I think he has been fed that line by his backers.
They actually think that if they add tariffs, they will be able to control inflation expectations by weakening the US Dollar (thus making imports cheaper)
So inflation comes down because US FX weakens, thus driving cheaper imports (even with tariffs).
Personally, its more than likely that inflation will be a lot harder to attenuate once it gets going.
Yes, I remember the phrase “prices are downward sticky” from first year economics.
This is sounding a lot like fishermen telling me if we just kill the seals there’ll be more cod. There’s more than just cod and seals in the foodweb.
the winnipeg bypass is impressive! down here we are less concerned with fargo/morehead or grand forks flooding every n years. (mainly bc relatively few people live there and the cost of real prevention is likely high.)
Yeah. Governments spent gazillions to mitigate the Winnipeg flood risk.
Yes. Its all based on assumptions that have no real basis in reality. Running a scenario like his on a country the size of the US is reckless in the extreme.
This appeals to Trump because it creates instability and chaos. Trump is a moron, but the people pushing this (Bessent and the hedge fund crowd he is fronting for) are not.
The more I dive into the economics of this the more I am convinced this is very much a political and economic coup.
They are significantly centralising economic and political power in the US via this tariff mechanism.
Think about it.
If someone goes against Trump politically, all Trump has to do is threaten them with tariffs on the raw materials that they need for their products and services.
i.e. Be quiet and do what you are told…or else.
It would effectively function as a protection racket. We are already seeing some of this behavior with Meta, Amazon, Apple etc who have shifted their entire structure to accomodate Trump.
Free trade is a very flawed system, sorry to tell you. The problem is that once you have free trade for decades, it’s very hard to unwind it. A rich country should never voluntarily destroy their manufacturing capacity.
Second, most trade models we study in Econ 101 do not take into consideration the impact of immigration. It’s easy to claim that free trade works when you bring in millions of workers to do jobs that oops Americans don’t seem to want or be able to do. Academia, and academics, have been pushing this model quite aggressively because they it boosts enrolment. And interestingly enough, there is a connection between trade deficits and student loans. There is a massive inflow of Chinese capital funding student debt, literally destroying youth.
Having targeted tariffs makes a lot of sense, Maybe not on Canadian lumber, but certainly on a lot of things, especially Chinese stuff.
So ffs, please stop with all this garbage about free trade being awesome. It is not.
Sure. But thats not even close to what they are doing.
What Trump is trying to do is basically impossible without many years of economic pain. You can’t unwind this system very easily. And certainly Trump isn’t the guy that will do it intelligently, at least that’s not my expectation.
A feature of a good system is that it can be undone very easily when you see that it doesn’t work. Free trade doesn’t have this feature. An economic system should have a baseline capacity in strategic industries. In order to have this, you need a certain level of tariffs to protect your industries.
The fact that most Canadian companies use AWS for cloud is a good example. If somehow these cloud providers were shut down, we’d be completely f…
This seems self contradicting.
Trump is going to destroy a lot of what made the US special - its soft power.
Thats going to combine with economic damage.
Trump is going to drive the US economy into a wall. Of that I have zero doubt now.
A good system is resilient and adaptive. Free trade doesn’t qualify imo. If one country specializes in semiconductor and gets attacked, the entire system falls apart.
Lutnick is right. Domestic production will go up gradually, economies of scale will kick in, prices will eventually settle down. That’s the whole point of tariffs. I expect employment to rise in many industrial sectors. Academia will downsize as student loan money dries up due to smaller trade deficits.
You are going to see how wrong you are over the next few years. You still view this as a zero sum static system, but that is simply not how it works.
Employment will actually go down because exports will be damaged. The US exports its excess production. It will not be able to do that anymore.
Then there is the small matter of the many jobs at the bottom of the payscale that Americans refuse to do (Trump is booting a chunk of these people out)
Not sure why you are so obsessed with academia. Thats small fry in the economic sense.
I’m not obsessed with anything. What is supposed to happen is a redistribution of production. Less service jobs and more industrial jobs. So naturally academia is going to downsize as the number of employment opportunities for college grads will fall significantly. And a lot of these degrees were funded by student debt which is in part funded by Chinese money (trade deficits). We have too many working class kids going to college on student loans. Now they will work blue collar jobs that pay well. How anyone thinks this is bad is beyond me.
You don’t need a crazy plan with global tariffs to fix that.
Just stop giving out Guaranteed loans.
Funding shrinks, problem shrinks.
Also, students in the US are figuring this out. You are seeing less students taking out large student loans.
The two are connected, unfortunately. I’ve been reading some stuff from a trade economist in China and he makes a good point about this.
The size of the financial services sector in the United States is simply too large. Need to downsize academia, financial services, etc and reboot the industrial base. That’s the plan. Short term pain, long term gain imo. Of course that’s not to say that the US should put tariffs on Canadian lumber or oil. Tariffs for China and Mexico are definitely warranted.
Thats not what they intend to do.
Thats a bit of wishful thinking on your part.
The US has a problem when it comes to revenue vs spending imbalances.
They finance that deficit with debt issuance.
What they are planning on doing is massively cut spending (this will not help the people you think will come out of this better off) and cut taxes (which massively favours the wealthy).
But even with that crazy scheme, they are stuck with someone having to buy all that US debt when you have just pummeled those countries with tariffs.
So their brilliant plan is to somehow force those countries to buy US debt by using the tariff mechanism (think of it as Sovereign Debt blackmail. Buy our debt or we raise your tariffs) Thats obviously never going to work so there will be an added risk premium on US Debt (this will increase debt service costs and eat into revenues)
Now, does this sound like a plan that is going to make the less well off in the US better off?
Also,
The Fed conducted a study on the impact of the first term Trump tariffs on a variety of imports.
What did they find?
a) Loss of manufacturing jobs…for the US
b) Increased inflation…for the US
c) A reduction of GDP growth…for the US
The hallmark of stupid is doing the same thing twice and expecting different results.
The tariffs that Trump enacted were kept by the Biden administration. The number of manufacturing jobs has stopped falling.
The effects of tariffs take a little time. When free trade started, the job losses in manufacturing were minimal. But eventually China ramped up production and destroyed manufacturing in the United States.
Inflation is rising prices. You have no proof that tariffs will lead to long term inflation. What’s going to happen is that prices will rise for a few years, but gradually new jobs with higher wages will be created. Instead of working at Walmart, someone can get an industrial job with union pay. People working at Jp Morgan will have to pay more for everything but working class people will be better off due to higher wages. Overall effect on gdp will be negative but income inequality will be lower.
Didn’t we see above that the US didn’t lose manufacturing capacity? We just got more efficient. Protecting manufacturing is an expensive fallacy. You can have more stuff with free trade or you can have less stuff with protectionism.