Tariffs - good, bad, or something else?

[SuisseBear]

@albaby1

It’s an economic theory that shows how countries can benefit by specializing in the production of certain goods and importing others, rather than trying to produce everything themselves.

… and one that makes sense, as long as somewhat of a balance between imports and exports is maintained.

Else we end up with

• countries that go into deep debt to buy stuff abroad (while paying its own underemployed government benefits) from
• countries who endlessly produce and export (while stiffing their workers - must compete!!) - for IOUs in return that may not be as backed-up as they seem.

Then again, a surplus in services may offset trade deficits when it comes to goods.

Current policies may drive sweatshops back into the US… perhaps that is what people voted for?

[albaby1]

@steve203

From the 50s through the 70s there were better jobs available than being a farm hand. Jobs that both paid better, and were safer. That is probably where the unneeded farm hands went.

Farm employment was still close to 20% of the workforce as late as 1980. And there are still better jobs to be had that pay better and are safer than being a farm hand in 1947 (when 1984 was written). Unlike Orwell’s prediction, you can have massive improvements in mechanization and other efficiencies and not end up having to have constant wars to destroy the surplus. Everyone can just be better off and wealthier.

@steve203

We of a certain age remember the government cheese giveaways of the early 80s.

I am of that age, and we still have some programs that subsidize farm production - but nothing compared to the order of magnitude of efficiency gains caused by mechanization and the Green Revolution. It’s probably unfair to Orwell to call his literary plot device an “economic theory,” but if it were one it is clearly and totally wrong. Rising mechanization does not and has not created a situation where we are compelled to destroy massive amounts of product in wars in order to maintain employment.

[steve203]

@Hawkwin

Your example assumes the bucket has a finite amount of water in it when in fact, that bucket, as measured by GDP, has increased by roughly $20 trillion since 2020.

Another analogy: the pumps on the Titanic were running at full capacity. The ship sank anyway.

Steve

[steve203]

@SuisseBear

Current policies may drive sweatshops back into the US… perhaps that is what people voted for?

I remember some luminary offering, in the 80s, that “sweatshops” were good, because “they get people started in the workforce”.

Pushed to extremes, “sweatshops” can stoke up their own revolution.

Steve

[albaby1]

@SuisseBear

… and one that makes sense, as long as somewhat of a balance between imports and exports is maintained.

Else we end up with

• countries that go into deep debt to buy stuff abroad (while paying its own underemployed government benefits) from
• countries who endlessly produce and export (while stiffing their workers - must compete!!) - for IOUs in return that may not be as backed-up as they seem.

No reason that can’t go on.

Rather than the bucket analogy, let’s use a more corporate one. Let’s say I own a thriving business manufacturing frozen pizzas, which business we will use as an analog for the country. I make all the ingredients for my pizza “in house” - I have wheat fields and flour mills, dairies and cheese houses, tomatoes and industrial saucers. Since I am thriving, I would like to expand - which requires buying more wheat fields and dairy cows and tomato acreage and buildings and whatnot. But because I only make X dollars per year in profit, my expansion is limited to 2% per year.

Now my neighbor comes up to me, and offers me a deal. Turns out they happen to own much better tomato fields than I do, and can produce tomatoes and sauce at a fraction of my price. They will provide me with all the sauce I need, and I will pay for that sauce in IOU’s at a very low interest rate.

This is awesome for me! I am getting one of my ingredients at a much lower price and I now have a source of financing for my expansion! I’m much better at growing wheat and making cheese and assembling pizza than I am at making tomatoes or sauce, so I’m better off putting my resources there rather than having capital tied up in tomato production. And I’m getting financing, so I can make my pizza empire grow faster.

And here’s the kicker - although I am racking up IOU’s to my tomato-growing friend, the value of my pizza company is growing faster than the IOU’s. By a lot. Not having to engage in the low-value activity of tomato-growing allows my pizza empire to expand faster, which more than offsets the Tomato Deficit I’m incurring.

Notice that in this scenario, even though I’m running a deficit with my neighbor (assume he’s not buying any of my pizzas, just taking IOU’s), we’re both better off - and that this scenario could theoretically go on forever. Even though there’s a trade imbalance.

[SuisseBear]

@albaby1

Turns out they happen to own much better tomato fields than I do, and can produce tomatoes and sauce at a fraction of my price. They will provide me with all the sauce I need, and I will pay for that sauce in IOU’s at a very low interest rate.

This is awesome for me! I am getting one of my ingredients at a much lower price and I now have a source of financing for my expansion!

Now what if it turns out that your neighbor‘s low prices are not so much due to his fantastic fields, but more due to him employing illegals or slave labor? Meanwhile you probably would have fired your own tomato farmers and pickers because they are no longer competitive, so your family needs to pay them social benefits - is it still worth it? What if your neighbor offers you to make the entire pizza much cheaper than you can?

[syke6]

@steve203

Another analogy: the pumps on the Titanic were running at full capacity. The ship sank anyway.

Terrible analogy. When China entered the WTO in 2001 (if memory serves). US GDP was $10 trillion. Today it is $27 trillion. The ship got bigger faster than the water came in.

During that period, real incomes grew for every quintile. Incomes at the top grew way faster, but that is because of public policy, not trade policy.

[albaby1]

@SuisseBear

Now what if it turns out that your neighbor‘s low prices are not so much due to his fantastic fields, but more due to him employing illegals or slave labor? Meanwhile you probably would have fired your own tomato farmers and pickers because they are no longer competitive, so your family needs to pay them social benefits - is it still worth it? What if your neighbor offers you to make the entire pizza much cheaper than you can?

All complicating factors, to be sure. By construction, these types of analogies are oversimplifications. The point is to show that these types of trade deficits aren’t themselves necessarily problematic or unsustainable in the long run.

And if we look to your specific complicating factors, all but the slave labor are possible to work out. Again, here the pizza factory is an analogy for the entire U.S. economy - and we know from that experience that even decades of running a non-trivial trade deficit has still left our economy with a fabulously high enough amount of wealth to pay the “tomato farmers and pickers” their social benefits. And that the neighbor hasn’t been able to “make the entire pizza,” which would involve duplicating the entire breadth of output of our economy (not just manufactured goods).

[SuisseBear]

@albaby1

we know from that experience that even decades of running a non-trivial trade deficit has still left our economy with a fabulously high enough amount of wealth to pay the “tomato farmers and pickers” their social benefits.

True that. It has helped that you have developed a strong service business on the side where your neighbor is customer. And yet, your own unemployed frustrated tomato pickers have started to take drugs and voted against your tomato-buying policy at the last family reunion

[syke6]

@SuisseBear

Now what if it turns out that your neighbor‘s low prices are not so much due to his fantastic fields, but more due to him employing illegals or slave labor? Meanwhile you probably would have fired your own tomato farmers and pickers because they are no longer competitive, so your family needs to pay them social benefits - is it still worth it? What if your neighbor offers you to make the entire pizza much cheaper than you can?

But we didn’t really see that happen in the US. As of January this year, unemployment was very low and wages were increasing in real terms for every quintile.

Sure, there were losers, particularly in areas like manufacturing. But manufacturing as a percentage of the workforce has been declining in every industrial country, including China. That’s cold comfort if you were the one who lost a good paying manufacturing job. But it wasn’t like there were no replacement jobs.

And on the flip side, skilled workers saw good job demand growth and good increases in wages, and overall good economic growth.

[syke6]

@SuisseBear

True that. It has helped that you have developed a strong service business on the side where your neighbor is customer. And yet, your own unemployed frustrated tomato pickers have started to take drugs and voted against your tomato-buying policy at the last family reunion

Indeed. And after a couple drinks, they started reminiscing about how great it was to pick tomatoes back in the day, and can’t understand why today’s youth would rather work in tech.

[gcr2016]

@albaby1

The point is to show that these types of trade deficits aren’t themselves necessarily problematic or unsustainable in the long run.

Do you believe trade deficits are advantageous for a country?

And if so why don’t all countries strive for that trade deficit?

[albaby1]

@gcr2016

Do you believe trade deficits are advantageous for a country?

It depends entirely on the broader context. The mere presence of a trade deficit is neither advantageous nor disadvantageous.

@gcr2016

And if so why don’t all countries strive for that trade deficit?

Mostly because it’s hard to run a continual trade deficit if you’re not the reserve currency that everyone wants to invest in. And partially because trade deficits are politically unpopular, since many people tend to imagine a government’s finances like their household finances (which is an understandable error, but an error nonetheless).

[SuisseBear]

@syke6

And on the flip side, skilled workers saw good job demand growth and good increases in wages, and overall good economic growth.

Agreed. The benefits are strong as long as some sense of balance and fair play are ensured. Else the side effects can become rather problematic.

[UpNorthJoe]

" Imagine the US as a bucket of water. Every time something is imported, a little water, to pay for the imports, is drained out. So that the US can continue to import stuff, water is borrowed, from the exporters, to keep the bucket from running dry."

So America exports more dollars for imported goods, than we import more dollars for our exported goods. Our government also spends more than it takes in from tax revenue. The people wanting to slash government are basically saying " live within your means ". Other than a blip of a balanced budget under Bill Clinton, America has never lived within its means. Ever. ( or at least in our lifetime ).

So the current admin wants to take a chainsaw to government outlays, drown government in a bathtub is the way they put it when they talk freely. As best as I can tell, the current admin will cut or even eliminate the income tax, under the guise of the money from tariffs will replace the income tax revenue. The current admin does not seem to grasp that the money from tariffs will come from the citizens of this Country, when we make purchases.

So in this new American economy, are we all prepared to do without the services that the government currently provides ? We really think that tariffs are going to solve the majority of our problems ? Tariffs will eliminate the trade deficit ? Tariffs, along with the gutting of government services, will both allow for taxes to be reduced or eliminated, and will eliminate the national debt ? Because TIG has promised that he would eliminate the national debt, rather easily, he says.

I am very, very skeptical of the grandiose, fantastical claims that the current administration is touting. But it sounds like there are enough of us that are saying “trust him, he knows what he’s doing, he’s a businessman”.

I hope you’re right, cause nobody in positions of power are stepping up to stop him. And enough Americans bought into these grand promises and voted him in, twice. So I guess we’re gonna find out.

[steve203]

@syke6

The ship got bigger faster than the water came in.

Oh?

Why Does Economic Growth Keep Slowing Down?

Steve…easier than typing 1000 words.

[steve203]

@SuisseBear

And yet, your own unemployed frustrated tomato pickers have started to take drugs and voted against your tomato-buying policy at the last family reunion

Is U.S. Manufacturing Really Declining?

Then the frustrated former tomato pickers vote to blow the entire system up.

@syke6

But it wasn’t like there were no replacement jobs.

A guy being laid off from Stellantis a couple weeks ago, commented to the local news, he would need to find three other jobs, to make the money he does at Stellantis. There are “jobs” around, but they don’t “replace” a union manufacturing job in terms of pay and benefits.

Steve

[albaby1]

@steve203

Then the frustrated former tomato pickers vote to blow the entire system up.

Of course. Protectionist policies are usually beneficial for the folks in the protected industry. But removing them is often beneficial for the folks who aren’t in that protected industry.

The tomato pickers might want to blow the entire system up, but their ability to do that will depend on their ability to convince a very large number of non-tomato-pickers to go along with them. That will require making some promises/assurances that blowing up the entire system will benefit more than just the tomato pickers. It is rather questionable whether those promises can be kept - and because of that, it is questionable whether the effort to blow the entire system up will be maintained.

[steve203]

@albaby1

That will require making some promises/assurances that blowing up the entire system will benefit more than just the tomato pickers.

“Hey, Mr Rugseller. If you buy tomatoes from me, I will have the money to buy a rug from you”.

Steve

[albaby1]

@steve203

“Hey, Mr Rugseller. If you buy tomatoes from me, I will have the money to buy a rug from you”.

Sure, but it might not be worth it. The Rugsellers might not be better off for everyone to spend many more times for tomatoes than to import them, just so that you have money to buy a rug. Because now instead of all the other tomato-buyers having more money to buy a rugs themselves, they’ve spent more to get your expensive tomatoes rather than the cheaper ones. To say nothing of their own increased tomato costs.

So while the tomato pickers are better off, everyone else is a little worse off - and the aggregate amount of the “worse off” of everyone else can outweigh the “better off” of the tomato pickers. Making Mr. Rugseller worse off as well.