mikedilger on Nostr: On Trade Deficits and Tarriffs PART I: Trade Balances are Worse than Useless Let's ...
On Trade Deficits and Tarriffs
PART I: Trade Balances are Worse than Useless
Let's imagine there are only three countries: the US, Canada and Mexico.
Let's further imagine that these three countries produce and consume all the goods and
services that they need locally except for three situations:
1) The US buys lumber from Canada
2) Canada buys steel from Mexico
3) Mexico buys automobiles from the US
Now, the trade balances will go like this:
US: In a trade deficit with Canada that just gets bigger and bigger.
US: In a trade surplus with Mexico that just gets bigger and bigger.
These trade balances don't mean anything. Nothing is out of whack. There is no limit
to how high they can go, and nothing ever needs to be paid back to anybody (it is not
debt).
Therefore I recommend ignoring trade balances entirely. They are a silly useless
metric that causes far too much confusion (including in Trump's mind).
PART II: Trade is win-win
In free markets, people trade with other people only of their own free will. They are
never compelled to make a specific trade. Therefore we can assume that both parties to
a trade doing so willingly actually value the received goods and services moreso than
they value the disposed of goods and services.
Therefore trade is win-win.
Therefore,.the more free trade that occurs, the richer everybody gets.
PART III: Tariffs and their purpose
Tarriffs are local import taxes you charge your own citizens in order to protect
local industries who produce the same products at a higher price. This may be
necessary for a number of different reasons:
1) Local industry is fledgling and not efficient yet, and you are giving them time to improve
2) Currency exchange rates are out of whack from purchasing-power-parity, and so you are
preventing efficient local industry from suffering the devastation of this artificial
imbalance.
Any other reason for imposing tarriffs causes a net loss since as already argued, trade
is win-win.
Trump may impose tarriffs in order to drive a hard bargain, but they are still a net loss
while they last. It is just that in Trump's case, they generally don't last long, they
were more of a threat than a long-term policy.
Since currency exchange rates change rapidly, I am of the opinion that tariffs should
change rapidly too. But they don't. Generally they are written into legislation and hard
to change quickly. IMHO government could do far better in this regard.
PART I: Trade Balances are Worse than Useless
Let's imagine there are only three countries: the US, Canada and Mexico.
Let's further imagine that these three countries produce and consume all the goods and
services that they need locally except for three situations:
1) The US buys lumber from Canada
2) Canada buys steel from Mexico
3) Mexico buys automobiles from the US
Now, the trade balances will go like this:
US: In a trade deficit with Canada that just gets bigger and bigger.
US: In a trade surplus with Mexico that just gets bigger and bigger.
These trade balances don't mean anything. Nothing is out of whack. There is no limit
to how high they can go, and nothing ever needs to be paid back to anybody (it is not
debt).
Therefore I recommend ignoring trade balances entirely. They are a silly useless
metric that causes far too much confusion (including in Trump's mind).
PART II: Trade is win-win
In free markets, people trade with other people only of their own free will. They are
never compelled to make a specific trade. Therefore we can assume that both parties to
a trade doing so willingly actually value the received goods and services moreso than
they value the disposed of goods and services.
Therefore trade is win-win.
Therefore,.the more free trade that occurs, the richer everybody gets.
PART III: Tariffs and their purpose
Tarriffs are local import taxes you charge your own citizens in order to protect
local industries who produce the same products at a higher price. This may be
necessary for a number of different reasons:
1) Local industry is fledgling and not efficient yet, and you are giving them time to improve
2) Currency exchange rates are out of whack from purchasing-power-parity, and so you are
preventing efficient local industry from suffering the devastation of this artificial
imbalance.
Any other reason for imposing tarriffs causes a net loss since as already argued, trade
is win-win.
Trump may impose tarriffs in order to drive a hard bargain, but they are still a net loss
while they last. It is just that in Trump's case, they generally don't last long, they
were more of a threat than a long-term policy.
Since currency exchange rates change rapidly, I am of the opinion that tariffs should
change rapidly too. But they don't. Generally they are written into legislation and hard
to change quickly. IMHO government could do far better in this regard.