It’s not just math, but economic theory. There’s a lot of historical context here, going back to mercantalism in the 1600s, where countries were obsessed with trying to maximize exports. You may remember this from history class, and how they figured out it was, ultimately, not the best idea.
Anyway, ignore the greek letters. The Trump administration is using trade deficit (how much other countries buy from us vs. how much we buy from them) as the number for how how much to tax those imports, with the idea being to this tax will “punish” and incentivize countries to not have such a big trade deficit with the US. Per mercantalism, buying more than we sell from someone is a “loss,” as we are losing money to them. And US manufacturers will take up the slack.
…In practice, that’s not how it works, as Europe learned in the 1600s/1700s and the US learned in the great depression, among many other times. There are a lot of fallacies, including:
“the popular folly of confusing wealth with money,” aka assuming the trade deficit is unprofitable “loss.”
Overestimating the US’s importance. It’s a big world with a lot of easy shipping, and countries have many other places to ship stuff if the US gives them a big enough middle finger.
Ramping up manufacturing locally is hard, depending on the industry. Could take years and billions, and in some cases is not practical at all. That’s why we buy stuff from other countries, where it’s easier to make. It’s like the core tenant of free trade.
Other factors are not static. Slap a gigantic tarrif on something, and the supply/demand/pricing is not going to stay the same.
It’s also ignoring how being the world’s #1 consumer cemented the US’s power across the world, and arguable stabilized a lot of geopolitics (with some unsavory complications, though). This was largely the idea behind the post-WWII world order.
It’s not just math, but economic theory. There’s a lot of historical context here, going back to mercantalism in the 1600s, where countries were obsessed with trying to maximize exports. You may remember this from history class, and how they figured out it was, ultimately, not the best idea.
https://en.wikipedia.org/wiki/Mercantilism
Anyway, ignore the greek letters. The Trump administration is using trade deficit (how much other countries buy from us vs. how much we buy from them) as the number for how how much to tax those imports, with the idea being to this tax will “punish” and incentivize countries to not have such a big trade deficit with the US. Per mercantalism, buying more than we sell from someone is a “loss,” as we are losing money to them. And US manufacturers will take up the slack.
…In practice, that’s not how it works, as Europe learned in the 1600s/1700s and the US learned in the great depression, among many other times. There are a lot of fallacies, including:
“the popular folly of confusing wealth with money,” aka assuming the trade deficit is unprofitable “loss.”
Overestimating the US’s importance. It’s a big world with a lot of easy shipping, and countries have many other places to ship stuff if the US gives them a big enough middle finger.
Ramping up manufacturing locally is hard, depending on the industry. Could take years and billions, and in some cases is not practical at all. That’s why we buy stuff from other countries, where it’s easier to make. It’s like the core tenant of free trade.
Other factors are not static. Slap a gigantic tarrif on something, and the supply/demand/pricing is not going to stay the same.
It’s also ignoring how being the world’s #1 consumer cemented the US’s power across the world, and arguable stabilized a lot of geopolitics (with some unsavory complications, though). This was largely the idea behind the post-WWII world order.