Verv wrote:I also recollect reading the free trade deals that the US had signed with South Korea and other nations years & years ago. They were honestly ridiculous terms that provided no benefit for the US but maintained the trade deficits. It really felt like nobody was seriously interested in making the best possible deal. And that seemed to have been the norm.
Perhaps somebody can prove me wrong, but I am inclined to believe that the direction that Pres. Trump has taken us in the realm of trade, that acutally puts America first, was the proper one.
First of all, South Korea was exempted, instead Trump slapped tariffs on Canada and Europe, however both have equal or lower tariffs than the US:
https://data.worldbank.org/indicator/TM ... 6&view=barIn fact Canada and Europe would be Trump's main allies in a fight for "fair trade" (we all know Trump doesn't give a flying shit about fair trade).
As for the trade deficit (more appropriately called current account deficit). Every economist will tell you that tariffs are an inadequate tool to deal with it*. First of all, tariffs would have to be applied across the board, on all products from all countries, because the deficit with an individual country is a meaningless figure. Second, import tariffs will strenghten the dollar relative to other currencies, thus make exports more expensive, at least partially reversing the effect on the deficit.
*Even assuming that other countries won't retaliate, which they will.
There's a simple reason for the current account deficit. America saves very little, the rest of the world saves a lot. The savings from the rest of the world flow into the US, equalizing returns, appreciating the dollar, making American exports less competitive. Consequently the cure is obvious too. Save more, spend less or reduce capital inflow and demand for dollars by other means (which will lead to higher interest rates).
- By Tainari88
- By Pants-of-dog