Only Russia and N. Korea were exempted from the tariffs

He can't really be a Russian agent, can he?

Listening to all the talking heads wittering on about trade and tariffs I am reminded of a moment at the start of the Great Financial Crisis that hinted at the trouble to come. Miriam O’Callaghan, while hosting Prime Time, asked a guest whether he thought we were in ‘a liquidity or solvency crisis’.

O’Callaghan presumably knew the import of her question. A liquidity problem can easily be sorted by central banks. A solvency problem for the banking system as a whole is a disaster. We now know which way it went. But at the time, insiders and some experts knew it was solvency but the commentariat and non-experts (a) pretended to know the difference between liquidity and solvency and (b) were convinced it was liquidity.

Listening to all these kinds of conversations the image came to mind of a physicist explaining Einstein’s theory of relativity to a bowl of jelly and blancmange. Some things really are best left to experts. If ordinary people are discussing this kind of stuff you know we are in serious trouble.

So it is with trade and tariffs. So it is with the way Trump and his team talk about trade and tariffs. The way the various talking heads discuss stuff best left to consenting adults is scary. In the way that O’Callaghan’s question was scary.

Here are the facts:

1. Global trade has expanded massively in recent decades. Economies, almost all of them, are much larger as a result. Trade, for the whole economy, is good - particularly if you want that economy to be bigger.

2. How you share out that bigger economy is important and can be handled well or badly. There are always winners and losers from trade. While the US economy is bigger as a result of trade, the losers have not been helped as much as they should have been. But, to repeat, there were plenty of American winners. The ‘inequality’ stories that are told about the US are true but massively exaggerated by both the right and the left.

3. The US economy has not been ‘raped and pillaged’ by its trading partners. The US economy is one of the richest, if not the richest, in the world. On all metrics that you care to look at. The destruction that Trump claims is not present in the data.

4. There are unfair trading practices everywhere. They should be dealt with, which is why the World Trading Organisation exists. Trashing the system will make things worse - for the US and the world - not better.

5. Trump’s tactics are akin to Brexit. But writ large. He is trying to withdraw the US from the global trading system. His explicit aim is ‘US self sufficiency’. This will lead to a smaller US economy. This will not lead to more manufacturing jobs. Or jobs of any kind.

6. China is a particular problem: their trade practices have both economic and military goals. America won the Second World War via its manufacturing capabilities. China has built up its manufacturing base - massively - with a similar goal in mind. The US could not manufacture ships, planes and tanks in the way it ramped them up in the 1940s to defeat both Germany and Japan. It would, today, lose a conventional war with China. So, yes, the US needs more manufacturing capacity. But this is a strategic, not economic, imperative - one that needs to be dealt with. Blowing up the global trading system is not the way.

   The ‘China shock’ was real: too many workers, industries and communities were displaced. But it is mostly a China story, not a global trading system story

7. A lot of the jobs lost in recent decades were down to technological change (automation). If (a big if) America starts to make Chevrolets to replace imported Mercedes they will be made by robots. Every modern country - think of the UK and even Germany - has struggled in recent years with deindustrialisation and loss of manufacturing jobs. The countries alleged to have raped and pillaged the US have not been doing a very good job of it.

8. Do not swallow any of the guff about ‘reciprocal’ tariffs. Where free trade agreements do not exist, every country has tariffs on imports. Sometimes they exist within free trade agreements. Occasionally there is a ‘common external tariff’, more often tariffs are set product by product. And non-tariff barriers to trade are more important these days than the 19th Century mercantilists in the White House seem to realise. Trump’s ‘reciprocal’ tariffs were drawn up on the back of an envelope, not by number crunchers looking at how trade is actually conducted.

   Clever nerds have reverse engineered the method used to calculate the ‘reciprocal’ tariffs. From the FT:

8. Tariffs are taxes on imports. They are not tax cuts - as at least one White House economist claims. (How do these hacks and charlatans get away with it? Where are the good journalists who used to be able to challenge lies and nonsense?)

9. Trump’s tariffs are the highest in over a century. They are higher than the ones imposed in the 1930s, the ones that contributed to the great depression.

10. American inflation will now rise. Americans will be poorer. Just how poor will depend on how long this lasts.

11. Trump’s tariffs are part of an ideological project to return America to a mythical past where it didn’t need immigrants - or foreign relations of any kind.

12. Don’t be fooled by prominent companies announcing ‘new’ investments in the US. A lot of the investment won’t be new or won’t happen at all. American companies, particularly the big global ones, already invest in the US. It now makes a lot of sense to trumpet investment that would have taken place anyway. An isolationist America determined to ‘stop the world and get off’ is not a great starting point for any company thinking about investing for the future. Just think of the disruption to massively integrated supply chains. And so on.

13. The longer this goes on, the worse things will get for the economy. And stock markets.