PyotrVerkhovensky
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User ID: 2154
PyotrVerkhovensky
25d ago
My personal opinion is that markets are highly overvalued, and a correction needed to be made at some point. The rise of index funds, ironically, have made markets less efficient. But, that is, like, my opinion man.
Tariffs do have a secondary negative effect on financial markets. As I said in my original post, reducing the trade deficit will decrease the amount of US dollars "abroad", which will reduce foreign investment in the US. This is a bad thing if you are a retiree spending your accumulated savings; it is a good thing if you are young and looking to buy a house or invest in stocks (as these investments become cheaper).
PyotrVerkhovensky
25d ago
That estimate shows zero understanding of economics. The actual tariff burden will be the deadweight loss caused by relative price changes as imported goods become more expensive. Relative price changes and imports becoming more expensive are driven by the elasticity of consumer demand for imports and the price pressure that US companies (such as Walmart) can put on their global suppliers, respectively.
The 600 billion is only tangentially related to the actual tariff burden, and, being government revenue, is actually a benefit to US households (the money can be returned to US households via tax breaks, spending, or debt servicing).
PyotrVerkhovensky
25d ago
It's really unconvincing that all the arguments for tariffs I see are so contradictory. It's "Hey we can have our cake and eat it too!". You can't use them as a negotiation tool that gets lowered, a consistent tool to reduce imports and build up local supply chains, and a reliable means of taxation all at the same time.
Given I started with a list of dangers to tariffs I'm not sure why you think my post was an unmitigated endorsement for tariffs. I enumerated potential dangers and benefits. Not all outcomes can or will be realized. Tariffs "can" be used to raise revenue. Tariffs "can" be used for statecraft. It is unlikely that they can be used for both, especially long-term.
You have to be extremely dominant that international corporations will choose you exclusively over the rest of the world combined and you need some way to assure them that it won't be undone anytime soon.
The US is rather dominant. The world wants access to our markets.
Just imagine a world where all countries want everything done on their own land and they all enact high tariffs. We'll just have a less efficient system where everyone tries to achieve autarky and then we'll wait for another Adam Smith to come around and tell us all that this is stupid and we should just trade with each other.
And yet most countries already have protectionist policies. If we can use tariffs to push the rest of the world to a more efficient system (by forcing everyone else to give up their protectionist policies in exchange for us dropping tariffs), I'm assuming that would be a good thing in your eyes? (I'm not saying Trump will do this, but it is one way to use tariffs).
PyotrVerkhovensky
25d ago
That's the first time I've been accused of being too neutral! Let me try to be less so: Income taxes are bad. We have had them for over a century. Tariffs are bad. We have not had them to this extent for nearly a century. Yet in a world in which Trump EO'd the income tax to zero rather than implementing tariffs there would be the same hand-wringing, from the same people, who are currently saying tariffs will destroy the economy. The hypocrisy irritates me.
PyotrVerkhovensky
26d ago
Yes, subsidies can be more targeted. But they are also more prone to capture and create a culture of dependency. It is similar to a government deciding to cut taxes or increase spending: while in theory both result in more money to the populace, psychologically "keeping more of my well-earned money" is healthier than "I'm receiving more free handouts".
This will be a dry post: I'm laying out my thoughts over the tariff discussions of the last few days as succinctly as I can.
Dangers to tariffs:
- Tariffs that are higher than other countries can incentivize domestic companies to move abroad to gain access to cheaper inputs. It has similar negative incentives to a high corporate income tax (the latter of which was reduced in 45's term to be more in line with the rest of the world).
- Danger of a trade war loss. If you don't have market power (attractive consumer base or exports) then a trade war is likely to end in a loss. Costs will be passed to citizens. The US is rather unique in having outsized market power.
- Protectionism can lead to complacency in the citizenry. Lack of competition breeds inefficiency and lethargy. The workforce and economy needs to be sufficiently diverse to maintain competition.
- Less efficient global distribution of resources.
- Tariffs are distortionary in a way that (flat) income tax and universal sales tax are not.
- Less foreign investment (assuming trade deficit shrinks). A trade deficit means US dollars go abroad: those dollars have to come back somehow, usually in the form of investment. Losing this foreign injection of capital is a double edged sword: a benefit is that it will make investments cheaper for domestic savers (cheaper stocks, cheaper housing). This will benefit younger generations who are buying the cheaper stocks and housing at the expense of retirees.
Economic/Political Benefits to tariffs:
- If you are in a position of strength, it can distort the global economy in your favor. Companies may wish to domicile in your country (especially if you have low corporate income tax rates) in order to access your consumers and/or workforce.
- Supply chains will become more intra-national, improving national security.
- If you are in a position of strength, it is a useful foreign policy tool.
- If everyone else is doing tariffs except you, then the economy is already distorted; and implementing reciprocal tariffs may "un-distort" the global economy.
- If you want to raise revenue and you don't fear a trade war, tariffs may have less of an impact on GDP as other methods of taxation (eg, income tax).
Ideological benefits to tariffs:
- Less interconnected global economy leads to less systemic risk (anti-fragile). The revealed fragility of supply chains during Covid shocked me, and made me realize we have traded efficiency for instability. I wrestle with this on a more local level here: https://pyotrverkhovensky.substack.com/p/texas-roadhouse.
- Destruction of the Bretton-Woods post-war hegemony.
- Reciprocal tariffs punishes other nations for constantly hitting "defect" in an iterative "trade" game. It could force the world towards a better equilibrium.
- Tariffs are explicitly allowed in the Constitution, income tax had to have an amendment.
Other thoughts:
If you are going to do protectionism, tariffs are better than subsidies.
Tariffs will change the relative cost of goods, but being a tax they should be net deflationary rather than inflationary.
Sanctions are like extreme "reverse" tariffs; if Russia and Iran are any example energy-rich countries seem to weather sanctions well.
Our Good Friday service is intentionally unsettling. More than most Protestant churches, we lean into iconography and ritual; and at no time more so than during Holy Week.
The service is conducted in darkness; no lights are on in the sanctuary. All crosses in the sanctuary are covered in a black veil. The priests and clergy wear only black.
The clergy process silently; holding aloft the Bible and a shrouded cross. The service begins with a reading from of the Passion from the Gospel of John. The congregation participates: we are the voice of the crowd shouting "crucify him!" and "we have no king but Caesar!".
There is a time of contemplation, where we meditate on the cross. We echo a frame that is more common during Christmas. "O come let us adore him". Yet now we aren't adoring God made flesh; but rather that flesh broken on an instrument of torture. Adore it. For that is what our sin has caused, and what we deserve for our sin.
The music team sings "Ye who think of sin but lightly nor suppose the evil great, here may view its nature rightly, here its guilt may estimate.". My nine year old quietly sobs beside me. There is no shame in doing so. In the our same row a seminary student with an intricate "Pro Rege" tattoo is weeping as well.
The music ends. A quiet Lords' Prayer is recited, then the clergy recess in silence and darkness. The service is ended. Now must we wait. Easter is coming, but a day of entombed darkness must be endured before the glorious resurrection.
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