Global Economics

Kindergarten Arithmetic 101: Analysis of the Trade Debate

One mish reader stands out. He offers a real world example of what happens when trade collapses.

Kindergarten Arithmetic 101

If Trump extends his wall to cover the entire border, instead of just the one shared with Mexico, and then bans or punitively tariffs every single good that uses steel as an input, recursively, as well; he just may succeed in driving up the domestic price of final goods, to the point where both nominal labor compensation and nominal raw materials prices can be increased at the same time.

In doing so, he will ensure that not a single American made product of any kind, will be internationally competitive over time. This is exactly what the Latin American import substituting “structuralists” did, back in the 50s and 60s.

The above analysis from reader "Stuki" is obviously correct.

Disappointingly, there is debate over the obvious. And that's not the only flaw of economic illiterates.

Mathematical Explanation of Deficits

For a mathematical explanation of trade deficits, please see Trump's Tariffs Show He's "Clueless About Trade".

Mike "Mish" Shedlock

74 Responses

  • tedr01

    Mar 3, 2018

    The wall is a good idea. Tariffs may not be. Time will tell. Hopefully if President Trump is wrong on both of these he will have the courage and intelligence to admit he has made a mistake and correct the problem. Again time will tell.

  • Kinuachdrach

    Mar 3, 2018

    The world is a complicated place, and a simple-minded adherence to non-existent "Free Trade" confuses rather than clarifies the situation. Looking into steel imports & exports, I ran across this little report: "On May 25, 2017, the Canadian International Trade Tribunal (CITT) issued a decision, following a public hearing held earlier this month, that concluded imports of fabricated industrial steel components (FISC), from China, Korea (excluding FISC exported by Hanmaek Heavy Industries Co., Ltd.) and Spain (excluding FISC exported by Cintasa, S.A.) had injured the Canadian industry as a result of dumping and subsidization. ... All importers of FISC originating in China, Korea and Spain (with the exception of FISC exported by Hanmaek and Cintasa) will be required to pay anti-dumping duties ... the normal value will be determined by advancing the export price by 45.8%"

  • Kinuachdrach

    Mar 3, 2018

    Strange, I do not remember the usual suspects whining that those awful Canadians were going to start a trade war which would bring the world to its knees.

  • flubber

    Mar 3, 2018

    There's two sides to every story.

  • Realist

    Mar 3, 2018

    Kinuachdrach; We agree on something. The world is indeed a complicated place. Fortunately, we have rules and governing bodies in place to help us resolve disputes between nations. Thank you for mentioning that Canada has used these trade organizations to help settle disputes. In fact, according to the Global Steel Trade Monitor, Canada has initiated 49 trade disputes through the WTO against 19 countries regarding steel. Notice that they do so without any public fanfare, and they do so with surgical precision so as to maintain good trade relations with these countries. Trump by comparison, acts like a bull in a China shop, destroying everything in his wake. He doesn’t want to follow any rules and he doesn’t care who he hurts (a lot of American businesses and their employees).

  • flubber

    Mar 3, 2018

    https://www.americanthinker.com/articles/2010/04/protectionism_didnt_cause_the.html

  • Snow_Dog

    Mar 3, 2018

    This time, though, the tariffs went the other way. “When they send a motorcycle to India, as an example, they have to pay 100 percent tax—100 percent,” Trump told U.S. governors on Monday. “Now, the [Indian] prime minister, who I think is a fantastic man, called me the other day. He said, ‘We are lowering it to 50 percent.’ I said, ‘OK, but so far we’re getting nothing.’ So we get nothing, he gets 50 [percent], and they think we’re doing—like they’re doing us a favor. That’s not a favor.” https://www.theatlantic.com/international/archive/2018/03/us-india-trade/554321/ Kindergarten math for Trump? No, some real world math for Mish. India’s prime minister placed the call, by the way, not Trump. He promised to halve his tariff just at the rumor of getting himself a US tariff in return. It’s called negotiating and most don’t know it when they see it. They call our president names and that always helps, right? Let’s wait and see what happens.

  • Rayner-Hilles

    Mar 3, 2018

    Stuki pretty much hit the nail on the head with that key word: "recursion." I'm shocked at how many people on this site don't seem to be able to grasp the essential difference between a factor of production and an end consumer good. I can sympathise with tariffing consumer goods, but tariffing productive capital, I thought Trump was supposed to be a businessman? This is economics 101 for crying out loud. Perhaps some high school business studies/human geography/economics to go with that basic arithmetic: a economically developed world power specializes in Tertiary and Quaternary industry! Why is it suddenly fashionable to protect primitive industries? I don't even understand how steel can contribute a significant amount to US employment in the first place! Goodness. http://www.bbc.co.uk/schools/gcsebitesize/business/aims/aimsandactivitiesrev3.shtml https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/pY98QOHeFE2eAof6gA5bwQ/ffDHkwuaX0e977oqYxbOOQ

  • thimk

    Mar 3, 2018

    I can agree that the Smoot -Hawley tariffs did not cause the great depression , but they sure must of caused price increases that prolonged the severity . If a country wants to sell its products to the US at a loss that's fine with me. Now is not the time, during the current end cycle of monetary stimulus, to foster consumer price increases.

  • Abcdwf

    Mar 3, 2018

    Mish has been wrong all the time I have read his blog. My god he is the opposite of reality. Plus he is selective (dishonest) in his supposed facts. Anyway your euro friends have created their list of items to tariff. It is a joke lol. Also it’s ok for countries to slap tarrif on the US (south Korea Brazil China India ) but bad for the us to do so. Who would I listen to? Trump (success businessman) or a blogger with a failed record?

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