hookrider, White House Analysis Finds Tariffs Will Hurt Growth, as Officials Insist Otherwise
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This week, the World Bank said in its Global Economic Prospects Report that if tariff threats led to trade wars, the consequences could be “devastating.” It pointed to intensifying protectionism around the world as a risk to economic growth.
And last year, a group of former Council of Economic Advisers chairmen from both political parties wrote a letter to Mr. Trump urging him not to move ahead with steel tariffs, warning that “tariffs would raise costs for manufacturers, reduce employment in manufacturing, and increase prices for consumers.” https://investorshub.advfn.com/boards/read_msg.aspx?message_id=141389636
"fuagf: So in other words Trump and the Trump Administration don't No a damn thing about "Trade Deficits and Economic Growth"."
So some in Trump's administration seem to agree with you, at least in part. In fact there is building evidence you are on the money.
Let's gather a couple.
Trump’s Potemkin Economy
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But Trump’s actual policy initiatives aren’t doing so well. His tax cut isn’t producing the promised surge in business investment, let alone the promised wage gains; all it has really done is lead to a lot of stock buybacks. Reflecting this reality, the tax cut is becoming less popular .. https://www.thefiscaltimes.com/2018/06/25/GOP-Tax-Cuts-Getting-Less-Popular-Poll-Finds .. over time.
And the early phase of the trade war that was supposed to be “good, and easy to win” isn’t generating the kinds of headlines Trump wanted. Instead, we’re hearing about production shifting overseas to escape both U.S. tariffs on imported inputs and foreign retaliation against U.S. products. It’s really worth reading the submission by General Motors .. https://www.regulations.gov/document?D=DOC-2018-0002-1991 .. to the Commerce Department, urging a reconsideration of a tariff policy that “risks undermining GM’s competitiveness against foreign auto producers” and “will be detrimental to the future industrial strength and readiness of manufacturing operations in the United States.” In other words, “Don’t you understand global supply chains, you idiot?” https://investorshub.advfn.com/boards/read_msg.aspx?message_id=143311261
Why the Trump Administration is Confused about Trade Deficits and Economic Growth
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These bilateral trade statistics misrepresent the true value of goods sold by a one country to another due to the prevalence of integrated international production chains. Reported bilateral trade deficits do not take into account the fact that the value of goods shipped from, say, China to the United States represents both the value added by Chinese firms and also the value of inputs that the Chinese firms use from third countries, or even from the United States itself.
An example illustrates this point. Each iPhone 7 32GB imported into the United States is recorded as a $225 import from China, since this is its manufacturing cost (the price for consumers is $649, which reflects Apple’s marketing, design, and engineering costs as well as its profit margin). But out of this $225 measured as an import from China, only $5 represents work actually performed in China, almost exclusively assembly and testing. The remaining $220 represents the cost of components overwhelmingly produced outside of China, and then sent to that country for assembly. Components of the iPhones eventually assembled in China come from throughout Asia (with Korea, Japan, and Taiwan the largest suppliers), as well as from Europe and the Americas. Thus the $225 recorded import from China in actuality embodies U.S. imports from many other countries, and should not be used to measure the extent of the bilateral trade deficit between the United States and China for this product.
A more accurate measure of bilateral trade in goods would calculate the value that is added by each country rather than the gross value of the good sold by the country where final assembly and testing take place. Unfortunately, such nuanced data are not available from any standard data source like the U.S. Bureau of Economic Analysis. https://investorshub.advfn.com/boards/read_msg.aspx?message_id=139501034
To be fair let's see how present policies are working out. Ok, one conservative view.
The trade deficit widens despite Trump's best, misguided efforts
By Desmond Lachman, opinion contributor — 12/10/18 08:00 AM EST The views expressed by contributors are their own and not the view of The Hill
VIDEO
Something is going very wrong with the Trump administration’s effort to reduce the U.S. trade deficit, which has been a principal objective of its "America First" program.
Indeed, instead of declining according to plan, in the first two years of the Trump presidency, the U.S. trade deficit has been steadily increasing. It now stands at its highest level in the past 10 years and shows every sign of further increasing.
It has been said of bloodletters of old that when their patients responded poorly to the first round of bloodletting, they simply upped the dosage in the mistaken belief that more bloodletting would do the trick.
Hopefully, the Trump administration will do better than that and not intensify its import protection policy now that the first round of tariff increases has miserably failed to deliver the desired result.
Instead, one must hope that the administration takes a time out from its march toward increased trade protection and tries to determine the real causes of the United States’ continued poor trade performance.
Mainstream economics would suggest that there are at least three reasons why the U.S. trade deficit is widening and will continue to widen despite increased import protection.
The first is that the U.S. trade deficit is arithmetically the difference between what the U.S. economy invests and what it saves. If the country saves less than it invests, it will have a trade deficit, and that trade deficit will rise to the degree that savings fall further short of the country’s investment level.
By engaging in a very large unfunded tax cut and by going along with the Congress-approved public spending increases, the Trump administration has seriously eroded the country’s level of public savings.
It has done so by putting the country on a path of ever increased budget deficits, which the Congressional Budget Office estimates could exceed $1 trillion a year for as far as the eye can see. It should be little wonder then that the U.S. trade deficit has kept rising.
A second reason why one should not be surprised by the widening in the U.S. trade deficit is that the dollar has kept strengthening. It has done so as the administration’s expansive budget policy at this very late stage in the business cycle has forced the Federal Reserve to raise interest rates to contain inflation.
That in turn has caused the dollar to rise by around 10 percent over the past year, which has had the effect of making our exports less competitive and our imports cheaper.
Yet a third reason why one should have anticipated a widening rather than a narrowing in the U.S. trade deficit is that the Trump administration’s seeming-march toward a world trade war has had the effect of roiling global financial markets and diminishing world economic growth prospects.
In those circumstances, global money has sought the safe haven of the U.S. dollar, and in so doing, it has increased the U.S. capital account surplus.
Once again purely as a matter of arithmetic, with a floating exchange rate, any increase in the U.S. capital account surplus has to be matched by an increase in the U.S. trade deficit if the U.S. external accounts are to balance.
All of this would suggest that if the Trump administration were really serious about wanting to reduce the U.S. trade deficit, it needs to mend its ways and not go down the path of increased import tariff protection.
A good place to start would be to revisit the country’s inappropriately expansive budget policy, which is sapping the country’s savings and is forcing the U.S. dollar ever higher.
However, with economics not being this administration’s strong suit, I am not holding my breath for this to happen.
Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund's Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.
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