The trade deficit will soon head in the direction Trump wants, just not the way he wants.
A recession tends to reduce the trade deficit.
This was especially true in the Great Recession when the balance of trade improved from -66.99 billion to -25.84 billion between July 2008 and May 2009 (monthly numbers)
Similarly, the goods deficit improved from -77.63 billion to -35.60 billion.
My base case is recession, so we are on track for at least some improvement.
What About Tariff Collection?
Good question. If we import less, we will collect less than what Trump wants in tariffs.
And if the US is in recession, the rest of the world is sure to be suffering too. That means we will have fewer exports as well.
If You Want Less of Something, Tax It
A fundamental economic rule is if you subsidize something you get more of it and if you tax something you get less of it.
Tariffs are a tax on trade. So we will not only have less trade due to taxes (factor in retaliations), we will have less trade due to recession.
This applies to imports and exports.
Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
On March 12, I commented Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
We have an annual trade deficit of $918 billion.
Team Trump proposes $918 billion in “reciprocal tariffs” to make the trade deficit go away.
But to balance the budget and eliminate personal income taxes, Trump would need to collect $7 trillion in tariffs on a net trade deficit of $918 billion.
I would love to hear a detailed explanation of exactly how that works.
Are you ready for that miracle? Me too. But wait, there are still more benefits to this amazing deal.
Trumps Claims
- Tariffs will increase revenue enough to balance the budget
- Tariffs will bring manufacturing back to the US
- Tariffs will reduce inflation
- Tariffs will increase exports
Conflicting Economic Madness
Points 1 and 2 conflict. Tariffs cannot simultaneously bring back manufacturing and raise enough revenue to balance the budget.
Points 2 and 3 conflict. Since the US is one of the world’s highest cost producer of goods thanks to unions, tariffs will not reduce inflation.
Points 2 and 4 conflict. Since the US is one of the world’s highest cost producer of goods, and other countries will retaliate, tariffs will not increase exports.
No one yet can fully explain Trump’s economic plan because it’s all double- or triple- counting of contradictory ideas.
I do expect Trump to reduce the trade deficit from this starting point. But the more he succeeds, the lower the tariff revenue and the bigger the recession.
Tezza “If other countries hurt themselves with tariffs that’s their problem. The US is the greatest large-scale economy ever created in the history of the world. The bedrock of the success of the U. S. economy has always been low taxes, free markets and (relatively) low tariffs.”
Correct . There is no need to be as stupid as others.
Yet that is precisely the logical meaning of reciprocal: Be as stupid as the stupidest of them.
The gvt is broke, they need to raise taxes. Instead of income taxes, they raise tariffs.
We’re wasting our time thinking it’s for trade.
I agree. They want something like a VAT to raise revenue. Maybe a 7% sales tax
he US is the greatest large-scale economy ever created in the history of the world.
===
bs! success of USA is overblown!
by end of 19th century USA become #1 cause : big ppl, abundance of coal/steel/oil, and staying away world war 1!
nothing special in USA.
for example before Hitler started expel-kill j1ews in Germany, Germany education was way ahead of USA , or Britain!
or same for WW2! Germany/japan/ partly France/ USSR were almost destroyed by 1945!
======
USA lost competitiveness in 1970x to Europe cause of oil shock and Vietnam inflation and almost lost (tech wise) to Japan in 1980xxx.
and now USA lost for good to hard working China , country w/ social cohesion and semi competent political governance
alx
Obviously incorrect.
So no, it freedom cannot be regarded as the fuel that built up American industry.
This is a Big Lie: “The bedrock of the success of the U. S. economy has always been low taxes, free markets and (relatively) low tariffs.”
I’d argue that “low taxes” is only beneficial with commensurate small government; it’s the small government that matters not the tax rate. The history of the 21st Century has shown that “Low Taxes”, combined with Big-Government deficit spending, is not a source of economic success.
“Free markets” is total B.S., there were monopolies and various other games going on for most of U.S. history, which is why antitrust law is actually a thing, even if we forgot how to adequately enforce it since the 1990s. Free enterprise, though, that’s a strong economic driver. And free markets would be a good thing to restore.
“Low tariffs” is just plain wrong. What mattered in the 1800s and early 1900s wasn’t the level of tariffs so much as that the U.S. ran a massive trade surplus which funded massive domestic investment. We idiotically gave that edge away in pursuit of “reserve currency” hegemony. One of the few fundamentally solid results in economics is that the nation with the reserve currency must run trade deficits in order to export said currency, and over time this weakens the national economy.
A country cannot have tariffs, regulations, sales taxes, a national bank, subsidies, etc., and considered a free market as defined by Adam Smith. There has never been a free market since the Wealth of Nations was written.
Do you consider a services balance in your calcs for trade balance? Trump believes services aren’t traded, so he doesn’t count them. Do you?
With only 3% of ocean freight being inspected how can tariffs be enforced. I say I’m shipping 1000 items valued at $1 each I actually ship 1000 items valued at $100 each, who’s to know?
US can afford and in fact should have a Trade Deficit as it can export its Inflation.A Trade Surplus for US means a Dollar Shortage for other nations which will again adversely affect the Global Economy. till the US Dollar ceases to be the Reserve Currency.US at present has the additional advantage of manipulating $ and hence the price of almost anything.
We havent been exporting inflation at all. We’ve been inflicting inflation on ourselves that threatens to get a lot worse due to our unrestrained deficit spending. Devaluing the dollar makes us look bad to other nations, and it should, because it’s wrong. Maybe what you mean is it hasnt affected most people a lot, but I think that is coming.
USA does export its inflation. Pl google for the same.A weak $ is good for other nations as they can get MORE $ for their own Currency and import / buy more,as prices are $-based..
Strong Currencies strengthen nations financially and economically.
Of course the trade deficit improved during 2001 and 2009. The oil price tumbled down both times when the US was still a net importer of 10 million barrels of oil a day.
7db0739c-f079-448a-a8a1-ebec592a807a_604x627.jpeg
The reason Trump is a stable genius is because like a gyroscope, he keeps spinning on his own plane, without influence from fact, theory, or others.
He thinks the external revenue service collects money from other countries for the US Treasury. Not rhetorically, he really does. And counting money is the only type of thought he is capable of.
Most importantly, however, a trade war is a WAR.
Trump has convinced a large part of America that the US has been scammed and ripped off for decades by other countries, when in fact it has been the beneficiary of tangible goods on credit, simply by inflating the global money supply by printing up more reserve currency. It was not other countries that outsourced manufactures; it was Wall Street and owners of equity returns that arbitraged American for foreign labor & capital investment.
If you are buying disposable goods on credit, you are not the beneficiary of “goods on credit”, you are mortgaging your long-term future for disposable junk. Same fundamental error as the native Americans allegedly made in trading land for trinkets.
Native Americans on the East coast, the Plain states, etc, did not have a concept of land as for sale or up for negotiation. They thought the settlers were nuts for trading goods for land since the land was held by the tribe collectively and not a permanent holding either.
That strategy seems to have not been the optimal one they could employ.
Yep… The natives didn’t think of “trading” or “ownership” in the same way that the Europeans did. (that’s why I said “allegedly”)
Which of course makes the Great American Giveaway of 1992-2024 even more stupid, because unlike the natives we should have known!
Almost no civilization before modern Europe (Napoleon) regarded land as something that could be bought and sold, let alone as private property. Feudal land was given as a fief; all land belonged to God, and even the King was a vassal holding the land as a fief. In the Old Testament, land belonged to clans and tribes and the produce (only the produce could be alienated) reverted to them each Jubilee (49 years).
The most stand-out feature of any negotiations with the Indians however was that American never honored any treaty or agreement: America has regarded (and still does) any agreement as a tactical move towards better advantage.
Please explain how the Dutch, English, Spanish and French American and North American colonies didn’t own the land when they were granted the land by the government and were in the case of the Dutch and in some instances the English governed privately owned under The Dutch West Indies Company or proprietary in the British – American colonies ?
You’re arguing Trump is a genius because he is skilled at conning people with lies. You know what would make him an actual genius? The ability to do what’s right for all Americans, not just for himself and whoever shares his most selfish instincts.
Can’t see that happening in my life time.
he US is the greatest large-scale economy ever created in the history of the world.
===
bs! success of USA is overblown!
nothing special in USA.
by end of 19th century USA become #1 cause : big ppl, abundance of coal/iron/oil, and staying away world war 1!
for example before Hitler started expel-kill j1ews in Germany, Germany education was way ahead of USA , or Britain!
or same for WW2! Germany/japan/ partly France/ USSR were almost destroyed by 1945!
======
USA lost competitiveness in 1970x to Europe cause of oil shock and Vietnam inflation and almost lost (tech wise) to Japan in 1980xxx.
and now USA lost for good to hard working China , country w/ social cohesion and semi competent political governance
alx
spam puppet
Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
===
most idiotic statement of decade!
same as = if you like your doctor =
= mission accomplished =
etc
China makes most its money selling low to middle tech goods like shoes, textiles and so forth. That is where their advantage lies. Their high volume coupled with high margins especially when sold in the US brings in the bulk of the profits. Of course the importer, for example Nike, is able to sell the shoes at a considerable markup which is why they make so much money too. Naturally US companies prefer to stay with the build-in-China-and -sell-in-the-US strategy because they make more money. The products are not high-tech so they could make them in the US but their margins wouldn’t be the same so they don’t do it…unless you make in their interest to do so.
Chinese margins on the low-to-middle end are at about 2% to 10% depending on the product. High-tech margins of Chinese brands are higher around 5% to 15% or more but the volumes are much less. The US company buys from the Chinese company and marks it up to what the American consumer is willing to pay for it. The Chinese company is happy. The American company is happy but the American consumer gets stuffed because he ends up paying a price that has little to do with what the product costs to build, ship and market and often can be multiples of the actual cost. He can however buy the stock of the company that is screwing him on price so there is some consolation providing he has a job that pays enough for him to buy stocks which is increasingly unlikely.
The split is probably around 60-40 with 60% of the profits coming from the low-to-medium end products and 40% from more high-tech. Unfortunately for China the low-to-medium end employs at least three times the number of the high-tech sector which I should point out is exempt from the Trump tariffs. Trump’s tariffs will hit the the low-to-medium workers by far the most as it was intended to do. By this summer if nothing changes, it will be hot in working-class neighborhoods in China.
What happens when China makes high-tech goods, and introduces more new products than the US to the market?
They are not there yet. We are talking of the here and now.
China was planning for this as far back as 2017, i.e. for eight years. Today is not the only day that matters. USA should be planning for eight years from now, not eight Trump mood swings from now, which unless you are really dishonest with yourself, you know is only a couple of days to a week, tops.
2%/15% margins are not sustainable with a lower vol. China increased margin by deflating the RMB in real terms, but it reached its limits. They did to feed their ants. The blue line deflated since 1992. We are addicted to foreign good. Sugar made us blind. Amputations is next. Tariffs will force us to reduce consumption of foreign good, We are comfortable with our fluffy shape and excessive fat. If we produce more essential goods the blue line might rise above 2008 low towards the baseline and make us more secure and confident in ourselves.
s money selling low to middle tech goods like shoes, textiles and so forth.
==
buddy it is not 2005 year! it is 2025!
china is already biggest car producer/exporter of the world.
leapfrogged Germany/japan/ s. Korea
YOU SHOULD GO OUTSIDE MORE!
These come from 2024 figures. Do some research friend.
sure! talk is cheap! BRING UP LINK and figures
i am not your friend.
I am not your google either.
We forgot that you are unable to google and research answers for yourself LX our bad
So much easy printed money – just give freely.
If it is not wasted money – what do you call?
Top Recipients of U.S. Aid (FY2023):
🇺🇦 Ukraine$16.6 billionMilitary and economic support, especially due to the war with Russia
🇮🇱 Israel$3.3 billionMilitary assistance and defense cooperation
🇪🇹 Ethiopia$1.8 billionHumanitarian relief and development programs
🇦🇫 Afghanistan$1.7 billionHealth, food, and humanitarian aid post-U.S. withdrawal🇯🇴 Jordan$1.3 billionEconomic support and security assistance
🇪🇬 Egypt$1.2 billionPrimarily military aid
🇸🇩 Sudan~$1 billionHumanitarian assistance and transition support
🇰🇪 Kenya~$830 millionHealth and development programs
🇿🇦 South Africa~$800 millionHealth (especially HIV/AIDS) and economic support
🇨🇩 DR Congo~$750 million
Our brains prefer ketones on glucose, but they don’t get them bc we are fat or obese. We can get ketones only if the brown line (Goods) popup to the back to baseline, after decades below.
The incongruity of a tariff/subsidy should be obvious to all.
Manufacturing cannot be brought back to the US by tariffs/subsidies alone. Artificial manipulation of what should be competitive merely increases cost, and rewards the less competitive. That is, production eventually becomes less inefficient.
Now, what will bring back manufacturing? There are the obvious things that increase efficiency/lower input costs: reduced govt regulation, reduced labor (regulation), etc, but the missing factor for Trumponomics is the same as the missing factor in JM Keynes’ theories: INNOVATION.
Remember Keynes? He focused the economic world on money, banks, and investment. It’s largely a closed loop with a deus ex machina lurking in the background.
So, how can Trump affect the balance of trade? Start with a ‘neo-Schumpeterian analysis of innovation dynamics.’
A good example of innovation driving an economy: Kennedy’s Man on the Moon. There are other scaled-down examples–Singapore for example.
How we can turn the tide? Stop subsidizing unsustainable business practices with manipulation, bail outs, hand outs. Let the zombie companies die off and let lean hard working companies grow up in their place.
Surrender USD as a reserve currency.
Fastest way to balance the trade.
Cut the budget deficit to zero by cutting spending and raising taxes, and you will get precisely that result.
Raising taxes? The GOP would rather destroy the USA than even contemplate that thought.
King Herod believes he can do anyting and can do no wrong as his belief that he is omnipotent.
I suppose by your historical allusion you are setting up a Democrat opponent of Trump as a modern-day Jesus. Now who do you see as this Son of God? AOC maybe? Hogg perhaps?
At this point I would take the Pharisees.
no doubt the son of god, is george santos if you believe in fairy tales like the bible. maybe santos for pope.
You are a Hogg man! I knew it.
Hogg exists strictly to trigger the right
Is the world only black or white?
It’s also brown and yellow.
How about we talk about tariffs and sales taxes of European or Asian countries?
Or is Trump so sexy you have to feature him on almost every article lately? How about we talk about the European agricultural policies and prices of imported goods over there?
https://www.nytimes.com/2021/03/16/business/hunger-food-insecurity-europe.html
If other countries hurt themselves with tariffs that’s their problem. The US is the greatest large-scale economy ever created in the history of the world. The bedrock of the success of the U. S. economy has always been low taxes, free markets and (relatively) low tariffs.
Tezza “If other countries hurt themselves with tariffs that’s their problem. The US is the greatest large-scale economy ever created in the history of the world. The bedrock of the success of the U. S. economy has always been low taxes, free markets and (relatively) low tariffs.”
Correct . There is no need to be as stupid as others.
Yet that is precisely the logical meaning of reciprocal: Be as stupid as the stupidest of them.
The bedrock of the US economy is increasing debt to compensate for a living standard it cannot afford, while it transfers wealth to other countries.
Mish writes about what he feels is important and is important to his readers.
A raise in the sales tax masquerading as ‘tariffs”. Gvt is broke, they need $.
Other countries talk about Trump tariffs as daylight robbery.
Firstly put 40% tariff and threatened your economy will collapse.
Then reduce to 10% and demand what Trump wants.
That’s exactly “Daylight Robbery”
Mish, this was a: 1) Well Written article and very to the points. 2) It shows how ludicrous that these mixed messages are. YET, my Dad and Cousin, both in their 80’s, can see NO wrong no matter how I frame any points about Tariffs with them. THEY ARE MAGA to the bone.
It is frustrating because of course the lame-brained neighbors said, last year: “Kamala is the Greatest Presidential Candidate Ever!” I nearly choked on my premium beer that she had handed to me. So, I kept my mouth shut and just nodded, as I do with Dad and Cousin Antoinette.
There is nothing that can be said to either of these brain-dead Voters. THEY ACTUALLY believe the bullshit.
It insults the intelligence and is boring and if I spoke out to either of the extremes, they would never speak to me again.
My wife and I just shrug. WE DO NOT VOTE, and we see the America we once knew as being gone and dead.
———————————————————————–
Otherwise, all is well. We are feeding ourselves and so on.
Mish always blames the unions first. The effects of OSHA, EPA, Endangered Species Act, child labor laws, Fair Labor Standards Act, and so forth are overlooked.
Mish willingly moved to Utah. There are many things I will never agree with him about, including unions. All workers should have the right to collective bargaining no matter who employs them.
Entitlement and Military spending cuts are the only solution to government debt.
A 25 year Austerity event.
All other proposed solutions is noise.
The public doesnt think any of that stuff should be cut. Start with convincing your neighbors and come back when people are willing to give up their gravy. Till then — tax increases.
We don’t need a recession. Fasting periodically – and not radically – can make our gov leaner and healthier. Higher tariffs, lower Fedrates, a smaller gov and higher tax collection ===> we accumulated more consumption fat cells to burn.
Obesity (metaphorical and physical) are my God given gifts as an American!
Yes, when retailers are not importing stuff we can’t buy stuff and we save more. Economists call it a recession but morality calls it frugal. Retailers suffer and the average Joe gets a fat bank account.
Hundred of thousands containers accumulated in Chinese ports. As long as Chinese ants were pumping export to the US stability was maintained. From age 21 most Americans have x2 times more fat cells than Chinese (Latinos much less). Five pounds additional fat for us cause no harm. For Chinese ==> fatty liver and insulin resistance. If the US, EU, Japan, Taiwan and S. Korea fast periodically insulin level will tank. We will burn excessive fat and become leaner. If that cont our livers will protect themselves. Our livers will produce Ketones which keep the brains happy and protect our muscles and bones. The inelastic Xi might make China sicker !
Points 1 and 2 are not in conflict. A reduction in imports due to onshoring means more taxes are raised from both the onshored factories and from the hired workers now paying income tax instead of collecting unemployment welfare. And as a side benefit those hired workers create jobs in their communities . And then there are social benefits as people with work have less problems like doing drugs, crime, family issues etc. The old devil makes work for idle hands.
As for the US being a high cost manufacturer the unions are only a part of the problem. A bigger problem is your horrible insurance-medical cabals taking 20% of your GDP when older countries do a better job with less than half that.
And why is there a need to collect 7 trillion? Cut the waste, cut the fraud, cut the public service and especially cut a couple of trillion off healthcare.
The US has the highest cost of manufacturing int he world. What will happen to the prices of ‘stuff’ once we bring it back to the US to manufacture?
If the U.S. was so good at manufacturing everybody would be driving a Chevy Malibu instead of a Toyota Camry. Most union made stuff is high priced garbage. Expect more high priced garbage made here in the U. S. due to tariff walls.
The Union labor does not design the car, they just correctly assemble the car that the engineers and bean counters provided the parts for. I have never had a car that was improperly assembled, but I have had cars that were improperly designed.
Not a union guy, but there is no reason to blame unions for the quality of US products. That comes down 100% on the miserable quality of US management.
Exactly. Anyone my age, who lived the 1970’s remembers the American car and other shoddy American products and union privilege.
China can offer Trump the trillions of investment dollars America needsIf Trump’s Maga goal is genuine, cooperation with China – and opening the doors to Chinese investment – is his only rational choice https://www.scmp.com/opinion/world-opinion/article/3306624/china-can-offer-trump-trillions-investment-dollars-america-needs
But that’s not the goal. The goal is to dramatically weaken China’s economy over the long term so that China won’t be a real competitor to US military, economic, and socio-political domination. That’s why the rest of the world gets 10% tariffs and China gets 145%. 10% isn’t enough to get anyone to move their manufacturing to the US, but 145% is enough to get people to move it out of China. Trump’s original goal with tariffs has been completely taken over by China hawks in the swamp. Trump isn’t bright enough to realize that. And the swamp is happy to sacrifice the American people’s standard of living for their continued dominance. And the American people aren’t bright enough to realize that.
Nonlinear Events. Coronary occlusions, earthquakes, volcanic eruptions are nonlinear events. The incipient valuation crash of 1929 was a 1807 36/87 of 90 year 90 year 2nd fractal nonlinear event. The incipient crash of 2025 will be a 1982 13/32 of 33 year 33year 2nd fractal nonlinear event. The crash will jar unemployment numbers as the US service based economy has a reverse wealth effect and tariffs only make matters worse. The final SPX/QQQ 13 day 4th fractal of the 3 Feb 2025 8/19/20/11 of 13 day fractal series is coming to an incipient nonlinear conclusion.
There has probably never been a government that is more confused about the basic accounting relationships in the national accounts. Add to that Trump’s economic illiteracy about causality relationships between tariffs, taxes, inflation, and interest rates, and you have a perfect recipe for an economic and financial disaster due solely to stupidity.
It’s always about stupidity…. stupid,greedy people accepting promises that will never be kept.
I think they know. They are gaslighting us to achieve an ulterior motive which is to give this country away to the unions. Thus the insane push to onshore manufacturing.
Tariffs are not replacing the Income Tax.
And that was not the goal.
Just bluster.
However, I believe the real goal is to ‘turn the Titanic’ of foreign-made goods back to the U.S. and its allies.
And devalue the dollar.
This is going to be an epically painful period, if it continues to unfold.
But, if this country’s financial condition is not addressed, we will continue down the path of being an extremely ‘bifurcated society’.
A small % of wealthy Americans and a huge, welfare-subsidized % of under-class Americans.
Just as our neighbors to the South.
What this country will go through is similar to an addict attempting to quit an opiate; it is a physically painful and not easily accomplished.
Will this process be successful?
Probably not.
But it needs to be done.
Or, WE ARE DONE AS A NATION. IE; the Middle Class will not exist in a meaningful way and we end up in a quiet civil war.
My theory is Trump is imposing Tariffs as a payoff to the unions who agreed not to back Harris, thus the lies and gaslighting by this administration regarding tariffs..
Absurd comment…mental gymnastics…rubbish. Trump by executive order decreed the end of collective bargaining in federal agencies. Trump is ANTI union. Unions that endorsed him were fools.
https://www.afge.org/publication/unions-sue-trump-administration-over-move-to-bust-federal-employee-unions/
Trump is mostly pro-union just not pro-public union other than police and fire.
He is an opportunist who changes his mind
Hope you are feeling and doing better Mish!