The wider implications of tariffs

 

Following on from my article about tariffs last week, Francis Turner provides this screen capture from 4chan that looks at tariffs from a different angle.

Mr. Turner adds:

That, coincidentally (ya think?), means that the interest rate the federal government has to pay on it’s enormous debt decreases which, in turn, reduces the deficit and extends the time needed for Trump and the Republicans in congress to get their ducks in a row and pass an actual budget.

. . .

The combination of second order effects - lower interest rates, lower taxes, lower oil prices - are likely to, partially if not completely, counteract the price rises that will be seen by tariffs on imports.

There's more at the link.  I'm inclined to agree with him.

Another aspect of the tariff problem is that Europe is going to be faced with a tidal wave of Chinese manufactured goods seeking new markets, now that they may be priced out of the US market.

The U.S. holds a special place in the world economy because it buys much more from the world than it sells to it. Americans are the world’s consumers of last resort, helping to balance out vast trade surpluses in places like China and Europe that do the reverse: sell more to other countries than they buy.

Chinese manufacturers, wrestling with overcapacity in some sectors, have recently flooded global markets with cheap goods and started competing aggressively with American and European businesses around the world. China’s surplus with the world overall was just shy of $1 trillion last year, three times its size in 2018. The EU last month unveiled plans to protect its steel and aluminum producers from global overcapacity, pointing to rising exports from China and increasing trade barriers in key markets like the U.S.

China’s exports to the EU exceeded imports from the bloc by over 300 billion euros, equivalent to almost $332 billion, in 2024, according to EU data, a gap that is roughly twice as large as when Trump first started imposing tariffs in 2018. The EU has highlighted that burgeoning trade deficit as problematic even as it has defended its large goods surpluses with the U.S.

For European businesses, even with a new trade deal that lowers barriers to entry, it isn’t clear that they could significantly increase exports to China.

“China exports, it doesn’t import,” said Brad Setser, senior fellow at the Council on Foreign Relations. “If Europe wants to do a deal with China, it has to be prepared to kiss its auto industry goodbye.”

As the trade confrontation between the U.S. and China escalates, Chinese companies will come under increased pressure to dump their excess production in Europe, further increasing the competitive pressure on the continent.

Again, more at the link.

President Trump is doing exactly what he promised he would do.  He's protecting American interests, after years - decades! - during which our politicians (of both major parties, let it be said) supported Wall Street, stocks, financialization and de-industrialization, at the expense of this country's manufacturing economy and the jobs it supported.  In doing so, he's thrown a long-overdue monkey wrench into the systems and structures of international trade.  The fallout is as yet unpredictable, but is unlikely to be as bad for the United States as was the old system.

Interesting times indeed!

Peter