@BaldingsWorld
I am ready to start jotting down down thoughts and will probably thread a couple of posts to keep everything organized without turning it into a paper. Let's start with a top line over view and review of the most fundamental of issues.
1. My gut instinct is to not like the tariff announcement even if I am sympathetic to the very real problems Trump cites and is targeting. Others have done work on this from the academic to the professional about the implied price of non-tariff barriers and related issues that make exporting more costly. By really any measure the US is the most open of the major economies, maybe not after yesterday, and the US is the hardest hit of the major economies. I am sympathetic to the problems he cites, however, I do not care for the broad approach with and these are important caveats I will get to.
2. One concern about the tariff announcement is a sequencing problem. Last time Trump did a major tariff announcement, targeting China but no other countries of significance, as I wrote at the time (which you can find for anyone interested) this was a win for countries like Vietnam and Mexico and total US imports would largely not be impacted. What happened? US trade between countries like Mexico and Vietnam boomed, trade with China shrunk, and (this is arguably the most important point) import trade prices did not move and there was no impact to the US consumer or business. By taking such a broad approach here, I am concerned businesses will not be able to have outlets to preferred destinations because so many countries have been hit.
3. My concerns aside, a lot of the hand wringing is complete nonsense. For instance, countries will not be banding together to create free trade blocs that exclude the US. WE ARE THE REASON FOR THE FREE BLOCKS. THEY WANT ACCESS TO OUR MARKET. Seriously, for political and economical reasons, mercantilist protectionist large trade surplus countries (looking at you China and Germany just to start) do not create free trade blocks with other mercantalist protectionist countries. Look no other major economy even comes close to matching the US in terms of ongoing growth (even if we have a slowdown now) or market openness. Europe, Canada, and Japan for example haven't grown in decade or longer and China is actively kicking out almost all foreign businesses. The US is the literally the only game in town.
4. There were a number of things in the announcement and recent announcements that I noticed that were not an accident that I think hint at the strategy of where the Trump admin wants to take this. My previously noted concern about the "sequencing" becomes a moot point IF countries strike deals to get off the tariff list or minimize them. First, Trump delayed tariff implementation for a week. To me that points to he expects countries to rush to get off the list or minimize the tariffs and cut deals. The Trump admin has implemented tariff additions within the past month with only hours notification so I do not believe this current time horizon is accidental. Second, very quietly the Trump admin has gone very hard on China, which admittedly I like. Here is a very key difference: the dynamics of almost any country on that list caving to Trump are acceptable to keep exports flowing EXCEPT China. Everything Trump has done have made a deal increasingly hard for Xi to agree to and this even include something like TikTok. I mean the Trump administration literally listed Taiwan as a country. I guarantee that slight did not go unnoticed in Beijing. In short, would not surprise me to strike some "deals" that probably offer minimal return in order to prepare his table to target China even more.
5. There is one dynamic I do not think is appreciated about what you are reading about trade. The text book jockeys in east coast think tanks and universities point to the text book models but the reality is trade across borders happens for many reasons. To take some simple examples, yes in some products labor price is the reason it is profitable to ship a product long distances, other products have a monopoly by country (think something like oil), in other instances, it is as simple as being able to secure environmental permit (which is why Mexico makes a lot of products like cement which the US quasi-outsourced by restricting environmental permits). The reason this matters, is much of the writing on trade does not consider the high competition global world we live in but the Adam Smith textbook world of trade. I've seen people talk about Americans not wanting low wage manufacturing jobs but those aren't the jobs that would come back to the US. I can hear people crying but that's the job leaving Vietnam, but and this is the key, that isn't the job that would land in America. Take a simple example, a seamstress is put out of work in Vietnam to make tshirts in America. The US job wouldn't be a seamstress job, it might be a robot technician that overseas a few hundred robots outside a major metropolitan area making sure if a robot goes down it gets fixed quickly and keeps making tshirts. Why is this important for the Trump administration? Whether their plan to move trade to the US or cut deals with countries that want to cut deals and re-arrange supply chains they need to have those plans ready to go like yesterday with what they released. Part of this is also to say I suspect we will see significantly less disruption and pain than some people are predicting. I myself for years have called for shifting trade to preferred supplier countries.
It will be interesting to see what happens in the days and weeks ahead
1
