Thread by @michaelxpettis

1/9
Good piece by Soumaya Keynes on what trade may look like under a Trump administration (and probably under another Biden administration). She mentions the 10% tariff that Robert Lighthizer has proposed, pointing out that Lighthizer "has...

via @ftft.com/content/9b6b92…

2/9
argued that America’s problem is not necessarily bilateral trade deficits (absent unfair practices), nor even a trade deficit in any single year. Rather, a broader import tax is supposed to tackle America’s pattern of consistent trade deficits, year after year."

3/9
Lighthizer is right. The problem of trade imbalances in general is separate from those of industry-specific protection, and will only be resolved through intervention. I discuss why in a piece that will be published later today on the Carnegie site.

carnegieendowment.org/chinafinancial…

4/9
Keynes mentions in her article an estimate by Capital Economics that a 10% tariff "could lift inflation to between 3 and 4 per cent by the end of 2025."

I haven't read their report, but this simply isn't true.

5/9
Surplus economies produce far more than deficit economies relative to demand, and for what should be obvious reasons (they run surpluses because production is subsidized at the expense of consumption). This is why the major surplus economies have lower inflation rates...

6/9
than advanced economies that run persistent deficits. If the US implements similar policies to boost production relative to consumption (which is what tariffs do), it is likely to be disinflationary, just as it is in surplus countries.

7/9
It is hard to see why anyone would think trade intervention is inflationary when the countries that intervene most heavily almost all have much lower inflation than those that intervene least, in some cases even slipping into deflation.

8/9
The article includes this very important graph, which explains, among other things, why Beijing was shocked by the foreign reaction to policies it has implemented for years.

9/9
China's trade surpluses didn't use to matter too much to the world, but as its share of global GDP rose, so did the burden of its policies to its trade partners. This would have been even clearer if the graph showed surpluses as a share of the rest of the world's GDP.