Rationale to Trump's Tariffs

[Kishkumen]

I just watched an interview with Yaris Varoufakis, a Greek economist at the University of Athens, who explained that Trump's tariffs are actually about forcing foreign banks to sell off their stock of US currency in order to drive up the dollar and reduce the trade deficit. Varoufakis does not like or endorse Trump's tariffs, and ultimately he thinks that they will anger Wall Street and the big real estate holders so much that he will be forced to abandon them, thereby casting off his working class constituency. Still, I thought this was an interesting break from "Trump is so dumb, and he clearly does not understand tariffs."

See https://youtu.be/Ms5-Z7sqiww?si=U2z92ZFjDdkjd8tl

[Physics Guy]

I might be willing to read a summary but I have an aversion to watching videos because I am impatient and I can skim text faster than I can watch video.

So why does this economist think that making banks sell hoarded dollars will raise the price of a dollar? Doesn't an increase in supply normally drive prices down?

On the other hand, how will tariffs make foreign banks sell off dollars? If foreign merchants have to pay a tariff on goods exported to the US, the merchants normally just add the tariff to the price they charge American consumers. So it would seem that the only people who have to come up with any additional US dollars will be those American consumers.

I am not an economist, so I am quite prepared to learn that this Greek professor is right. I just don't get why, at this point.

[canpakes]

I’ve read a sampling of opinions that explore certain subtleties of tariffs, including this angle, although I haven’t seen this interview with Varoufakis. Thank you for posting it, Kish; I’ll queue it up for a listen.

I don’t characterize Trump’s reliance on tariffs as a consequence of him simply being ‘dumb’. Rather, they seem calculated to bring dollars into the control of the Administration that can then be used to finance Trump’s objectives, namely, defraying the impact of his tax cut plan. It’s ideal for that because tariffs can be pushed as a show of “Murica Strong!!” to the MAGA base while simultaneously extracting money from the pocketbooks of Americans via a disguised tax, and transferring that money via tax cuts to folks with wealth more aligned with Trump’s. His voters will root for tariffs but really won’t be able to find it in themselves to admit what it’s costing them.

[canpakes]

I might be willing to read a summary but I have an aversion to watching videos because I am impatient and I can skim text faster than I can watch video.

You and I both. I always end up parking YouTube’s playback speed setting at around 1.5x or 2x when I watch interviews.

[Kishkumen]

I’ve read a sampling of opinions that explore certain subtleties of tariffs, including this angle, although I haven’t seen this interview with Varoufakis. Thank you for posting it, Kish; I’ll queue it up for a listen.

I don’t characterize Trump’s reliance on tariffs as a consequence of him simply being ‘dumb’. Rather, they seem calculated to bring dollars into the control of the Administration that can then be used to finance Trump’s objectives, namely, defraying the impact of his tax cut plan. It’s ideal for that because tariffs can be pushed as a show of “Murica Strong!!” to the MAGA base while simultaneously extracting money from the pocketbooks of Americans via a disguised tax, and transferring that money via tax cuts to folks with wealth more aligned with Trump’s. His voters will root for tariffs but really won’t be able to find it in themselves to admit what it’s costing them.

That is part of what Varoufakis talks about. The money collected would go straight to Treasury, where Congress would have no say over how it is spent. This would, so the argument goes, allow Trump to direct the money where he wants.

My main takeaway from all of this is that I realized I had not dug into this enough to know that there was more to it than the common liberal claim that this was a stupid tax on the people whom it was allegedly supposed to help. Honestly, that argument was enough for me at the time, since it was pretty clear that it would drive prices up, the opposite of what Trump was claiming to his supporters. Varoufakis' explanation helps me understand what Trump means when he says that "they will be paying us."

I am repeatedly struck by 1) how much I do not know, 2) how insufficient the media is at informing the voters, and 3) how many of us are skimming along the surface of deep topics when we make our decisions.

If you listen to all of what Varoufakis has to say about Trump's tariffs, you at least come away with an appreciation of the in-depth thinking his hired-gun economists have done in cooking these plans up. I don't find myself happy with the tariffs, but I start to see that I need to spend time reading a lot more to understand what is going on behind the scenes, outside of the spin that is intended to bend voters this way and that.

[Kishkumen]

I might be willing to read a summary but I have an aversion to watching videos because I am impatient and I can skim text faster than I can watch video.

So why does this economist think that making banks sell hoarded dollars will raise the price of a dollar? Doesn't an increase in supply normally drive prices down?

On the other hand, how will tariffs make foreign banks sell off dollars? If foreign merchants have to pay a tariff on goods exported to the US, the merchants normally just add the tariff to the price they charge American consumers. So it would seem that the only people who have to come up with any additional US dollars will be those American consumers.

I am not an economist, so I am quite prepared to learn that this Greek professor is right. I just don't get why, at this point.

The meat of it starts at 21:47 minutes in. (I have changed the time because I am trying to cut out as much as I can while still getting the point across.)

[Gadianton]

This strikes me as part of a new wave of sane-washing Trump. I came across two videos this weekend where non-Trumpers tried to discern a method to the madness, one even suggesting his strategy is brilliant. The current world order is broken. The US will ally themselves with Saudi Arabia and Russia, drop Europe, and hold China in check.

Without looking up trade models and refreshing my memory, aside from the end result of "balancing trade", I haven't seen Trump or his cabinet make the suggestion of your summary. What I recall from Stephen Miran, who is his economist (and is an economist), Trump is stuck on the idea of tariffs and Miran suggests ways in which they could be workable. That's a far cry from Trump running complex models in his head and playing 5-d chess.

If what this guy is saying is true, then why not apply the tariffs? I'll tell you why, because Trump has no such plan, but has discovered in tariffs a blunt weapon. He prances around like Negan from Walking dead with his bat and threatens people with them.

Trump has street smarts, there is no question. He's like the guy who rises to be boss of the prison yard. But beyond that? I'd bet an actual prison-yard boss could do just as good, if not better, if you want unconventional. Trump is unconventional but ultimately tied to the established order of wealth. It's not just his friends, but DJT stock $Trump coin $Melania and his real estate empire that he surely doesn't want to jeopardize.

Balancing trade (ignoring all the arrows to how you get there) is an old idea with simple intuition but it isn't the only game in town. Paul Krugman of all people, invented a international trade model that says let the free market lead where it may, and that the benefits will outweigh the imbalance.

I don't want Trump to fail. I want to be able to get through my career and have a decent retirement. Logging onto the board and telling people "I told you so" who will justify him no matter what anyway doesn't outweigh my desire to have a good life. If Trump leads the nation to prosperity then so be it. I hope Drumdude can laugh at me in 2029 when Trump isn't still president. There are ways where Trump chaos could improve a situation. Every policy has winners and losers, and maybe something he does will get lucky.

But yeah, if there is a master strategy here in any endeavor, I need to see a reason why I should believe Trump understands that plan and is implementing it. I'm happy to look at the reasoning of his cabinet also -- Trump himself doesn't have to be brilliant, but perhaps his cabinet has the answers. But until I see a solid connection, I'm not giving credit for it.

(p.s. I'll review the part you linked directly later when I have more time.)

[Kishkumen]

Without looking up trade models and refreshing my memory, aside from the end result of "balancing trade", I haven't seen Trump or his cabinet make the suggestion of your summary. What I recall from Stephen Miran, who is his economist (and is an economist), Trump is stuck on the idea of tariffs and Miran suggests ways in which they could be workable. That's a far cry from Trump running complex models in his head and playing 5-d chess.

Yeah, I don't see him saying that Trump is playing 5-D chess. I see him saying that Trump has a plan, which he essentially says is the plan his economists have cooked up. He references position papers circulating in the administration as his basis for saying this is the plan. Is he sane-washing Trump? Maybe. Of course, if Trump is a shorthand way of referring to the Trump administration, then it is what the administration does that matters in the end, and it is that agenda or plan that needs to be stopped. We can say "Trump is insane," and we may be right in saying it, but that may actually backfire as a strategy for mobilizing opposition. It mobilizes opposition to the wrong thing.

[drumdude]

The proof will be in the pudding. People weren’t (on the whole) much worse off after the first Trump presidency.

I think they expect his second term to be the same. Once the effects of his policies start to weigh on Americans, I hope they quickly turn against MAGA.

A nightmare scenario is that all of these isolationist, nationalist, monopolistic policies don’t have an immediate negative effect. And Americans turn even more towards fascism.

[Moksha]

Getting the world to adopt the Renminbi as the world standard of currency will hasten Steve Bannon's plan to have the total collapse of America. Of course, the events leading up to this changeover could be a world economic collapse.