@scottlincicome's Threads
So I have a new piece at @thedispatch on how Trump, w a big assist from Congress, finally broke the 85-year old US trade policy system - a mostly-benign constitutional compromise bt the branches that generally produced freer trade.
Not anymore. /1 thedispatch.com/p/how-donald-t…
Not anymore. /1 thedispatch.com/p/how-donald-t…
Tl;dr: the US trade policy system, in which congress delegated, w conditions, its trade powers to POTUS, relied on 3 core assumptions: 1) POTUS wld be the least protectionist person in govt; 2) POTUS wld adhere to the letter & spirt of laws granting him broad trade power; &... /2
3) if assumptions 1 & 2 proved wrong, a bipartisan Congress would look past any short-term transactional wins resulting from bad presidential trade behavior & vigorously push back on such actions bc the body "jealously guarded" its remaining constitutional power. /3
My hot take of the day is that 2018-19 were #actually banner years for trade economists. Nobody bats 1.000, but on tariffs, trade balances, diversion vs reshoring, uncertainty, manufacturing, currency, etc, the economists* were generally right. /1
*real ones, not pundits
*real ones, not pundits
Whether this matters for US politics is entirely a different matter, but the folks who *actually study this stuff for a living* have a LOT to look back on over the last 2 yrs and say (politely) "just as predicted" (aka "told ya so")
Eg:
✅Tariff incidence & downstream effects
✅Retaliation & exclusions
✅Tariffs & currency (USD/RMB/etc)
✅Trade uncertainty's US/global effects
✅Bilateral disputes' regional impact
✅Supply chains, reshoring, trade diversion
✅Trade balances & tariffs/taxes/mfg output
✅Steel
✅Tariff incidence & downstream effects
✅Retaliation & exclusions
✅Tariffs & currency (USD/RMB/etc)
✅Trade uncertainty's US/global effects
✅Bilateral disputes' regional impact
✅Supply chains, reshoring, trade diversion
✅Trade balances & tariffs/taxes/mfg output
✅Steel
Cool: "A new study co-authored by an MIT economist shows that improved translation software can significantly boost international trade online — a notable case of machine learning having a clear impact on economic activity."
scitechdaily.com/machine-learni…
scitechdaily.com/machine-learni…
"The research finds that after eBay improved its automatic translation program in 2014, commerce shot up by 10.9 percent among pairs of countries where people could use the new system."
Such a great demonstration of two essential facts: 1) trade is voluntary transactions bt *individuals*, not countries; 2) many non-tariff/governmental barriers prevent these mutually beneficial transactions.
"President Donald Trump’s strategy to use import tariffs to protect and boost U.S. manufacturers backfired and led to job losses and higher prices, according to a Federal Reserve study released this week." marketwatch.com/story/fed-stud…
"Tit-for-tat trade retaliation is an idea best relegated to the past, given the presence of globally interconnected supply chains, the Fed researchers found."
"The top ten manufacturing industries hit by foreign retaliatory tariffs were producers of: magnetic and optical media, leather goods, aluminum sheet, iron and steel, motor vehicles, household appliances, sawmills, audio and video equipment, pesticide, and computer equipment."
🚨Any "positive effects from import
protection" are "offset by larger negative effects from rising input costs and retaliatory
tariffs. Higher tariffs are also associated with relative increases in producer prices via
rising input costs."🚨
protection" are "offset by larger negative effects from rising input costs and retaliatory
tariffs. Higher tariffs are also associated with relative increases in producer prices via
rising input costs."🚨
The key point (which may sound familiar): global supply chains and the growth of foreign export markets have magnified the costs of tariff wars for today's US manufacturers. Tariffs were bad before; they're *really bad* now.
This big revelation, of course, is not very revelatory: industrial inputs have long been around half of all US imports, and US exports have long been increasing (until recently!). Meanwhile...
I keep telling you guys, the continuing decline of business investment is THE econ story for 2018-19.
Some details on those bad 3Q business investment numbers out today. Remember: the tax law was supposed to cause a sustained increase in biz investment. Not only hasn't that happened, but we're now underwater. 
(and clearly this isn't just abt the trade wars & uncertainty, but just as clearly: it ain't helping!)
He sounds just like Bernie & Warren (who are also wrong)
Just one of many examples:
Or maybe you prefer the CBO: cbo.gov/system/files/2…
One of the crazy things abt our current moment is that many Very Serious People are re-embracing protectionism as a way to save the Rust Belt, just as we're witnessing first-hand the results of that protectionism.
Oh, and if you'd like a list of all the ways the USG tried to "help" the Rust Belt with protectionism, subsidies or other policies over the last 40 yrs, just lemme know. I have it handy.
So the folks at the Penn Wharton Budget Model have been doing so really interesting on trade lately. (thread) /1
In late July, they "project that even if the recently imposed tariffs are removed, GDP will be permanently smaller relative to having had no trade war." They also find long-term GDP losses from extending the trade war: budgetmodel.wharton.upenn.edu/issues/2019/7/… /2
Then 2 weeks ago, they found that the trade war "will actually *increase* the amount of American business capital owned by foreigners, by almost $1 trillion by 2028":
budgetmodel.wharton.upenn.edu/issues/2019/8/… /3
budgetmodel.wharton.upenn.edu/issues/2019/8/… /3
A good review of how Trump's tariffs have been a clear economic loser. It's odd, however, that after citing these facts, the conclusion is "the intellectual dominance of free trade in the U.S. is over." Not saying that's wrong; just odd, given the aforementioned facts /1
I'd also add, however, that - so far - the tariffs have also been a geopolitical loser . Ineffective in most cases, actually counterproductive in others, and eroding decades of US international goodwill in the process (not to mention important alliances and institutions) /2
Countries are actively working to sign/implement FTAs w/out the US. The WTO - a pillar of global security - is on life-support (much due to Trump). Chinese nationalism/anti-Americanism is ascendant, & their ldrs now have a handy scapegoat for the failures of state capitalism /3
One of the best parts of my latest @JonahRemnant appearance is how @JonahNRO & @jackbutler4815 basically call me a trade nerd yet use a bunch of Sci-fi/fantasy references that I totally don't get (tho at the time I nodded along to be nice to the nerds).
theremnant.blubrry.net/2019/07/29/epi…
theremnant.blubrry.net/2019/07/29/epi…
But more seriously I really enjoyed the second half of the discussion on National Conservativism and what I like to call Flight 93 Policymaking. More on that to come.
So what is "Flight 93 Policymaking"? It's the increasingly-common (and thus increasingly-troubling) view on the right that Issue X is so disastrous & urgent that it warrants the wholesale abandonment of one's once-core principles
This NYT piece is a great example of the realities - not armchair punditry - of Trump’s trade war: “This Boutique Bike Shop Shows How Trump’s Tariffs Can Hit the Little Guy” nyti.ms/2I6NVoP
Some lessons follow... /1
Some lessons follow... /1
Supply chains are not easy to move: "Pello’s experience details why shifting to non-tariffed nations might be easier said than done for a small company. Mr. Cusick is considering moving production out of China, but such a move would take time and money." /2
Sometimes it's just impossible: "The cycling industry’s reliance on China is not unique. China dominates entire import product categories…." /3
A thread on where I think we are in the Trade War:
As I've been saying now for a year, Trump's tariffs - good summary below from CRS (fas.org/sgp/crs/row/R4…) - have so far been dumb, ineffective and painful (a little for everyone & a LOT for some) /1
As I've been saying now for a year, Trump's tariffs - good summary below from CRS (fas.org/sgp/crs/row/R4…) - have so far been dumb, ineffective and painful (a little for everyone & a LOT for some) /1
And we now have plenty of anecdotes, business surveys AND academic research (of actual effects, not predictions) on the actual pain for importers & exporters, e.g.:
bfi.uchicago.edu/wp-content/upl…
nber.org/digest/may19/w…
/2
bfi.uchicago.edu/wp-content/upl…
nber.org/digest/may19/w…
/2
We also see (so far) no Great Trade Deals - a big (supposedly) reason for the tariffs - completed, & at this pt there's a very real chance that none of them will be anytime soon:
So this has clearly been dumb/bad policy thus far /3
So this has clearly been dumb/bad policy thus far /3
New IMF analysis of NAFTA 2.0 (USMCA) predicts it will have a small overall impact, but generate aggregate welfare LOSSES & bigger trade deficits for the USA:
imf.org/en/Publication…
imf.org/en/Publication…
h/t @accfanto
@accfanto The economic model used here is the same type used by the US ITC in its forthcoming official analysis of the USMCA. If it produces similar results... hoo boy.
Quick thread:
2019 could be huge for US automotive manufacturing:
1) Soon, DOC will send POTUS its recs in the "Section 232" national security investigation of automotive goods; tariffs on cars, parts or both are rumored; then, Trump has to decide whether to act on the recs /1
2019 could be huge for US automotive manufacturing:
1) Soon, DOC will send POTUS its recs in the "Section 232" national security investigation of automotive goods; tariffs on cars, parts or both are rumored; then, Trump has to decide whether to act on the recs /1
2) Also this year, Congress will (probably) consider Trump's NAFTA rewrite, which radically tightens automotive "rules of origin" for US/CAN/MX trade in cars & parts, and, if implemented, would change NAFTA supply chains (probably making them more costly) /2
3) Separately or part of the NAFTA debate, US tariffs on steel/aluminum, which turned the US into a high-priced "island" for the metals (thus hurting industrial consumers like automakers), could be lifted (in full or just for CAN/MX) bc of congressional pressure /3
Great @clark_packard review of some of the @RepSeanDuffy Reciprocal Trade Act's many, many flaws: nationalinterest.org/feature/theres…
The bill is DOA (only 18 co-sponsors - sad!), but here are a few more flaws: /1
The bill is DOA (only 18 co-sponsors - sad!), but here are a few more flaws: /1
The bill totally misunderstands the general reciprocity concept at the WTO (or in US FTAs) - it's never been abt identically matching tariff rates; it's abt offering generally the same level of access, while having the flexibility to protect sensitive sectors /2
Speaking of which, the USA has high tariffs on its own political babies (132% peanuts; 35% tuna; 20% dairy; 25% trucks; 16% wool sweaters, etc) PLUS many high "non-tariff barriers" and higher avg tariffs than many countries - shld they be allowed to retaliate against us? /3
Excellent, myth-shattering research from @sffed on American consumption & imports:
frbsf.org/economic-resea…
TL;DR: only ~11% of US consumption dollars are spent on imports (only ~2% from China); BUT abt HALF of these dollars go to US firms/workers & half of imports are inputs /1
frbsf.org/economic-resea…
TL;DR: only ~11% of US consumption dollars are spent on imports (only ~2% from China); BUT abt HALF of these dollars go to US firms/workers & half of imports are inputs /1
More:
Fig 2: when Americans buy imports, the ones "made in CHINA" generate the most revenue (~56 cents for every dollar spent) for US firms/workers;
Fig 3: imports from NAFTA countries (esp Canada) are most often industrial inputs for US manufacturing /2
Fig 2: when Americans buy imports, the ones "made in CHINA" generate the most revenue (~56 cents for every dollar spent) for US firms/workers;
Fig 3: imports from NAFTA countries (esp Canada) are most often industrial inputs for US manufacturing /2
Also interesting: even for goods (which are more easily tradable) US consumers spend well under half of their dollars (42.4%) on imports.
(Note also the significant shares of US content in imports & vice versa) /3
(Note also the significant shares of US content in imports & vice versa) /3
Except the vast majority of the consumer benefits of trade, referenced here, accrue to America's poor and middle class, not the "elites."
Meanwhile, subsequent research has shown significant benefits for US manufacturing from the "China shock", eg,
and
and
/2
and
and
/2
Then there is the research showing that the rise of Chinese trade competitiveness was due less to US govt/elite action (eg PNTR) than to China's *own liberalization* /3
Good thread on tariff incidence (though I'm not sure Trump gets this point at all). Also important: in the real world, a lot of things prevent a quick/easy shift in supply or change in import price - contracts, supply chains, consumer preferences, finite global supply, etc.
In Section 301 comments, for example, dozens of US firms noted that, bc of these factors, it'd take YEARS to switch import suppliers, even where adequate non-China supply exists. Others said that US demand outstripped non-China supplies & building new facilities wasn't realistic.
So there are a lot of practical impediments to shifting a tariff burden away from consumers, even where the textbooks say it should be easy.
So here's a new one: @FedEx was supposed to deliver a package to me on Friday, but it got delayed bc of "weather" (it was raining); same thing happened Sat (but not even raining!), so I called; rep says nothing they can do, wait till Monday; still no package; I call back today...
Rep says the pkg has been out for delivery thrice, but the driver cldn't deliver it bc he had too many packages & keeps running out of time before reaching my house. So he turns around/brings it back to the facility. I ask, "what do I do if that happens again/keeps happening?"...
Rep: "Nothing you can do. You just have to wait til it's delivered."
Me: "Nothing?"
Rep: "Nope. We can't tell them to prioritize it, & the same thing will happen if he brings it to a local @FedEx store."
Me: "So I might never get it?"
Rep: "Well, eventually it'll die down"
Me:...
Me: "Nothing?"
Rep: "Nope. We can't tell them to prioritize it, & the same thing will happen if he brings it to a local @FedEx store."
Me: "So I might never get it?"
Rep: "Well, eventually it'll die down"
Me:...
Great @wsj weekend essay on the parallels bt the US-Japan trade conflict in the 80s and US-China today. Key themes: inflated trade risks, unintended consequences, & unfazed long-term fundamentals.
wsj.com/amp/articles/t…
wsj.com/amp/articles/t…
A couple additions:
1) Discrete US efforts to manage bilateral trade in autos, motorcycles, semiconductors, etc were costly failures (see: cato.org/publications/p…)
1) Discrete US efforts to manage bilateral trade in autos, motorcycles, semiconductors, etc were costly failures (see: cato.org/publications/p…)
2) Many of the same ppl who made dire predictions of Japanese global supremacy & demanded US protectionism/industrial policy in response are leading the China charge today, incl Trump & USTR Lighthizer
And I think it's gonna be a long long time
'Till I admit my econ is subprime
I'm not the man they claim I am at home
Oh no no no I'm a Tariff Man
Tariff Man!
Burning your 401(k) alone!
'Till I admit my econ is subprime
I'm not the man they claim I am at home
Oh no no no I'm a Tariff Man
Tariff Man!
Burning your 401(k) alone!
Tariff Man, Tariff Man
Does whatever a POTUS can
Lays a tax, any size
Brags in tweets, the market dies
Look out! Here comes the Tariff Man
Does whatever a POTUS can
Lays a tax, any size
Brags in tweets, the market dies
Look out! Here comes the Tariff Man
Levy a tax, you're the Tariff Man!
Levy a tax tonight
You bizarrely think foreigners payin' them
And you've given markets a fright
Levy a tax tonight
You bizarrely think foreigners payin' them
And you've given markets a fright
"The company has said tariffs on imported steel, imposed earlier this year by the Trump administration, have cost it $1 billion."
Just FYI: $1B could pay the average annual salary of over 24,000 GM assembly line workers in the USA
(A GM assembly line worker makes about 41k/yr: glassdoor.com/Hourly-Pay/Gen…).
(A GM assembly line worker makes about 41k/yr: glassdoor.com/Hourly-Pay/Gen…).
(Obviously, it's not that simple. But the US government has implemented a policy to increase US steel/aluminum prices - and therefore US automakers' costs. Reap, sow, etc etc.)
Out today! My new, chart-rich paper on trade, globalization & US public opinion:
cato.org/publications/f…
cato.org/publications/f…
So now a thread on why I wrote this paper - the data for which were surprisingly difficult to gather (thanks, @pewresearch, @Gallup, @ChicagoCouncil, etc for the help!) - and what it reveals /2
The malleability of US public opinion on trade is something I first noticed years ago (and briefly discussed in this paper from 2011: cato.org/publications/f…). Trade polls have long fluctuated depending on politics, rhetoric & the economy. /3
