Login

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

Daaron; I agree. The future belongs to those with the brightest minds and ideas. Intellectual property is very important. But Trump looks at complex problems and can only see simple solutions, which actually make things worse. He thinks things like “steel good”, Mexico bad, tariffs good, Canada bad.

"Free stuff raises standards of living. This is undeniable."

First off. it is not free. Second, Americans cannot afford to buy it even if it costs less because their jobs are gone.

What is undeniable is your loyalty to the status quo.

Mish wrote: “If countries want to subsidize US taxpayers it is silly to object. If they gave the world free cars only a fool would object. Same with solar panels. It is like arguing about free light from the sun. Free stuff raises standards of living. This is undeniable.”

That’s where I have to disagree with you to some extent if the purpose of said “incredible deals” are to destroy local industry (by selling below cost), only to raise prices later.

It’s called dumping and we should pursue trade actions against it vigorously. But that also means doing thorough reasearch and implementing specific actions against the offending actors — not an overall nuclear strike against the entire world. Doing that hurts American consumers and pisses off those foreign trading partners of ours who are playing by the rules.

(edited)

Bush did a 30% tariff on steel, too, and the world didn't end. He did cost a bunch of American jobs, but before it did too much damage, he repealed it. Once every few generations, though, it is time to be really stupid and seriously damage the economy. Is now the time?

Stories