Introduction
Americans’ opinion of how well the international trade and financial systems serve them has deteriorated substantially over the last decade. Among voters if not among economists, the consensus underpinning the international trading system has frayed, and both major parties have taken policies that aim at boosting America’s position within it. With President Trump winning reelection with a strong democratic mandate, it is reasonable to expect the Trump Administration to undertake a substantial overhaul of the international trade and financial systems. This essay surveys some tools available for doing so. In contrast to much Wall Street and academic discourse, there are powerful tools that can be used by an Administration for affecting the terms of trade, currency values, and the structure of international economic relations.
During his campaign, President Trump proposed to raise tariffs to 60% on China and 10% or higher on the rest of the world, and intertwined national security with international trade. Many argue that tariffs are highly inflationary and can cause significant economic and market volatility, but that need not be the case. Indeed, the 2018-2019 tariffs, a material increase in effective rates, passed with little discernible macroeconomic consequence. The dollar rose by almost the same amount as the effective tariff rate, nullifying much of the macroeconomic impact but resulting in significant revenue. Because Chinese consumers’ purchasing power declined with their weakening currency, China effectively paid for the tariff revenue. Having just seen a major escalation in tariff rates, that experience should inform analysis of future trade conflicts.
No comments:
Post a Comment