Cpt. Charisma on Nostr: I. You are only considering one side of these trades - the physical goods purchased. ...
I. You are only considering one side of these trades - the physical goods purchased. You failed to consider how the purchase was made. What does the American car company get from Mexican consumers? Nothing? Pesos? Bars of gold? Dollars? The car company won't be in business long if it doesn't get dollars to pay it's suppliers and employees.
II. In practice, no one is trading goods and services for goods and services. They are trading goods and services for debt-based monetary instruments. The mechanics can be very complicated, but this is where the deficit is created. There is a literal imbalance in payments in the form of debt that must be made up somehow. It is usually held in government bonds until paid. There can also be lines of credit between international banks and central banks involved. This has a direct effect on interest rates and currency exchange rates. A country that has persistently high trade deficits will see it's currency lose value.
III. Tariffs can be used to discourage trade with a partner with whom you have a trade imbalance. It is usually ineffective because it isn't possible to predict the exact effect of specific tariffs (or governments suck at it, which amounts to the same thing.) They can serve as an alternative to income taxes. For this to work, the volume of foreign trade needs to be high and the tariffs low enough not to hinder it. The U. S. government was mostly funded through tariffs before 1913. I believe this is Trumps eventual goal, but he is definitely not there yet. Maybe he can convince trade partners to lower their own tariffs with a policy of matching them. Maybe not. Maybe he's really just an idiot reality T.V. star and has no clue what he's doing.
II. In practice, no one is trading goods and services for goods and services. They are trading goods and services for debt-based monetary instruments. The mechanics can be very complicated, but this is where the deficit is created. There is a literal imbalance in payments in the form of debt that must be made up somehow. It is usually held in government bonds until paid. There can also be lines of credit between international banks and central banks involved. This has a direct effect on interest rates and currency exchange rates. A country that has persistently high trade deficits will see it's currency lose value.
III. Tariffs can be used to discourage trade with a partner with whom you have a trade imbalance. It is usually ineffective because it isn't possible to predict the exact effect of specific tariffs (or governments suck at it, which amounts to the same thing.) They can serve as an alternative to income taxes. For this to work, the volume of foreign trade needs to be high and the tariffs low enough not to hinder it. The U. S. government was mostly funded through tariffs before 1913. I believe this is Trumps eventual goal, but he is definitely not there yet. Maybe he can convince trade partners to lower their own tariffs with a policy of matching them. Maybe not. Maybe he's really just an idiot reality T.V. star and has no clue what he's doing.