pull down to refresh

How to Make Sense of Donald Trump’s Tariffs (Financial Times, Gillian Tett)www.ft.com/content/3436cd20-f09f-46dd-9e94-ba10b86de83f
242 sats \ 3 comments \ @denlillaapan 7h econ
yup, flip a coin alright.
Instead of just condemning them as madness and civilizational destruction like the rest of Ms. Tett's colleagues at the unimpressive Financial Times these days (#933308, #890832), she tries to find some method to the madness

She digs up "Geoeconomics"

the so-called liberation day declared by Trump smacks of such economic lunacy that it might seem better explained by psychologists than economists. Some economists are leaning into this shift. Just after Trump spoke, a trio of American economists — Christopher Clayton, Matteo Maggiori and Jesse Schreger —  released a paper outlining the growing field of “geoeconomics”, inspired by Hirschman.
It doesn't exactly sound impressive, but there are some schmucks out there researching it. Now, this isn't "optimal tariff theory" (#889011) but a way to think about international trade economics through the lens of political power projection. Roughly:
  1. dangerous for small countries to rely on large countries for much of their trade (=centralization risk)
  2. ...and this is spot-fucking-on:

"the source of America’s hegemonic power today is not manufacturing (since China controls key supply chains) but is instead financial and structured around the dollar-based system"

  1. I don't even understand
hegemonic power does not work in a symmetrical manner. If a bully has an 80 per cent market share, say, it usually has 100 per cent control; but if market share slips to 70 per cent, hegemonic power crumbles faster, since weaklings can see alternatives.
Here's Maurice Obstfeld, from his lecture at the AFA.
OK:
Is this analysis depressing? Yes. But it shouldn’t be ignored. And if shocked investors and policymakers want to cheer themselves up, they might note something else: against all the odds

Refreshing take. Nice try.

non-paywalled: https://archive.md/qRPMU
write
preview
related posts
0 sats \ 0 replies \ @Solomonsatoshi 2h
"the source of America’s hegemonic power today is not manufacturing (since China controls key supply chains) but is instead financial and structured around the dollar-based system"
This is key to Trumps strategy. Tariffs do deliver swift and easy boost to the US governments finances. They also reduce dependence upon Chinese supply chains. They do not fix the chronic decline in US competitiveness but they do stave off the looming insolvency of the USD. It is the USD and its reserve currency status that is now the USAs most important strategic asset- this asset has also been the cause of much of the decline- enabling dependence upon consumption and living beyond your means which has ultimately resulted in $36 Trillion debt and an annual cost of servicing that debt approaching $1Trillion. The tariffs reduce the government spending deficit in the short term but do not fix the deeper problems in the economy- to fix them would require some much more painful surgery than tariffs. It would require the reversal of the deregulation of commercial bankings allowable lending toward any purpose and require commercial banks to only finance productive purposes. It would lead to a decline in the price of speculative non productive real estate assets and might allow a gradual rebuilding of productive infrastructure. But real estate developer Trump is not going to do that.
The tariffs might buy some time but they could also backfire - shifting the alliance of world economies closer to China faster and resulting in the collapse of the USD and US financial system hegemony.
Chinas mBridge digital trade payments network recently was joined by Saudi Arabia and BIS abandoned its support of the network because it directly presents a threat to the US/SWIFT petrodollar trade payments hegemony.
https://www.reuters.com/business/finance/bis-leave-cross-border-payments-platform-project-mbridge-2024-10-31/
Without its 'petrodollar' USD hegemony the USA is insolvent. Trump is doing all he can to preserve USD hegemony, with 'crypto' being prepared as an alternative exit strategy...
ala a virtual version of Britains Second Empire -
reply
0 sats \ 1 reply \ @Undisciplined 6h
Off hand, I can't formalize the game theory of 3, but I get the point. In the absence of extant alternatives to relying on the US for various things (military, currency, export market, etc.), the US has a bunch of untapped bargaining power.
Likely, that bargaining power has remained untapped to prevent the other players from seeking those alternatives, though.
reply
0 sats \ 0 replies \ @Solomonsatoshi 1h
China has made no secret of its efforts to build alternative trade payments protocols to the USD/SWIFT protocol via which the US dominates global banking and trade payments.
Those efforts are maturing swiftly and China already provisions trade payments liquidity for Iran, N.Korea and Russia. Saudi Arabia has recently joined Chinas mBridge digital trade payments protocol.
BIS recently abandoned its support for the protocol expressly because it enables nations to evade USD hegemony. https://www.reuters.com/business/finance/bis-leave-cross-border-payments-platform-project-mbridge-2024-10-31/
The petrodollar hegemony faces imminent collapse- and Trumps tariffs risk accelerating the process.
The wealth of nations is significantly dependent upon the power projection capacity of their governments.
reply