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This Trump Shock Is A Reverse Nixon - weighted-average tariff to 29%, the highest in over 100 years, and above the Smoot-Hawley tariffs

By: Fiz in GRITZ | Recommend this post (0)
Thu, 03 Apr 25 9:12 PM | 19 view(s)
Boardmark this board | Grits Breakfast of Champeens! 		Msg. 06257 of 06923
(This msg. is a reply to 06256 by Fiz)
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Ricardian Theory is transparently nonsense: from the get go it is IMPOSSIBLE unless there is ZERO government, or other, organized intervention on any level. I've been saying that clearly for almost 20 years. But it doesn't take much of an IQ to figure it out -- it requires an immense conflict of interest to NOT recognize the many premises explicitly named by Ricardo, and recognize that effectively none of the premises are valid in a fiat world.

http://www.zerohedge.com/markets/trump-shock-reverse-nixon

Excerpt:
This Trump Shock Is A Reverse Nixon

By Michael Every of Rabobank
Hoot Small-ly and Reverse Nixon Again

In line with the Churchillian tone I had struck, yesterday’s US tariffs were historic and suggest a world-wide battle. It remains to be seen in what form, with what outcome, but global bifurcation is again on the cards. The US raised its weighted-average tariff to 29%, the highest in over 100 years, and above the Smoot-Hawley tariffs of the 1930s. That’s staggering, not just for the US, or inflation or GDP, but for the global system built on the US as consumer of last resort for everyone else’s overproduction and the US dollar as the lubricant for that trade and the US financial assets everyone accumulates as a result.

The US assumed a non-tariff barrier with each trade partner leading to reciprocal tariffs as the simple function of the US bilateral trade deficit as a ratio of exports to it, e.g., Indonesia runs a $17.9bn trade surplus with the US and exports $28bn to it, so $17.9/$28 = the 64% assumed Indonesian trade barrier, which the US offered a ‘discount’ on down to 32%. On one hand, this is nonsense. On the other, it’s exactly what Ricardian theory says should happen under free trade: all bilateral flows should balance, with the composition of the basket shifting with comparative advantage. That it never does for the US shows the theory isn’t true; so, the US is using both hands to pull down the system ostensibly based on it. It’s critical to understand that before talking about the numbers below and hooting small-ly about Smoot-Hawley.

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The above is a reply to the following message:
Re: The creeps this morning are waking in the world they dreamed of and ARE SILENT.
By: Fiz in GRITZ
Thu, 03 Apr 25 8:44 PM 		Msg. 06256 of 06923

De: "I see one mistake, but it's pretty big."

It's not a mistake. And I'm pretty sure it is not "very big" in the bigger picture. I said: “what we are talking about is, perhaps, a 20% ONE TIME price increase, on average , worse case.”

I put in "average" for two reasons

(1) some reciprocal tarriffs are larger, and some are only 10%.

(2) ASSUMING Almost all consumer goods consumed in the US are made substantially in a foreign country -- so appliances and plastic crap will probably go up 30-40% sort term (and nothing, save electronics, ever really comes down, given the inflation is backward looking). Note, this is an assumption, not extensively researched, but commonsense and everyday awareness of basics says it is likely very much correct. The one obvious counter is food imports -- we grow a lot of food; but we also import a tremendous amount of things like fresh off-season fruits and vegetables, chocolate, coffee, etc.

http://fred.stlouisfed.org/series/IMPMANUS

What I was most hesitant about was whether I was correct that it was "one time". I thought so, and still think so, but I'm not totally comfortable with my assumption. If nothing else, the tarriffs are likely going to be blamed for reduction in US dollar as the world's reserve currency. That seems likely, especially now -- but it was absolutely coming anyway! (And only ignorant people don't know that).

FWIW there is another BRICS+ summit coming in July. The last ones haven't been nearly so newsworthy as I had expected. But they keep coming. And the stakes are increased dramatically now that China's hand has been called in a major way.

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