countries were free to return to gold or some other currency to use as reserves. There was no impetus for foreign countries to accumulate dollars per se. They continued to do so because they saw this as advantageous.,
Continued demand for dollar-denominated assets might have more to do with the decision of the US to run chronic fiscal deficits after 1969. The high interest rates this entailed kept dollar-denominated assets as attractive reserves relative to other options.
If high interest rates are the reason why dollar-denominated assets were so attractive, why did the volume of foreign investment in dollar-denominated assets balloon as U.S. interest rates declined dramatically from the early 1990s through the mid-2010s?
You're absolutely correct that there's no agreement that requires other countries' central banks to hold dollar assets. But they do, in enormous volumes, and their eagerness to do so holds U.S. interest rates lower than would be the case if they opted instead for a more globally balanced basket of high-quality assets.
Equity is also a dollar-denominated asset. I assume you can recall the 1990's stock boom. There was a 1980's stock bull, but the bond bull was bigger, but in the nineties it was stocks that were the main event, and real estate in the next decade.
I track this using a metric I call enterprise premium see here:
The end of American global hegemony and the rise of China as a serious security competitor mean that we cannot be reliant on China (and Asia broadly) for our manufacturing needs. Security competition with China does not, however, mean that we need autonomy only in "strategic" industries, as is often suggested.
For one thing, "strategic" industries tend to have long and deep supply chains, and their products only work in conjunction with less sophisticated manufactures. You can bring Nvidia GPU manufacturing to the US, but without parallel onshoring of processors, memory, storage, optics, cabling, brackets, screws, etc., you won't have autonomy in AI servers.
More importantly, though, manufacturing capacity is in itself a strategic resource, and that requires not only capital and political will, but a critical mass of skilled workers - scientists, technologists, planners, etc. If tomorrow America had to go to war with China, it would not be able to spin up wartime manufacturing at anywhere near the pace that China would, and the bottleneck would be people and expertise. China's superior ability to increase production of drones, shells, and ships would not rely just on experts in those fields, but on rank-and-file engineers who would otherwise be tooling factories for flip-flops, flat-pack furniture or smartphone displays. America needs to build up that rank-and-file expertise, and that will require a broader reindustrialization.
On a more speculative note, I would argue that American withdrawal from Eurasia will lead to increased security competition and conflict on that continent. That will disrupt production and supply chains, and lead to increased demand for manufactured goods from outside the continent. Here, America can benefit from having a hemisphere to itself and a strong productive base. This is, of course, how America became a global superpower in the first place.
I don't disagree with most of this, but I think it's important to remember that China is not merely a serious security competitor -- they are the largest global manufacturer and the center of global trade. They also produce more STEM grads than we produce grads in any field. *Can* the United States compete head to head on the basis you're talking about, with the whole manufacturing ecosystem on shore?
I too agree with most of killathesacrosanct's note, and I will answer your question: No, the Americas cannot match East Asian manufacturing power. Killathesacrosanct's proposal becomes fanciful considering recent events. How would Canada or Mexico trust us?
What we oldies called the free world, The Americas, The E.U., non-China E. Asia, India if possible, that could be fully competitive, but requires trust.
I have an explanation for the dumb moves that you describe. Which, I also elaborate more on in my own writings :)
But anyways, the blanket 10% is not nuanced at all but that is the point. To get the point across, and to not spend time quibbling over details, you make it dumber and less nuanced and more blunt. 10% is the baseline, we might go over the penguin islands later, but it also doesn't really matter either way.
Secondly, Trump has taken what amounts to a disparate impact approach to trade. It is akin to school busing or EEOC lawsuits against companies for racial discrimination. Prima facie fairness isn't enough. If there is a disparity, that means that there is discrimination, racial or trade.
Again, disparate impact is a blunt approach that steamrolls nuance and attention to detail. But the point is to be blunt and impactful.
Excellent post! Draws torgether a lot of threads, thanks for digging up the Trump ad.
Regarding the Iraq analogy the key difference is character. Bush respected the architects of their brash and unrealistic plan, Cheney in particular. The brains were forming the policy.
Trump respects no one. The smarter people in his administration have a theory of sorts, but policy revolves around Trump's personal shortcomings (incuriousity, need for revenge, inability to conceive of a positive sum interaction, greed, etc.). Unlike Bush the dummy is generating the policy, Navarro/Bessent/Vance are reduced to supplying post-facto justifications.
I'm glad you understand this stuff. The tutorial was very helpful. I'm exaggerating, but I might of once thought Bretton Woods was a British actor.
One thing about the tariffs issue that I don’t understand. Why don’t all the countries affected simply call Trump’s bluff and offer to eliminate all tariffs on US exports if the US does likewise? What’s wrong with totally free trade between our countries? Most all of them have a huge competitive advantage in their lower wages so why do they need protection from high wage US workers?
Trump will not take the offer. Zero tariffs will continue the trade deficit, the orange king thinks trade deficits are for losers. Simple as that.
Any reason for not mentioning Peter Navarro in your piece? His ~2016 economic plan for the first Trump administration seems to have been taken down, but considering his central role in trade, and the close alignment between his economic beliefs and the current white house policy and statements, and I would consider that to be the best lens to view the future actions.
The two key quotes to pull out are "When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth." and "Suppose the US had been able to completely eliminate its roughly $500 billion 2015 trade deficit through a combination of increased exports and decreased imports rather than simply closing its borders to trade. This would have resulted in…a real GDP growth rate that year of 5.97%."
This is obvious nonsense. But if you were in charge and honestly believed in that, the logical response would be giant tariffs on any country with a trade deficit with the US with the goal of either growing a trade surplus or eliminating free trade altogether. Whatever short term pain such a policy would cause would not matter, because you would supercharge GDP growth going forward and create an economic miracle. Meanwhile, you would see the current policy as trade deficits as an extremely expensive welfare policy to the rest of the world.
In my mind, all the above sound like a perfect match for recent statements and actions from the administration.
Did make me more in favor of tariffs, but not in favor of how trump is doing it.
So congrats I guess
Kind of like being in favor of surgery but not slasher killers.
The point is not to compete with China for foreign trade, and certainly not in every industry, but to ensure that we can sustain our defense and standards of living if trade with large parts of the world become impossible
Can we sustain our standard of living if trade with large parts of the world become impossible? How does that work? Economies of scale and comparative advantage remain things in the real world.
As rates fell and bond prices rise, equity became the preferred asset class and as you probably recall we had a huge boom in the 90's.
Noah writes" We are able to run these deficits because the dollar is the global reserve currency, which means there is persistently more demand for dollar-denominated assets than assets denominated in other currencies."
This is wrong. The dollar was the global reserve currency under the Bretton Woods system, which ended in 1973. After 1973 there was no longer a requirement to hold dollar-denominated assets. Countries were free to return to gold or some other currency to use as reserves. There was no impetus for foreign countries to accumulate dollars per se. They continued to do so because they saw this as advantageous.,
Continued demand for dollar-denominated assets might have more to do with the decision of the US to run chronic fiscal deficits after 1969. The high interest rates this entailed kept dollar-denominated assets as attractive reserves relative to other options.
If high interest rates are the reason why dollar-denominated assets were so attractive, why did the volume of foreign investment in dollar-denominated assets balloon as U.S. interest rates declined dramatically from the early 1990s through the mid-2010s?
You're absolutely correct that there's no agreement that requires other countries' central banks to hold dollar assets. But they do, in enormous volumes, and their eagerness to do so holds U.S. interest rates lower than would be the case if they opted instead for a more globally balanced basket of high-quality assets.
Equity is also a dollar-denominated asset. I assume you can recall the 1990's stock boom. There was a 1980's stock bull, but the bond bull was bigger, but in the nineties it was stocks that were the main event, and real estate in the next decade.
I track this using a metric I call enterprise premium see here:
https://mikealexander.substack.com/p/the-capitalist-crisis#:~:text=In%20short%2C%20the,stock%20cycle).
And a plot of it
https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F93a6910a-75bd-4eb1-936e-8781cad8a50a_617x251.gif
The end of American global hegemony and the rise of China as a serious security competitor mean that we cannot be reliant on China (and Asia broadly) for our manufacturing needs. Security competition with China does not, however, mean that we need autonomy only in "strategic" industries, as is often suggested.
For one thing, "strategic" industries tend to have long and deep supply chains, and their products only work in conjunction with less sophisticated manufactures. You can bring Nvidia GPU manufacturing to the US, but without parallel onshoring of processors, memory, storage, optics, cabling, brackets, screws, etc., you won't have autonomy in AI servers.
More importantly, though, manufacturing capacity is in itself a strategic resource, and that requires not only capital and political will, but a critical mass of skilled workers - scientists, technologists, planners, etc. If tomorrow America had to go to war with China, it would not be able to spin up wartime manufacturing at anywhere near the pace that China would, and the bottleneck would be people and expertise. China's superior ability to increase production of drones, shells, and ships would not rely just on experts in those fields, but on rank-and-file engineers who would otherwise be tooling factories for flip-flops, flat-pack furniture or smartphone displays. America needs to build up that rank-and-file expertise, and that will require a broader reindustrialization.
On a more speculative note, I would argue that American withdrawal from Eurasia will lead to increased security competition and conflict on that continent. That will disrupt production and supply chains, and lead to increased demand for manufactured goods from outside the continent. Here, America can benefit from having a hemisphere to itself and a strong productive base. This is, of course, how America became a global superpower in the first place.
I don't disagree with most of this, but I think it's important to remember that China is not merely a serious security competitor -- they are the largest global manufacturer and the center of global trade. They also produce more STEM grads than we produce grads in any field. *Can* the United States compete head to head on the basis you're talking about, with the whole manufacturing ecosystem on shore?
I too agree with most of killathesacrosanct's note, and I will answer your question: No, the Americas cannot match East Asian manufacturing power. Killathesacrosanct's proposal becomes fanciful considering recent events. How would Canada or Mexico trust us?
What we oldies called the free world, The Americas, The E.U., non-China E. Asia, India if possible, that could be fully competitive, but requires trust.