I know some economists during the second half of the 20th century had the exact opposite view of the Mercantilist philosophy.
For example Mercantilism says a country should maximize exports and minimize imports as much as possible.
Meanwhile Milton Friedman, one of the most prominent economists of the 20th century, said that a country that had large amounts of imports with minimal exports was a very successful country. The idea being that such a country was essentially buying things from other countries at minimal cost.
Edit: The following link quotes something he said regarding this:
Any of the maximize or minimize arguments are going to be simplistic and reductionist. The optimal real world strategies are always going have to account for other factors like relationships, political stability, goal alignments, power/dynamics, etc, etc. These factors will be different for each nation you're dealing with and will greatly affect what the best import/export and tariff ratios should be. And these may also change over time. The importance of these factors (different for each nation) are so strong as to overwhelm any of the economist theories about maximize/minimize.
Regardless of current events: Both are looking at volume, when the nature of what's exchanged probably matter as much if not more.
If a country massively imports raw materials and exports a low but steady volume of high level finished products, as long as the raw materials are reasonably cheap it will be a winning strategy.
A country importing high technology goods and balancing that with raw resources will potentially be in a worse condition if raw materials stay a commodity or deplete.
Friedman was not saying we should maximize imports. Instead he was saying we should maximize the ratio of imports to exports. Essentially to get as much stuff from others (imports) while paying as little as possible (via exports).
”And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.”
With that said. He appears to be arguing for colonialism. Take stuff from others and pay a pittance for it.
There's also the tautological paradox where price is defined by trade, so the trade balance will always be equal by any measure, if country A exports 1T bushels of wheat and country B exports 1 computer chips, we subjectively know who is winning in the exchange, but it will tally up to equal values in the balance sheet.
I think many economists would argue that both countries are winning in this exchange. Many would argue that such a transaction would be an example of a “positive sum game” where each side gains more than they lose.
>a country having enough money to import without export?
there's no such thing. when you import, you send your currency overseas to pay for the goods. There is nothing they can do with your currency except send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies. (otherwise there is this huge growing pile of your currency accumulating overseas which drives down your purchasing power since it's in surplus)
not sure if Friedman said that, but he did know more about econ that me, and what I've said is accurate.
> when you import, you send your currency overseas to pay for the goods.
As a general rule, this is false. Mexican importers do not pay for U.S. goods in pesos. With few exceptions, importers have to sell their local currency on the market, exchange it for the exporter’s currency, and pay for the goods with that.
Some exporters will accept the importer’s currency as an accommodation, but they’ll just sell the currency to exchange it for their own, because they have to pay for everything at home with the local currency. If I were a U.S. exporter, I couldn’t pay for my groceries with Euros.
if you look at the net movements of currency, whether the buyer exchanges or the seller, or some third party or central bank, the net movement is the same and what I said is correct. When analyzing math problems you simplify things to be able to see what is happening more clearly; you are introducing complications as if they change what is happening, but they don't.
I minored in Econ at a top tier university. There is indeed math you need to know to understand economics, but economics is not a branch of mathematics. There’s also behavioral understanding as well as practical knowledge.
I would advise you to kindly take the L here and please stop trying to weasel your way around being wrong. People make mistakes; it’s how they respond when being confronted with their errors that demonstrates their character.
USD has no value other than what it can purchase in the US.
Saudi Arabia does not pile up USD, they pile up USD denominated investments.
(basic finance that most people don't realize: When you put money in the bank, and the bank gives you interest, that's not your money in the bank, that's the bank's money. What you own is a certificate entitling you to the stream of interest payments. If you ever want your money back from the bank, you need to give them back the entitlement for the interest payments, and the interest payments will stop.)
the Saudis don't hold US currency, they hold bonds, et al.
> When you put money in the bank, and the bank gives you interest, that's not your money in the bank, that's the bank's money. What you own is a certificate entitling you to the stream of interest payments
When you give money to a bank, the bank owes you money. You are a creditor and you technically own debt (which may or may not give interests). This debt is money.
The money supply is not a uniform things. It goes from actual paper money, through bank deposits which are more or less indistinguishable from paper money all the way to short term deposits and bonds.
Holding deposits and holding safe bonds is not particularly different. It’s more cumbersome to trade but it doesn’t significantly alter the reasoning about what you will be able to do with the dollars you have.
>When you give money to a bank, the bank owes you money. You are a creditor and you technically own debt (which may or may not give interests). This debt is money.
the bank does not owe you the money you put in, they owe you the interest payments.
look up "valuing a perpetuity", study the equations, that's how it works. If somebody owed you the interest payments and the money, your net worth (in regard to this money) would double. They only owe you the original money if you give back your rights to the interest payments.
I did study finance in grad school, I'm not making this up. I am using simplified language to stay focused on the simplicity of what is happening.
> USD has no value other than what it can purchase in the US.
Any currency has value for anyone—or, more importantly, any group of anyones—who gives it value. If a person in Botswana and a person in Namibia want to trade, and they're happy working in USD between each other, then it has value there.
In addition to what others said here, some countries, like Ecuador, use the USD as the official currency.
This entire thread smacks of ignorance. I encourage you all to take some basic university level macroeconomics courses before confidently spouting any more falsehoods about how international trade and finance works.
USD remains the world’s reserve currency, and the primary currency of global trade. i.e., the exporter, paid in dollars, can also use those dollars to buy goods from other nations beside the US.
A country could mine gold, pay with it for imports, and never have this gold brought back.
Currently you can replace gold with oil: say, Saudi Arabia could literally exchange many things it imports to oil, which can be nominated in USD to accommodate for the fluctuating monetary price of oil, but could be nominated in barrels directly, in a barter trade. They won't see this oil back, even e.g. as plastics made out of it, and they're fine with that.
The US can (so far) replace the gold and oil with USD, in cash, investment, or even credit purchase form, because there's enough demand for US cash as a store of value and a currency to trade with non-US entities, and enough trust that the US is going to service its debt, so it's an investment. The US may (effectively) never receive much of these USDs it sends abroad back; they are still a good deal in an inflationary fiat-currency economy. This pump continues to work as long as things like Silicon Valley, Wall St, and the US military continue to be world-dominating in their respective areas. (And this is one reason why isolationism is a silly policy for the US, toxic for its economy.)
consider gold to be a commodity (easy to do, because it is), shipping it overseas, you're engaged in trade, exporting gold, importing stuff or foreign currency. But nobody holds currency, because "time value of money", you want to hold something that yields income.
Indeed! Money is a special kind of a commodity, at least initially. With fiat money, it's more complicated, but still. All trade is barter trade, in a sense.
Money, e.g. gold, has a very special quality: it's accepted in exchange for any goods. It's the ultimate "narrow waist" of goods exchange. This gives money a very special status among commodities.
OP mentioned a country, so not just the US, that is why I asked.
Edit: Alright, by reading the link, what Friedman means, I think, is that a country still need to export more than import, but should export just the minimum enough to pay for the imports. In volume (so I'd guess manufactured products not commodities).
There is another side of the ledger e.g. currency so the question is then how does a currency remain valuable when more has to be produced to keep buying things, as opposed to selling things.
US has been running a trade deficit for only the past 60 years, since the Nixon shock which is probably very related.
While on paper the US is per capita wealthier today I think that’s more to do with ponzi economics.
> While on paper the US is per capita wealthier today I think that’s more to do with ponzi economics.
It is still the most developed economy but with a healthcare and education expense bigger than any other country while the citizens still need to pay a fortune for it.
I remember reading in a PJ O'Rourke book about Comparative Advantage - I've found the section, as the 'non-trivial and non-obvious' sleight stuck with me, even decades later:
> Todd G. Buchholz, in his book New Ideas from Dead Economists, says, “An insolent natural scientist once asked a famous economist to name one economic rule that isn’t either obvious or unimportant.” The reply was “Ricardo’s Law of Comparative Advantage.”
>
> The English economist David Ricardo (1772–1823) postulated this: If you can do X better than you can do Z, and there’s a second person who can do Z better than he can do X, but can also do both X and Z better than you can, then an economy should not encourage that second person to do both things. You and he (and society as a whole) will profit more if you each do what you do best.
There follows some droll examples around the implications of this law, comparing John Grisham and Courtney Love's contributions to society, which doubtless helped consolidate the lesson.
Point being - this foundational law would seem to trump any interest in mistakenly attempting to optimise for inputs vs outputs to your nation.
EDIT: From his book 'Eat The Rich: A Treatise on Economics' (1998)
Any model of international trade that does not also model externalities is worse than useless. International trade accounts for 30 percent of CO2 emissions alone.
I've seen that postulate in the very first chapter of wealth of nations. But perhaps Ricardo expressed it in mathematical terms?
And I'd argue that there are properties of nations that make them distinct from individual humans or even companies.
The relative autarky possible for a country is much higher.
I've read a similar position by a libertarian Hayek I think in "I pencil", but I never did buy the argument, the idea that a pencil is the product of global trade, I don't buy, you can make national pencils without a sweat.
> the idea that a pencil is the product of global trade, I don't buy, you can make national pencils without a sweat.
It is, obviously, possible. Pencils are about as simple as it gets. But it is hardly a no-sweat process. It made international news when China declared itself capable of producing a ballpoint pen using only native tech and materials. It was a point of significant pride to the Chinese government at the time - as well it should be, it was something of a manufacturing and policy tour-de-force.
The paper Hayek wrote is titled The Use of Knowledge in Society. I Pencil is meant to be a simplified and poeticized example of Hayek's evaluation by Leonard Read.
Adam Smith didn't understand that people would trade even if one of the peers was better at every single thing. He got lots of stuff right, and even some things that took until the 19th century to make into mainstream economics. But not this one.
This seems to be the economic model conservative “populists” seem to hitching themselves to with the thrusting of these tariffs onto the American public
That really raises the question of how we want to define "conservative" though.
They aren't conserving what we already have (they're cresting new policy and abandoning trade partnerships already built).
They also aren't supporting free trade. Maybe that isn't technically conservative, but its always been my understanding that free trade was a pretty big part of American conservatism (at least in recent decades).
Free trade was core to both parties. Conservative is perhaps an overwrought term nowadays, but I also don’t like using the “left-right” terminology as it also suffers from lack of specificity.
To which I conclude, this is apparently what the Republicans are offering up as their form of populist policy
Tariffs aren't conserving the status quo. Rather, they're an attempt to return to an (allegedly) better past state.
Specifically, a past state where foreign companies were unable to outcompete domestic ones [1].
It's also a policy going against internationalist norms (which encourage you to free trade even if it seems to be hurting you), and toward nationalist ones [2].
[1] A lot of people who like tariffs have a sense that our free trade policy was an honest attempt to play an honest game where a rising tide would lift all boats. But that didn't happen; instead of a win-win, foreign companies won big by cheating, and we lost. (And we did lose, at least if you ask just about anyone in the Rust Belt.)
For example, tariffs of their own; subsidies; IP theft; currency manipulation; various abuses of their people with low wages; bad working conditions; low or non-existent safety / environmental standards; and totalitarian governments willing to shoot anybody who complains about any of the above.
Trying to play fair to lift everybody's boats when everybody else is pouring water from their boat into yours isn't a recipe for success. It just makes you a sucker sunk by the cheaters -- too honest for your own good.
[2] Again, there's a sense of grievance. Our past policies were honestly trying to unselfishly help the world, and other countries selfishly took advantage of us. So we're done being suckers; it's our turn to be selfish. If other countries don't like us being selfish now, well, they should have thought of that instead of being so selfish themselves before.
Rightly or wrongly, that's really how the current administration thinks about many other countries. That attitude came out loud and clear in the Signal messages they accidentally sent to that journalist: https://www.youtube.com/watch?v=YHU5HDQL6F0
Lost due to lack of redistribution not because of foreign companies outcompeting everyone.
US won, its economy was basically built on exporting dollars and effectively buying “free” stuff with it. Almost any other country besides the US that had a similar fiscal policy would have already imploded. Instead you got to export your inflation to the rest of the world and even that wasn’t good enough…
I could get on board with tariffs on known bad actors like China, but they hit everyone needlessly.
Europe has been a great partner, Mexico and Canada even more so
The problem with any of these narratives is it burns decades of good relationships and allows our enemies, for lack of a better word,
to fill any void that is left over. I’m sure China is trying to woo the EU right now as we speak, and I couldn’t blame the EU for not taking some of their possible proposals, as they now need to replace hundreds of billions of dollars of trade overnight
Free trade with western/ US aligned countries actually works extremely well. China being the largest of the bad actors (but hardly the only one) is problematic, so I understanding targeting that, but not our historically close
Allies
I'm not really happy about this either, there's a strong case to be made for tariffs to be limited to enemies, rivals and economic cheaters.
But on the other hand, the US's entire industrial base has fallen into complete ruin and needs to be rebuilt. Broad tariffs will help with that.
I see both sides of the issue, and I'm not really sure which is right. But the political leadership has made its choice; now the rest of us are along for the ride.
Personally I'm skeptical it will work out exactly as hoped, but I'm still decently optimistic it will put us in a better position than we had before.
One good thing is that everyone's now on notice: Taking advantage or over-relying on the US now has consequences. It's no longer an all-benefit, no-risk strategy.
Undoubtedly there will be short-term pain but that's the price of fixing the disastrous neoliberal trade policies that destroyed the Rust Belt.
> It's no longer an all-benefit, no-risk strategy.
Interesting when the US has benefited more from this system than almost anyone else.
You have massive economic growth compared to almost all developed countries and (according to your words) don’t even have to work for it. Can hardly blame the rest of the world for US government/etc. failing to fairly distribute the value US is extracting from the global economy.
>But on the other hand, the US's entire industrial base has fallen into complete ruin and needs to be rebuilt. Broad tariffs will help with that
It won’t, unless they’re sustained for a long time, longer than Trump will be president and even then I’m not sure. It won’t be like it was in any case.
If anyone actually cares about undoing the externalized costs of businesses moving their manufacturing overseas it should be to invest in re-training, re-education, fostering R&D and targeting industries we can have global advantages in. Get people working on things that will sustain themselves without major trade interventions.
The entire premise of helping our industrial base is extremely hollow and doesn’t really hold up to scrutiny. Especially since this isn’t being followed with any reforms or subsidies that will do anything to help. There’s no talk of it coming either. It’s hand waved away.
At any rate, why does it matter? What non critical manufacturing benefits from being in the US? What benefit does the US get if any of this non critical manufacturing comes back? Why not invest in new industries to take its place? Invest, retrain, reskill, retool. Those should have been the mantras. Not bad trade policy. Not throwing away the rules based order on effectively a whim.
>One good thing is that everyone's now on notice: Taking advantage or over-relying on the US now has consequences. It's no longer an all-benefit, no-risk strategy.
It never was, not really. There’s no evidence that our faithful (re: the EU, Canada, Mexico, Japan, Taiwan etc) were getting all the benefits without giving up something in return, in some manner. Our close allies always maintained symbiotic relationships with the US.
The biggest of which is the USD status as reserve currency. That gives the US such immense power that it’s easy to forget just how big a deal it is. It was also technology sharing, intelligence sharing, trade, international finance etc.
It’s not a good thing this is breaking down
As for the Rust belt. I hate to be the bearer of bad news but it’s not going to recover. There’s no chance it ever meaningfully does, but doubly so because there is no plan, no funding. Nothing.
I don’t understand any of this unfounded confidence
> As for the Rust belt. I hate to be the bearer of bad news but it’s not going to recover. There’s no chance it ever meaningfully does
> I don’t understand any of this unfounded confidence
Usually when I post about political topics here, I'm full of skepticism, devil's advocacy and cynicism. But today, I'll reveal my true colors: I'm secretly an optimist.
I really, truly believe that human progress has a generally positive trajectory. That technology will continue to progress. And such progress generally improves peoples' lives and makes a positive impact on the world.
Our society used to have things figured out. We used to have a social narrative that made sense. I truly believe that we can set up a society where success and opportunities are available to anyone who's willing to make an honest effort.
Why? Because I'm an optimist. Because we already did it.
Observing the sustained, long-term backward progress, shrugging, and saying "Well, that's just the way things are now" is something that I do not understand and do not accept. The idea that that's truly the way of things seems wrong and counterintuitive.
Both objectively so: It seems to go against the model backed by most of human history, that the trajectory of progress is generally forward.
And subjectively so: If there is truly no path forward, that set of affairs isn't just an intellectual curiosity. Living in a world where that's true is a genuinely frightening prospect.
Let me just emphasize how absurd it is. Our society solved the problem of routing good economic opportunities to most people and then one day we just stopped doing that.
The solution's so obvious it's a farce. Just go back to what we were doing before! Global trade used to be expensive, and a lack of global trade seems to be a big piece of the puzzle as to why the economy was the way it was back then. To me, making global trade expensive again seems like a perfectly reasonable thing to attempt!
As for your last paragraph…in those days the US was the only country in the world that could manufacture stuff. Africa and Asia and Eastern Europe had been wrecked and would remain devastated by imperialism, war, failed attempts to try to make a planned economy work, etc.
Over the past few decades, the rest of the world has managed to develop and compete.
In regards to making global trade expensive again….the policies that the United States is pursuing won’t make global trade more expensive. It will just make trade with the United States more expensive. The other countries will continue to trade with each other cheaply and will continue to gain prosperity and continue to advance.
It is possible we may see a world in which the United States has stagnated to not compete with the rest of the world. And a world where maybe the dollar has been replaced with the euro or some other currency as the reserve currency. If that is the case…well things won’t be too good for Americans to say the least.
>The solution's so obvious it's a farce. Just go back to what we were doing before! Global trade used to be expensive, and a lack of global trade seems to be a big piece of the puzzle as to why the economy was the way it was back then
Global trade became cheap with the advent of modern container ships and their containers. This happened well before the decline of the industrial base in the 1980s
It really came from lack of investments in the sector and poor industrial policy.
> With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.
That might need to get updated within a few years...
I know some economists during the second half of the 20th century had the exact opposite view of the Mercantilist philosophy.
For example Mercantilism says a country should maximize exports and minimize imports as much as possible.
Meanwhile Milton Friedman, one of the most prominent economists of the 20th century, said that a country that had large amounts of imports with minimal exports was a very successful country. The idea being that such a country was essentially buying things from other countries at minimal cost.
Edit: The following link quotes something he said regarding this:
https://fee.org/articles/milton-friedman-the-way-we-talk-abo...
Any of the maximize or minimize arguments are going to be simplistic and reductionist. The optimal real world strategies are always going have to account for other factors like relationships, political stability, goal alignments, power/dynamics, etc, etc. These factors will be different for each nation you're dealing with and will greatly affect what the best import/export and tariff ratios should be. And these may also change over time. The importance of these factors (different for each nation) are so strong as to overwhelm any of the economist theories about maximize/minimize.
Regardless of current events: Both are looking at volume, when the nature of what's exchanged probably matter as much if not more.
If a country massively imports raw materials and exports a low but steady volume of high level finished products, as long as the raw materials are reasonably cheap it will be a winning strategy.
A country importing high technology goods and balancing that with raw resources will potentially be in a worse condition if raw materials stay a commodity or deplete.
Friedman was not saying we should maximize imports. Instead he was saying we should maximize the ratio of imports to exports. Essentially to get as much stuff from others (imports) while paying as little as possible (via exports).
”And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.”
With that said. He appears to be arguing for colonialism. Take stuff from others and pay a pittance for it.
It's more an argument for classical economics. Getting the most benefit for the least cost is the most fundamental economic motivation.
This always felt quite subjective to me.
There's also the tautological paradox where price is defined by trade, so the trade balance will always be equal by any measure, if country A exports 1T bushels of wheat and country B exports 1 computer chips, we subjectively know who is winning in the exchange, but it will tally up to equal values in the balance sheet.
I think many economists would argue that both countries are winning in this exchange. Many would argue that such a transaction would be an example of a “positive sum game” where each side gains more than they lose.
and what does Milton Friedman say about a country having enough money to import without export?
>a country having enough money to import without export?
there's no such thing. when you import, you send your currency overseas to pay for the goods. There is nothing they can do with your currency except send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies. (otherwise there is this huge growing pile of your currency accumulating overseas which drives down your purchasing power since it's in surplus)
not sure if Friedman said that, but he did know more about econ that me, and what I've said is accurate.
> when you import, you send your currency overseas to pay for the goods.
As a general rule, this is false. Mexican importers do not pay for U.S. goods in pesos. With few exceptions, importers have to sell their local currency on the market, exchange it for the exporter’s currency, and pay for the goods with that.
Some exporters will accept the importer’s currency as an accommodation, but they’ll just sell the currency to exchange it for their own, because they have to pay for everything at home with the local currency. If I were a U.S. exporter, I couldn’t pay for my groceries with Euros.
if you look at the net movements of currency, whether the buyer exchanges or the seller, or some third party or central bank, the net movement is the same and what I said is correct. When analyzing math problems you simplify things to be able to see what is happening more clearly; you are introducing complications as if they change what is happening, but they don't.
It’s not a math problem, and you’re wrong. The importer is not sending his nation’s currency to the exporting country in any sense.
If you’re going to argue any more on this subject, please come armed with reputable references.
economics is not a math problem? have you ever studied it? sounds like you have not. At the better schools, calculus is a prerequisite to study econ.
I minored in Econ at a top tier university. There is indeed math you need to know to understand economics, but economics is not a branch of mathematics. There’s also behavioral understanding as well as practical knowledge.
I would advise you to kindly take the L here and please stop trying to weasel your way around being wrong. People make mistakes; it’s how they respond when being confronted with their errors that demonstrates their character.
thats not accurate to how the US trade works
coutries trade with the US to get USD, but then trade that USD with each other
some countries stack up the USD like saudi arabia, but theyve got a pretty strong partnership with america on defense and foreign investment
>then trade that USD with each other
USD has no value other than what it can purchase in the US.
Saudi Arabia does not pile up USD, they pile up USD denominated investments.
(basic finance that most people don't realize: When you put money in the bank, and the bank gives you interest, that's not your money in the bank, that's the bank's money. What you own is a certificate entitling you to the stream of interest payments. If you ever want your money back from the bank, you need to give them back the entitlement for the interest payments, and the interest payments will stop.)
the Saudis don't hold US currency, they hold bonds, et al.
> When you put money in the bank, and the bank gives you interest, that's not your money in the bank, that's the bank's money. What you own is a certificate entitling you to the stream of interest payments
When you give money to a bank, the bank owes you money. You are a creditor and you technically own debt (which may or may not give interests). This debt is money.
The money supply is not a uniform things. It goes from actual paper money, through bank deposits which are more or less indistinguishable from paper money all the way to short term deposits and bonds.
Holding deposits and holding safe bonds is not particularly different. It’s more cumbersome to trade but it doesn’t significantly alter the reasoning about what you will be able to do with the dollars you have.
>When you give money to a bank, the bank owes you money. You are a creditor and you technically own debt (which may or may not give interests). This debt is money.
the bank does not owe you the money you put in, they owe you the interest payments.
look up "valuing a perpetuity", study the equations, that's how it works. If somebody owed you the interest payments and the money, your net worth (in regard to this money) would double. They only owe you the original money if you give back your rights to the interest payments.
I did study finance in grad school, I'm not making this up. I am using simplified language to stay focused on the simplicity of what is happening.
> USD has no value other than what it can purchase in the US.
Any currency has value for anyone—or, more importantly, any group of anyones—who gives it value. If a person in Botswana and a person in Namibia want to trade, and they're happy working in USD between each other, then it has value there.
Plenty of international trade is settled in USD. Here’s a chart showing that China still settles just under half its international trade in U.S. dollars: https://www.visualcapitalist.com/sp/hf02-start-of-de-dollari...
In addition to what others said here, some countries, like Ecuador, use the USD as the official currency.
This entire thread smacks of ignorance. I encourage you all to take some basic university level macroeconomics courses before confidently spouting any more falsehoods about how international trade and finance works.
> USD has no value other than what it can purchase in the US.
Tell me you don't know what a Eurodollar is without telling me you don’t know what a Eurodollar is.
I would have expected other countries to largely be holding securities. Am I wrong there, are they actually holding primarily USD?
Both. Foreign cash reserves are a thing, and economic actors might choose to transact in USD for price stability or efficiency reasons.
IIRC someone just posted this link on HN a few days ago:
https://en.wikipedia.org/wiki/Exorbitant_privilege
USD remains the world’s reserve currency, and the primary currency of global trade. i.e., the exporter, paid in dollars, can also use those dollars to buy goods from other nations beside the US.
What the OP said is true. Countries do trade USD with each other, but considered as a group the net effect is that countries can only:
>send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies.
That's true whether one foreign country exists or 10,000.
A country could mine gold, pay with it for imports, and never have this gold brought back.
Currently you can replace gold with oil: say, Saudi Arabia could literally exchange many things it imports to oil, which can be nominated in USD to accommodate for the fluctuating monetary price of oil, but could be nominated in barrels directly, in a barter trade. They won't see this oil back, even e.g. as plastics made out of it, and they're fine with that.
The US can (so far) replace the gold and oil with USD, in cash, investment, or even credit purchase form, because there's enough demand for US cash as a store of value and a currency to trade with non-US entities, and enough trust that the US is going to service its debt, so it's an investment. The US may (effectively) never receive much of these USDs it sends abroad back; they are still a good deal in an inflationary fiat-currency economy. This pump continues to work as long as things like Silicon Valley, Wall St, and the US military continue to be world-dominating in their respective areas. (And this is one reason why isolationism is a silly policy for the US, toxic for its economy.)
consider gold to be a commodity (easy to do, because it is), shipping it overseas, you're engaged in trade, exporting gold, importing stuff or foreign currency. But nobody holds currency, because "time value of money", you want to hold something that yields income.
Indeed! Money is a special kind of a commodity, at least initially. With fiat money, it's more complicated, but still. All trade is barter trade, in a sense.
Money, e.g. gold, has a very special quality: it's accepted in exchange for any goods. It's the ultimate "narrow waist" of goods exchange. This gives money a very special status among commodities.
The US is able to exports its inflation, not all of it but a lot of it. A membership tax for the ‘rules base order’.
OP mentioned a country, so not just the US, that is why I asked.
Edit: Alright, by reading the link, what Friedman means, I think, is that a country still need to export more than import, but should export just the minimum enough to pay for the imports. In volume (so I'd guess manufactured products not commodities).
There is another side of the ledger e.g. currency so the question is then how does a currency remain valuable when more has to be produced to keep buying things, as opposed to selling things.
US has been running a trade deficit for only the past 60 years, since the Nixon shock which is probably very related.
While on paper the US is per capita wealthier today I think that’s more to do with ponzi economics.
> While on paper the US is per capita wealthier today I think that’s more to do with ponzi economics.
It is still the most developed economy but with a healthcare and education expense bigger than any other country while the citizens still need to pay a fortune for it.
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I remember reading in a PJ O'Rourke book about Comparative Advantage - I've found the section, as the 'non-trivial and non-obvious' sleight stuck with me, even decades later:
There follows some droll examples around the implications of this law, comparing John Grisham and Courtney Love's contributions to society, which doubtless helped consolidate the lesson.Point being - this foundational law would seem to trump any interest in mistakenly attempting to optimise for inputs vs outputs to your nation.
EDIT: From his book 'Eat The Rich: A Treatise on Economics' (1998)
Any model of international trade that does not also model externalities is worse than useless. International trade accounts for 30 percent of CO2 emissions alone.
Maybe you should produce X and Z.
That 30% number seems very wrong. The entire transportation sector is 12.5% of global emissions. International trade is more like 3% or less.
https://ourworldindata.org/ghg-emissions-by-sector
I think you could easily get into the 30% range if you factor in manufacturing that happens that otherwise would not without global trade.
If only there were a mechanism to capture or deter those externalities and return them to the market.
Are tariffs a veiled carbon tax?
I've seen that postulate in the very first chapter of wealth of nations. But perhaps Ricardo expressed it in mathematical terms?
And I'd argue that there are properties of nations that make them distinct from individual humans or even companies.
The relative autarky possible for a country is much higher.
I've read a similar position by a libertarian Hayek I think in "I pencil", but I never did buy the argument, the idea that a pencil is the product of global trade, I don't buy, you can make national pencils without a sweat.
> the idea that a pencil is the product of global trade, I don't buy, you can make national pencils without a sweat.
It is, obviously, possible. Pencils are about as simple as it gets. But it is hardly a no-sweat process. It made international news when China declared itself capable of producing a ballpoint pen using only native tech and materials. It was a point of significant pride to the Chinese government at the time - as well it should be, it was something of a manufacturing and policy tour-de-force.
https://www.washingtonpost.com/news/worldviews/wp/2017/01/18...
Is the following video the “I pencil” you are referring to?
https://youtu.be/67tHtpac5ws
The paper Hayek wrote is titled The Use of Knowledge in Society. I Pencil is meant to be a simplified and poeticized example of Hayek's evaluation by Leonard Read.
Hum, no.
Adam Smith didn't understand that people would trade even if one of the peers was better at every single thing. He got lots of stuff right, and even some things that took until the 19th century to make into mainstream economics. But not this one.
This seems to be the economic model conservative “populists” seem to hitching themselves to with the thrusting of these tariffs onto the American public
That really raises the question of how we want to define "conservative" though.
They aren't conserving what we already have (they're cresting new policy and abandoning trade partnerships already built).
They also aren't supporting free trade. Maybe that isn't technically conservative, but its always been my understanding that free trade was a pretty big part of American conservatism (at least in recent decades).
Free trade was core to both parties. Conservative is perhaps an overwrought term nowadays, but I also don’t like using the “left-right” terminology as it also suffers from lack of specificity.
To which I conclude, this is apparently what the Republicans are offering up as their form of populist policy
Tariffs aren't conserving the status quo. Rather, they're an attempt to return to an (allegedly) better past state.
Specifically, a past state where foreign companies were unable to outcompete domestic ones [1].
It's also a policy going against internationalist norms (which encourage you to free trade even if it seems to be hurting you), and toward nationalist ones [2].
[1] A lot of people who like tariffs have a sense that our free trade policy was an honest attempt to play an honest game where a rising tide would lift all boats. But that didn't happen; instead of a win-win, foreign companies won big by cheating, and we lost. (And we did lose, at least if you ask just about anyone in the Rust Belt.)
For example, tariffs of their own; subsidies; IP theft; currency manipulation; various abuses of their people with low wages; bad working conditions; low or non-existent safety / environmental standards; and totalitarian governments willing to shoot anybody who complains about any of the above.
Trying to play fair to lift everybody's boats when everybody else is pouring water from their boat into yours isn't a recipe for success. It just makes you a sucker sunk by the cheaters -- too honest for your own good.
[2] Again, there's a sense of grievance. Our past policies were honestly trying to unselfishly help the world, and other countries selfishly took advantage of us. So we're done being suckers; it's our turn to be selfish. If other countries don't like us being selfish now, well, they should have thought of that instead of being so selfish themselves before.
Rightly or wrongly, that's really how the current administration thinks about many other countries. That attitude came out loud and clear in the Signal messages they accidentally sent to that journalist: https://www.youtube.com/watch?v=YHU5HDQL6F0
> and we lost
Lost due to lack of redistribution not because of foreign companies outcompeting everyone.
US won, its economy was basically built on exporting dollars and effectively buying “free” stuff with it. Almost any other country besides the US that had a similar fiscal policy would have already imploded. Instead you got to export your inflation to the rest of the world and even that wasn’t good enough…
I could get on board with tariffs on known bad actors like China, but they hit everyone needlessly. Europe has been a great partner, Mexico and Canada even more so
The problem with any of these narratives is it burns decades of good relationships and allows our enemies, for lack of a better word, to fill any void that is left over. I’m sure China is trying to woo the EU right now as we speak, and I couldn’t blame the EU for not taking some of their possible proposals, as they now need to replace hundreds of billions of dollars of trade overnight
Free trade with western/ US aligned countries actually works extremely well. China being the largest of the bad actors (but hardly the only one) is problematic, so I understanding targeting that, but not our historically close Allies
I'm not really happy about this either, there's a strong case to be made for tariffs to be limited to enemies, rivals and economic cheaters.
But on the other hand, the US's entire industrial base has fallen into complete ruin and needs to be rebuilt. Broad tariffs will help with that.
I see both sides of the issue, and I'm not really sure which is right. But the political leadership has made its choice; now the rest of us are along for the ride.
Personally I'm skeptical it will work out exactly as hoped, but I'm still decently optimistic it will put us in a better position than we had before.
One good thing is that everyone's now on notice: Taking advantage or over-relying on the US now has consequences. It's no longer an all-benefit, no-risk strategy.
Undoubtedly there will be short-term pain but that's the price of fixing the disastrous neoliberal trade policies that destroyed the Rust Belt.
> It's no longer an all-benefit, no-risk strategy.
Interesting when the US has benefited more from this system than almost anyone else.
You have massive economic growth compared to almost all developed countries and (according to your words) don’t even have to work for it. Can hardly blame the rest of the world for US government/etc. failing to fairly distribute the value US is extracting from the global economy.
>But on the other hand, the US's entire industrial base has fallen into complete ruin and needs to be rebuilt. Broad tariffs will help with that
It won’t, unless they’re sustained for a long time, longer than Trump will be president and even then I’m not sure. It won’t be like it was in any case.
If anyone actually cares about undoing the externalized costs of businesses moving their manufacturing overseas it should be to invest in re-training, re-education, fostering R&D and targeting industries we can have global advantages in. Get people working on things that will sustain themselves without major trade interventions.
The entire premise of helping our industrial base is extremely hollow and doesn’t really hold up to scrutiny. Especially since this isn’t being followed with any reforms or subsidies that will do anything to help. There’s no talk of it coming either. It’s hand waved away.
At any rate, why does it matter? What non critical manufacturing benefits from being in the US? What benefit does the US get if any of this non critical manufacturing comes back? Why not invest in new industries to take its place? Invest, retrain, reskill, retool. Those should have been the mantras. Not bad trade policy. Not throwing away the rules based order on effectively a whim.
>One good thing is that everyone's now on notice: Taking advantage or over-relying on the US now has consequences. It's no longer an all-benefit, no-risk strategy.
It never was, not really. There’s no evidence that our faithful (re: the EU, Canada, Mexico, Japan, Taiwan etc) were getting all the benefits without giving up something in return, in some manner. Our close allies always maintained symbiotic relationships with the US.
The biggest of which is the USD status as reserve currency. That gives the US such immense power that it’s easy to forget just how big a deal it is. It was also technology sharing, intelligence sharing, trade, international finance etc.
It’s not a good thing this is breaking down
As for the Rust belt. I hate to be the bearer of bad news but it’s not going to recover. There’s no chance it ever meaningfully does, but doubly so because there is no plan, no funding. Nothing.
I don’t understand any of this unfounded confidence
> As for the Rust belt. I hate to be the bearer of bad news but it’s not going to recover. There’s no chance it ever meaningfully does
> I don’t understand any of this unfounded confidence
Usually when I post about political topics here, I'm full of skepticism, devil's advocacy and cynicism. But today, I'll reveal my true colors: I'm secretly an optimist.
I really, truly believe that human progress has a generally positive trajectory. That technology will continue to progress. And such progress generally improves peoples' lives and makes a positive impact on the world.
Our society used to have things figured out. We used to have a social narrative that made sense. I truly believe that we can set up a society where success and opportunities are available to anyone who's willing to make an honest effort.
Why? Because I'm an optimist. Because we already did it.
Observing the sustained, long-term backward progress, shrugging, and saying "Well, that's just the way things are now" is something that I do not understand and do not accept. The idea that that's truly the way of things seems wrong and counterintuitive.
Both objectively so: It seems to go against the model backed by most of human history, that the trajectory of progress is generally forward.
And subjectively so: If there is truly no path forward, that set of affairs isn't just an intellectual curiosity. Living in a world where that's true is a genuinely frightening prospect.
Let me just emphasize how absurd it is. Our society solved the problem of routing good economic opportunities to most people and then one day we just stopped doing that.
The solution's so obvious it's a farce. Just go back to what we were doing before! Global trade used to be expensive, and a lack of global trade seems to be a big piece of the puzzle as to why the economy was the way it was back then. To me, making global trade expensive again seems like a perfectly reasonable thing to attempt!
As for your last paragraph…in those days the US was the only country in the world that could manufacture stuff. Africa and Asia and Eastern Europe had been wrecked and would remain devastated by imperialism, war, failed attempts to try to make a planned economy work, etc.
Over the past few decades, the rest of the world has managed to develop and compete.
In regards to making global trade expensive again….the policies that the United States is pursuing won’t make global trade more expensive. It will just make trade with the United States more expensive. The other countries will continue to trade with each other cheaply and will continue to gain prosperity and continue to advance.
It is possible we may see a world in which the United States has stagnated to not compete with the rest of the world. And a world where maybe the dollar has been replaced with the euro or some other currency as the reserve currency. If that is the case…well things won’t be too good for Americans to say the least.
>The solution's so obvious it's a farce. Just go back to what we were doing before! Global trade used to be expensive, and a lack of global trade seems to be a big piece of the puzzle as to why the economy was the way it was back then
Global trade became cheap with the advent of modern container ships and their containers. This happened well before the decline of the industrial base in the 1980s
It really came from lack of investments in the sector and poor industrial policy.
Works better when you're trying to hoard gold.
Not so well when you have a fiat currency that's also the world's reserve currency...
> With the efforts of supranational organizations such as the World Trade Organization to reduce tariffs globally, non-tariff barriers to trade have assumed a greater importance in neomercantilism.
That might need to get updated within a few years...