Thread by @michaelxpettis

1/14

While I've long argued that the Trump administration’s approach to trade did more economic harm than good, I read the USCBC research report and I am very skeptical about its methodology. It seems to consist mainly of measuring the positive...

reut.rs/3spPO6d

2/14

impact on direct employment of each component of trade, while ignoring the indirect components. This is a problem when most of both the positive and negative impacts of trade are mainly indirect, affecting the economy primarily in the way they...

uschina.org/reports/us-chi…

3/14

change investment and/or savings in the economy, and yet these show up nowhere.

For example their analysis would not be able to distinguish between the employment impact of tariffs on the deficits the US ran in the 19th Century, when foreign capital inflows boosted US...

4/14

investment, and the deficits the US runs today, when their impact is to reduce savings. These are very different kinds of deficits, but the way job losses associated with tariffs are computed for the latter would result in the same job losses for the former. We know...

5/14

from basic accounting identities that net capital inflows can by definition result in either higher investment or lower savings. Tariffs on American trade deficits that boost investment cannot possibly affect employment in the same way as tariffs on American trade...

6/14

deficits that repress savings, and yet I see nothing in their methodology that differentiates between them. Trade theory tells us that trade deficits can be positive for developing countries whose high investment needs exceed domestic savings, whereas mature, advanced...

7/14

economies aren't supposed to be able to run large, persistent deficits. Again, an approach that cannot distinguish between these two very different conditions has a serious problem.

The same problem emerges when their analysis assumes that the employment impact of...

8/14

Chinese investment in the US is mainly equal to the number of jobs in Chinese-owned businesses. This can only be true in an economy with very high costs of capital and huge unemployed labor and resources, which clearly hasn’t been the case for the US in the past four years.

9/14

By the way, by focusing on the direct employment impact of each component of trade (imports, exports, and profits on investment) their analysis also seems unable to distinguish between the job impact of foreign trade on countries running large surpluses versus those...

10/14

running large deficits, even though we know that countries that run large surpluses do so in order to generate jobs that cannot be met serving domestic demand. An approach that assumes you cannot boost employment by reducing imports is something that Beijing would find...

11/14

pretty surprising, and yet that is what their analysis implies.

It is not that the analysis ignores the negative aspects of imports altogether, but rather that it focuses only on direct job losses and it seems to assume that the impact of imports on increasing real...

12/14

household income exceeds their impact on direct job losses, while ignoring the ways in which imports can repress wages or raise indirect unemployment, along with the indirect job losses caused by this suppression of wages. In nearly every country that runs large...

13/14

persistent surpluses, the household share of GDP is lower than that of its peers and trade partners, and yet this analysis seems to deny that countries can increase international competitiveness by directly or indirectly reducing the wage share of production.

14/14

The idea that trade deficits are always bad or always good is just ideology. Deficits can boost growth in some conditions and suppress it in others. At the very least an analysis of the impact of trade must be able to distinguish between the two sets of conditions.