Trump’s tariff rate calculations is economically stupid, but politically simple. Ordinary Joe or Karen in the street will understand it, even defend it, no matter what economists argue. I’ve had similar economically illiterate arguments with people in the past.
My few notes on this:
- key principle for a response must be to minimise harm to SA producers & consumers, taking into account who in SA import goods from the US & export to the US. E.g. could SA levy a surcharge on all USD forex transactions of say 0.5%-1%? Or maybe additional charge of 5%-10% for import of any US services, including finance? Ideally the repsonse should be less punitive but more supportive of SA industry where possible.
- government should assist SA producers to seek alternative markets for SA goods, & best to look at markets which are supplied by exports from the US (eg Africa & mid-east)
- lots of goods from all over the world which were exported to the US may now look for alternative markets, incl. vehicles from Europe, clothing from Bangladesh & Vietnam, etc. this could lead to them “dumping” these in SA, so we should implement policies to prevent/minimise this as much as possible.
- the global environment is as good as its ever been to resolve the Denel situation, either through partial privatisation, sub licensing Denel IP &/ sub-lease Denel production capacity for foreign defence manufacturers, etc. taking into account global & regional geopolitics.
Trump's single minded focus on trade deficit as metric is puzzling to me. I have a very successful 100% trade deficit with my local grocery store.
Not having to spend my entire day raising my own chickens, milking my own cows, and growing my own wheat frees me up to do much more profitable things. Both me and my grocer benefit. If we didn't, there would be no transaction.
The comments from Yanis Varoufakis is insightful. His historical example is Nixon in 1971. Basically, the fuel for world economic growth for the past 30+ years has been the American consumer. In the process, the US has run up massive private and public debt to keep funding their consumption. With the rest of the world producing more than they consume, their surpluses were funneled back to the US economy, which has resulted in oversized financial sector, overinflated asset prices (stocks, real estate, etc), a mostly credit-funded "war on terror", useless investments that have no to very little economic value add, etc. It has become an unsustainable, especially in an era of rising geopolitical risks.
As far as I can understand it, the Trump administration is trying to establish a more sustainable US economy that is more balanced i.t.o. manufacturing, services, finance, etc. as well as encouraging the rest of the world to consume more of what it produces, and/or to produce less. But as Yanis points out, if US trade deficits dries up, so too does net financial inflows to the US, i.e. US asset prices will deflate (either in nominal terms such as stock market collapse and decrease in house prices, or in real terms through higher inflation) and/or wages will have to rise.
To be clear, as an American, I do want the United States to manufacture more computer chips, rockets, drones etc domestically than we do today. That's because these things are strategically important and economically productive.
If we assume for a moment that tariffs do work, that's what should be singled out for protection. But, instead, semiconductors are exempt from the new round of tariffs. So what are we even trying to incentivize here?
If I want to buy a toy from either TEMU for R30, or a local Tannie for R300, I'll import from China rather. But I have robbed my community of employment, and sent R30 out of the economy. This R30 loss or trade deficit is damaging, and I can understand why, on a broad scale, Trump is looking at this deficit... NB... as a starting point to negotiate out of a position of power.
Let me think this through with you. Imagine my own household. Every day, I import groceries from the local supermarket, electricity from Eskom, and fuel from the petrol station. Each of these involves money leaving my hands and going to someone else. By your logic, that would mean I am running a trade deficit with these businesses. And to fix that, I should stop shopping at the supermarket, start growing my own vegetables, generate my own electricity and refine my own petrol, all to keep the money in my household.
But that clearly makes no sense. I do not grow my own food or build my own solar plant because it would take more time, cost more, and probably result in a worse product. Instead, I do what I am good at – teaching and writing columns and blog posts. I earn an income doing something I specialise in, and I use that income to buy from others who specialise in something else. That is the point of trade. It allows me, and others, to live better lives.
With your example, you are making an argument against all tariffs or trade barriers... as in, trade should be free? That's idealistic. Trade should be fair. Maybe striving towards being free, but free isn't always fair.
In the real world, the earth is divided into different countries with different worldviews. Some countries manipulate the systems for their own benefit, and this needs to be accounted for.
On free trade - I'm all for this idealism. I love some anarcho-capitalism. But it's not realistic.
When factoring in Import VAT etc in RSA (no such thing in USA), the effective average barrier (Trump calls it tariff to dumb it down) jumps up above 30%. RSA manufacturers gain on the Input VAT side. Still not close 60%, but worth a mention.
ChatGPT's summary:
The typical combined effect of tariffs and import VAT levied by South Africa on US goods is approximately 33-40% of the customs value, with 35% being a solid midpoint for goods facing a 15-20% duty. This reflects the full initial cost increase (duty + VAT) before any VAT reclamation by registered importers.
For context:
Duty alone: 15-20%.
VAT effect adds ~15-20% more (depending on duty).
Total: 33-40%.
If you factor in VAT reclamation, then it's 15-20%. Still far off the 60% though.
Trump’s tariff rate calculations is economically stupid, but politically simple. Ordinary Joe or Karen in the street will understand it, even defend it, no matter what economists argue. I’ve had similar economically illiterate arguments with people in the past.
My few notes on this:
- key principle for a response must be to minimise harm to SA producers & consumers, taking into account who in SA import goods from the US & export to the US. E.g. could SA levy a surcharge on all USD forex transactions of say 0.5%-1%? Or maybe additional charge of 5%-10% for import of any US services, including finance? Ideally the repsonse should be less punitive but more supportive of SA industry where possible.
- government should assist SA producers to seek alternative markets for SA goods, & best to look at markets which are supplied by exports from the US (eg Africa & mid-east)
- lots of goods from all over the world which were exported to the US may now look for alternative markets, incl. vehicles from Europe, clothing from Bangladesh & Vietnam, etc. this could lead to them “dumping” these in SA, so we should implement policies to prevent/minimise this as much as possible.
- the global environment is as good as its ever been to resolve the Denel situation, either through partial privatisation, sub licensing Denel IP &/ sub-lease Denel production capacity for foreign defence manufacturers, etc. taking into account global & regional geopolitics.
Trump's single minded focus on trade deficit as metric is puzzling to me. I have a very successful 100% trade deficit with my local grocery store.
Not having to spend my entire day raising my own chickens, milking my own cows, and growing my own wheat frees me up to do much more profitable things. Both me and my grocer benefit. If we didn't, there would be no transaction.
The comments from Yanis Varoufakis is insightful. His historical example is Nixon in 1971. Basically, the fuel for world economic growth for the past 30+ years has been the American consumer. In the process, the US has run up massive private and public debt to keep funding their consumption. With the rest of the world producing more than they consume, their surpluses were funneled back to the US economy, which has resulted in oversized financial sector, overinflated asset prices (stocks, real estate, etc), a mostly credit-funded "war on terror", useless investments that have no to very little economic value add, etc. It has become an unsustainable, especially in an era of rising geopolitical risks.
As far as I can understand it, the Trump administration is trying to establish a more sustainable US economy that is more balanced i.t.o. manufacturing, services, finance, etc. as well as encouraging the rest of the world to consume more of what it produces, and/or to produce less. But as Yanis points out, if US trade deficits dries up, so too does net financial inflows to the US, i.e. US asset prices will deflate (either in nominal terms such as stock market collapse and decrease in house prices, or in real terms through higher inflation) and/or wages will have to rise.
To be clear, as an American, I do want the United States to manufacture more computer chips, rockets, drones etc domestically than we do today. That's because these things are strategically important and economically productive.
If we assume for a moment that tariffs do work, that's what should be singled out for protection. But, instead, semiconductors are exempt from the new round of tariffs. So what are we even trying to incentivize here?
If I want to buy a toy from either TEMU for R30, or a local Tannie for R300, I'll import from China rather. But I have robbed my community of employment, and sent R30 out of the economy. This R30 loss or trade deficit is damaging, and I can understand why, on a broad scale, Trump is looking at this deficit... NB... as a starting point to negotiate out of a position of power.
Let me think this through with you. Imagine my own household. Every day, I import groceries from the local supermarket, electricity from Eskom, and fuel from the petrol station. Each of these involves money leaving my hands and going to someone else. By your logic, that would mean I am running a trade deficit with these businesses. And to fix that, I should stop shopping at the supermarket, start growing my own vegetables, generate my own electricity and refine my own petrol, all to keep the money in my household.
But that clearly makes no sense. I do not grow my own food or build my own solar plant because it would take more time, cost more, and probably result in a worse product. Instead, I do what I am good at – teaching and writing columns and blog posts. I earn an income doing something I specialise in, and I use that income to buy from others who specialise in something else. That is the point of trade. It allows me, and others, to live better lives.
Okay, now that you've explained what trade is...
With your example, you are making an argument against all tariffs or trade barriers... as in, trade should be free? That's idealistic. Trade should be fair. Maybe striving towards being free, but free isn't always fair.
In the real world, the earth is divided into different countries with different worldviews. Some countries manipulate the systems for their own benefit, and this needs to be accounted for.
On free trade - I'm all for this idealism. I love some anarcho-capitalism. But it's not realistic.
I also think it might have to do with trading some economic impetus for more politcal impetus.
When factoring in Import VAT etc in RSA (no such thing in USA), the effective average barrier (Trump calls it tariff to dumb it down) jumps up above 30%. RSA manufacturers gain on the Input VAT side. Still not close 60%, but worth a mention.
ChatGPT's summary:
The typical combined effect of tariffs and import VAT levied by South Africa on US goods is approximately 33-40% of the customs value, with 35% being a solid midpoint for goods facing a 15-20% duty. This reflects the full initial cost increase (duty + VAT) before any VAT reclamation by registered importers.
For context:
Duty alone: 15-20%.
VAT effect adds ~15-20% more (depending on duty).
Total: 33-40%.
If you factor in VAT reclamation, then it's 15-20%. Still far off the 60% though.