Apparently it might take a recession to detoxify the economy. If so, this will be a beautiful recession, the prelude to a new golden age for American workers — apart from those who lose their jobs, see their savings destroyed or otherwise must grapple with much lower living standards. A few setbacks are only to be expected as the Trump administration builds a backward-looking, tariff-protected, uncompetitive, labor-intensive manufacturing economy to make America great again.
Don’t call this a parody. Treasury Secretary Scott Bessent, responding to stock market turbulence and signs of weakening demand, said a detox period might be necessary. “Could we be seeing this economy that we inherited starting to roll a bit? Sure,” he said. Purging the excessive growth and employment that’s lately been holding the economy back won’t be all plain sailing. Then Trump went further, telling anxious observers that he doesn’t rule out a recession. Of course not: Whatever it takes. S ..
Disruption is often the price one must pay for economic success. But what’s dawning on investors as Trump’s approach to trade and foreign relations unfolds is that he’s inverting this logic. For political purposes, and to serve his boundless vanity, he sees disruption as a goal in its own right.
Traditional arguments for and against free trade turn mainly on the (generally recognized) benefits of trade versus the (frequently neglected) costs of trade-induced disruption. Debate over the net effects of the notorious “China Shock” is the best-known recent case. Studies showed the extent and persistence of job displacement in the US as a result of China’s booming manufacturing exports. They didn’t actually dispute the idea that liberal trade delivers aggregate benefits — raising US real inc ..
The issue is how to manage this trade-off intelligently and compassionately. The most effective solutions, in my view, involve not tariffs but domestic measures to cushion losses and promote occupational and geographical mobility. I understand those who argue that this doesn’t suffice. But notice that both sides in this pre-Trump discussion accept that, in principle at least, trade is about mutual advantage, not winner takes all. The goal, as with the adoption of new technology, is to pursue the ..
Everything changes if you see trade — and indeed international relations more broadly — as a zero-sum game. This is Trump’s default position: You can’t have winners and winners, only winners and losers. And a country with a trade deficit is losing. (I’ve never understood why consuming and investing more than you’re producing makes you a loser, but let’s set this aside.) The US is a powerful country and, on this view, shouldn’t settle for its long-standing loser status. It should wield its power, ..
In such a world, economic and security alliances — modes of cooperation based on mutual advantage — are counterproductive for nations as powerful as the US. America doesn’t need friends and partners; it needs servants and victims. The close economic association established by the North American Free Trade Agreement and modified by Trump’s US-Mexico-Canada Agreement can be dismantled. Pick trade fights with the European Union, and anybody else who presumes to be a friend, because they’ll have to ..
If cooperation is the problem, disruption is less a regrettable side effect of Trump’s policy than its overriding purpose. Seen in that light, the administration’s inability to explain its trade-policy objectives in familiar ways is irrelevant. The traditional arguments don’t apply if you see international cooperation mostly as a way to hobble the US. The point — the whole point — is for the US to throw its weight around so that other countries can finally see where they stand.
The administration’s preposterous back and forth on threatened tariffs shouldn’t be dismissed as sound and fury signifying nothing. It shows that Trump intends no stable, orderly outcome — least of all one based on conventional economic principles such as level playing-fields, reciprocity, infant industries, comparative advantage, and the rest. Tariffs are just a stick, one among many, for powerful countries to beat weaker ones. No new system is envisaged: The US can perpetually adjust tariffs a ..
Financial markets might be starting to grasp how much damage this worldview can wreak. For decades, US-led cooperation on trade and security delivered enormous benefits to America and its partners. Those benefits can no longer be taken for granted. The danger posed not just by collapsing trade agreements but also by a huge and lasting increase in economic and geopolitical uncertainty would be hard to exaggerate. With no clue about where they’ll stand a year from now, businesses won’t hire or inv ..
Source Name : Economic Times