Comment by Aurornis
4 days ago
In case anyone hasn't seen it yet, the big chart the administration showed with "tariffs charged to the US" was not real.
They used trade deficit numbers in the "tariffs charged to the US column". The numbers in that column are not actually tariffs charged to the US.
The entire "reciprocal tariff" claim was based on a big lie.
Trump also repeated claims that the US trade deficit with Canada was "close to $200 billion" when the official trade deficit is significantly less.
Why is there a trade deficit with a country if there aren’t trade barriers or other unfairness, such as China’s weaker labor laws and environmental laws? Mathematically, “free trade” treats those things as a “comparative advantage” but we don’t have to pretend that reflects reality.
The formula simply reflects the premise that, in a fair system, trade deficits would average out to zero. It also escalates the tariffs as the trade deficit goes up, and reduces them as the other country imports more of our goods. It’s an elegant formula.
Because it's not a barter economy and you would not naturally have equal dollar quantities of goods to buy from and sell to each trading partner individually.
One country may be on the other side of the world, far poorer and mostly exporting say minerals or basic textile goods where their cheap labor gives them an advantage. What goods/services are they going to buy from the US that they cannot get from more local trading partners cheaper? They can import grains more cheaply from nearby neighbors. Southeast Asia is not going to start buying Teslas & Fods, they are driving around in Suzukis and whatever China makes.
You spend $5/week at your baker, does your baker buy $5/week of software from you?
> One country may be on the other side of the world, far poorer and mostly exporting say minerals or basic textile goods where their cheap labor gives them an advantage.
But it’s insane that “cheap labor” is considered a “comparative advantage.” Free trade punishes Americans for their high standards of living, forcing American labor to compete with cheap foreign labor. The whole point of these tariffs is to take that out of the equation.
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> The formula simply reflects the premise that, in a fair system, trade deficits would average out to zero.
I don't see why you would expect that.
Consider a rich country that mostly exports expensive manufactured technological things. It imports one of the natural resources it needs for this from some poor country that is mostly poor farmers and the poor laborers who extract that natural resource they export.
Its hard to see a way for the rich country to not have a trade deficit with the poor county. Even with what the poor country makes from exporting their natural resources they are unlikely to be able to afford the items the rich country makes.
Or consider two countries that are both rich and have about the same population but have different tastes. Say in country X 90% of the population likes big SUVs and trucks and only 10% like small cars. In country Y it is 90% who like small cars and only 10% like the big ones.
A car maker that has factories in both countries could find it more efficient to have an SUV/truck factory in X that makes the trucks for both countries and a small car factory in Y that makes the small cars for both countries than to have both an SUV/truck and a car factory in each country.
But since the big SUVs and trucks cost more than the small cars Y is going to have a trade deficit in cars with X.
Okay, that's a nice econ textbook hypo that explains the trade deficit with Bangladesh. But why do we have huge structural deficits with the EU, Japan, China, etc? Those are big, diversified economies. You'd think those factors would average out.
Germany is a big, rich economy. How do they manage to run large trade surpluses? They seem to do this quite deliberately. So why is it a bad idea to try and make our economy more like Germany’s? Japan has a large trade surplus. The EU as a whole is basically evenly balanced, tending towards a small surplus. Are our Reaganite overlords smarter than the guys who run those countries?
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Is Japan's trade deficit with Australia a good or bad thing? Is Australia ripping off Japan?
The trade deficit is a good thing for Japan because Japan lacks the natural resources it needs as inputs into its industry. It happens to buy those resources from Australia due to comparative advantage.
If Japanese policymakers tried to create a trade surplus with Australia via tariffs, they would make Japan significantly poorer and weaker.
The premise of the formula is flawed. There is nothing inherently unfair about a trade deficit between two countries. There's not necessarily anything nefarious going on if the United States doesn't buy the same amount of goods from Botswana as they might purchase from the United States within any particular year.
But why should there be a structural, long-term deficit between big diversified economies like the U.S. versus EU?
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Why would free trade eliminate trade deficits? The United States is incredibly wealthy and its citizens and companies can buy more than poorer countries. Not to mention all the other factors that exist in global trade. The belief that trade deficits are bad baffles me.
With Canada, there's a deficit because they are willing to do things like send oil in exchange for promises, and then they use the promises to do things like buy capital that is located in America.
I guess you can decide that's unfair.
Because America has the "exorbitant privilege" of being a global reserve currency:
https://en.wikipedia.org/wiki/Exorbitant_privilege (it's a Wikipedia page about monetary policy).
There's nothing about fairness in trade and trade deficits/surplus. Trade is a competition after all. Free trade was what gave the German States an enormous boost and the Zollverein was a key element towards unification even though that was not the intention[0].
Have I missed the news cycle where Trump complained about the CCP committing genocide on the Tibetans and Uyghurs? How they force them into slave labor. Btw, the reading through the Wikipedia article on Penal labor in the United States make me wonder whether where the USA stands...
[0] https://en.wikipedia.org/wiki/Zollverein [1] https://en.wikipedia.org/wiki/Penal_labor_in_the_United_Stat...