2025: Let's try again

General Chat
544

I can understand that the US government wants to achieve a better trade balance, and reduce the national debt. The US government has been trying to achieve that for decades already. But the way they are trying to do that now seems way too crude.

Like, raising a 25% tarrif on cars imported from Germany, Japan and China may be a good idea.
The auto industries of Germany, Japan and China wouldn’t be happy about that because their sales to the US would drop, but at least it would be advantageous for the US auto industry when imported cars become much more expensive.

But by also raising 25% tarrifs on steel and aluminium and many other things that the US auto industry needs to import to be able to produce cars, US cars also become much more expensive, negating much of the advantage I mentioned above.

Also, the general uncertainty surrounding those tariffs (switching them on and off seemingly at random) means that the US auto industry is not building new factories and hire workers any time soon, gambling on a potential increased demand that may never come.
So what happens in the shorter term is that cars will become much more expensive in the US.
People will probably delay replacing their cars for the time being because they can’t afford a new one. So I predict US car sales figures will drop, causing layoffs in the auto industry in the US and possibly also in Germany, Japan and China.

Now, this would reduce the US trade deficit, but it would also worsen the US economy. This may not work out well for the national debt, as having a worse overall economy means less tax revenues, and they may even end up having to bailout the US auto industry again (like the $80 billion bailout in 2008-2010).

8 Likes
545

I enjoyed this video about the tariff maths

4 Likes
546

As a gesture of thanks to Canada, for hosting the Dutch Royal Family during WWII and liberating our country in 1945, which we celebrate to this day.

Stay strong, Canada. Elbows Up!

3 Likes
547

I’m so ready for this.

Sweet throwback

And baby, they forgot to make me sign an NDA.

6 Likes
548

Even if you buy Trump’s narrative about the rest of the world stealing from the US, his simplistic formula won’t get the results he seems to be looking for.

As an example, the US has a rather big trade surplus with the Netherlands. We already do what Trump wants us to: buy a lot of oil, natural gas, F-35 fighter jets, Patriot systems and other stuff from the US. Until recently, we’ve even been buying many cars form the US, specifically Teslas.

1601×1221 186 KB

1601×1272 209 KB

Applying Trump’s formula without the 10% minimum hussle, we’d be entitled to a negative tariff of 70%.
However, with the 10% minimum tariff, there is no incentive for us to buy even more stuff from the US. Like, even if we’d drop our VAT/sales tax (which Trump apparently considers a trade barrier), this would change nothing, because sales tax is not even in that formula.

We were the first to recognise US independence in 1776, offending the English which triggered the 4th Anglo-Dutch war in 1780, which went pretty disastrous for us.
We’ve had a very good relationship with the US, in trade as well as diplomacy, for 250 years already, as is also apparent from the relatively large trade volume between us.
Dutch soldiers died in Afghanistan for US interests, including the son of our then commander-in-chief. Dutch prime ministers and diplomats have always worn suits and said “thank you” when visiting US presidents in the White House.
But apparently none of that matters. Trump still considers us freeloaders and parasites (and Trump considers soldiers dying in combat as losers anyway, even US soldiers).

With this overly simplistic tariff formula, many trading partners are naturally cutting their losses and looking for solutions outside of trading with the US.

Already Japan, South Korea and China are looking to intensify their trade relationships (I’ve seen some half joking remarks that while Trump failed to bring peace to the Middle East, he accidentally brought peace to the Far East). Also the EU is looking to intensify its trade relationship with South America, Canada and Africa. And if we can get some agreement with China to not dump products intended for the US market in the EU, we may well see an intensification of trade between the EU and China.

It will be very difficult to decouple our supply chains and trade routes from the US, but Trump’s tariff formula leaves us no other option, really. And the 90 day pause on some of those tariffs doesn’t really change anything, other than buying us a little more time to decouple from the US (and perhaps the US dollar, because we may need to hedge ourselves against the now looming depression in the US to avoid it hitting us like the 2008 financial crisis and the US depression in the 1930s).

5 Likes
549

I don’t know, China’s huge trade surplus is as much of a problem as the USA’s huge trade deficit. China is already flooding South East Asia with cheap clothes and cheap steel, killing industries of neighboring countries. Things can only get worse if the USA stops importing Chinese products, then China will expand even further in SE Asia.

5 Likes
550

By Far East, they meant China, Japan and South Korea specifically.
Indeed South East Asia is much more vulnerable to dumping practices from China.

3 Likes
551

I dunno. I thought for example that Thailand has cheaper clothes production as China.

3 Likes
552

The first few minutes of this video

are about the textile industry in Indonesia facing competition from China. The situation is not different in Thailand but I can’t remember where I heard about that.

1 Like
553

What with PRC’s subventions for their own industries?

554

Came up also in this video

and this point also

3 Likes
555

That’s what people I met there doing cloth business told me.

Besides my own (limited) observations confirm that clothes are cheaper in Thailand.

They don’t have the exclusivity of gouvernements helping industries in its country. France is famous for the many help the government provided during the covid time. I can’t blame this if this is for the benefits of the people like to maintain employment but I highly doubt it’s always the case.

1 Like
556

I think the difference between these two things is fairly clear also: if you import steel, at least you have the steel to sell. If you pay for a service the money is kind of gone and maybe you can’t sell on that service any further, though maybe it can have positive net benefits.

With the barber example, you have to make up the money somehow to keep paying him, so you need an income that’s separate or dependent on it somehow, since you can’t sell on your haircut, like you could if you bought a commodity.

Similarly if you buy in food, and consumables, the money leaves and there is a finite profit chain that follows from it.

I suppose what happens is say you buy a import a product for 20$ and you sell it to the consumer for 40$, 20$ has left the country, 20$ is circulating within the country (part to supply chain, part to government in taxes), but then a lot of products are consumables or depreciate in value due to wear and tear, and so eventually that value of the import goes to zero while the 20$ that left doesn’t really lose value (with the currency being stable). So you eat the food and the packaging and leftovers is more or less worthless, the car or the electronics eventually loses its resale value over time.

So there is a kind of flow of wealth/capital outward in a sense.

I think the way it can recirculate though is in exchange for assets. If more dollars are ending up in China than their equivalent CNY ending up in the US, then that can be exchanged for assets in the US, buy stocks or bonds or physical assets.

I think there’s something similar where if on average you’re sending more money out than coming in, it needs to be financed somehow to be sustained, like with borrowing.

I think there is supposed to be a point to tariffs and how they affect trade deficits but I think they don’t work as trump thinks they do, and they don’t help the average American if it just generally leads to higher costs of goods.

I think another point seemed to be that, trade deficits can expected from richer to poorer countries, when the poorer countries can’t afford as much goods and services from richer ones. But implementing tariffs can’t really make that country richer to balance out the deficit, they can’t suddenly start to buy more, it might just make them poorer if their exports are suddenly cut because of decreased purchases from price increases.

1 Like
557

Money / value in the economy is not a fixed amount, a zero-sum game. If I eat £10 worth of imported food in a day and some other life expenses and then by thinking create some unit of software someone is willing to pay £1000 for, I just created value/money out of nothing*. That’s why governments can print more money, to keep up with value creation (but you need to balance it right).

Or to take the steel example, steel plus skilled labour and machines and engineering know how turns into a more valuable product like a car.

/* in the immediate term, you can instead see it as a return on the investment in me as a human being gaining skills from education and experience over my lifetime

3 Likes
558

It’s not zero sum, but it can still be a net effect that happens or accumulates over time.

You can’t keep infinitely printing money either to compensate.

1 Like
559

It sounds like there’s some complications with the PBOC in China printing money, but supposedly one big reason China owns a decent amount of US debt is due to its trade surplus with the US.

So the trade surplus/deficit is not an imaginary effect I don’t believe.

I get that there is value creation with products and services, and tbh there’s value creation in having a population boom since you’re increasing the size of your workforce. So I get that there probably is some balancing effect there.

560

A. US companies and consumers import a lot of stuff from China. I suppose they do that because they want/need that stuff and Chinese products are cheap. This is much less the case the other way around, so the US has a trade deficit with China.

B. Like any government, the US government needs to do a lot of government stuff to maintain the country and the population, so the government needs tax revenues to pay for that.

The US government tends to overspend, or perhaps you could say it is too reluctant to balance its budget properly by reducing its spending with austerities and/or increasing its revenues by raising taxes.

Either way, the US government has had a budget deficit for decades, so it needs to borrow every year from investors/debtors willing to lend it more money.

Lending money to governments of financially stable countries is usually considered a safe investments. These bonds/treasuries are bit like gold, except it yields some interest.

Over the years all this borrowing by the US government to cover its budget deficits has accumulated to a total debt of 33 trillion. About 8.5 trilion of that is in the hands of foreign investors/debtors, of which 0.8 trillion in China, 1.0 trillion in Japan and 2.1 trillion in EU countries.

Every year the US government needs to pay interest over that debt to its debtors. For this year the total due amount of interest is almost 1 trillion, which is a big amount even for the US, to basically flush down the toilet. But it needs to, otherwise nobody will want to lend it money anymore, except at a much increased interest rate.

C. With all of that, the US government definitely has an increasing problem. But I don’t really see how it can rightfully blame its huge debt to having trade deficits. I’d say that trade deficits are a private sector issue, while budget deficits are a public sector issue.

D. Perhaps Trump is raising these tariffs mainly to increase government revenues without calling it taxes (a word that his base probably hates).
If it all goes smoothly (which remains to be seen), the result will be increased government revenues, rather than reaching trade balance with each and every country.
Also the fact that he raises import tarrifs on cars as well as steel seems unlikely to result in boosting the US auto industry, as I said earlier.

4 Likes
561

Could be. Of course, revenue tariffs have to be low enough that it still makes sense to sell in one’s country or else you’ll just get a percentage of 0

1 Like
562

Yeah I completely agree, it’s like some scapegoat for the problem, and tariffs are supposed to be a silver bullet to the problem. It’s all an oversimplification that you can try to sell to get into office, and then it doesn’t pan out at all.

That said I’m not sure it’s unlinked. Private and public sector are intimately connected by tax, they don’t just cleanly separate. I mean you can say that importing and exporting is mostly private companies, but the economy depends on goods and services being sold and revenue generated from sales, paying the workers etc. So I don’t think it’s a clean disconnect.

It seems plausible, and the other sinister version is that tariffs being a regressive tax means he can target working and middle class more who tend to spend more of their income, while avoiding additional tax on the wealthy

2 Likes
563

This seems functionally equivalent to my concerns that impeding international trade will cause more harm in increased prices than created jobs, but phrased in a way unlikely to appeal to me

1 Like