And suddenly the mountain gave birth to an elephant. On April 2, Donald Trump finally presented tariff policy on American imports.
By José Figueiredo *
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On the basis of this policy it would be the rate so called “mutual”, calculating the country by country, which presumably would allow to compensate for the obstacles to exchanges, citizens and others, that different nations use to facilitate exports to the United States and/or hinder imports from the United States.
The formula to reach the magical number of the “mutual” rate is very simple. The American commercial deficit with a particular country is divided by the volume of exports of this country in the United States and therefore the relationship found by two is divided.
If a country exports 100 to the United States and from there it has 50 has a commercial surplus of 50. It is divided 50 by 100 which gives 50% and therefore, to calculate the magic number, 50% is divided by 2, an operation that is a “mutual” rate of 25%.
Understanding this absurdity is not for economists, perhaps psychologists can find rational for this immense absurdity.
At the base of the descent there is a very expensive idea of some Trumpian circles, that the existence of external imbalances, deficit or surplus, due to artificial barriers to trade or, more prosaic, the deliberate and systematic glow of American commercial partners.
As evident is an ignorance to see. The American commercial deficit has very little to do with any unfair practices of economic partners, such as excessive military protections, devaluation in artificial currency or more or less veiled subsidies to export sectors.
Take a very simple example. The United States import European cars, particularly in the luxury segment, and export some cars to Europe. It is true that the European protection in cars is superior to the American protection that can give to Donald Trump’s complaint.
However, it is not the moderate European cars on cars that prevents American cars from selling in Europe. Countries such as Japan, South Korea and more recently export significant quantities of cars to European countries, despite European tariff protection.
The problem of American cars is that they are designed for the local market which is very different from the European Championship that starts with the huge differential in the price of fuel. Europeans do not buy American cars just because they are not compatible with their car mobility habits. The dissenting difference has a more than marginal role here.
As Stephen Miran, the current head of the economic consultants of Donald Trump, recognizes, who recovers an old idea of decades from the economist Robert Tiffin, on the basis of the American commercial deficit is the fact that the United States are dollar broadcasters which are the main global reserve currency and the most important transactional currency in international trade.
It is a huge privilege for the United States, but has a cost. Since the demand for dollars must not only see with commercial flows, but translates into much of their role in the reserve currency and international transactions, the dollar price will tend to be overrated in relation to what would be necessary to balance the commercial balance. It is estimated that the dollar should devalue between 30 and 40% to reach the balance.
Another way to see that the American deficit has little or nothing to do with public issues is almost simply accounting. A country always has an external deficit when what its economic agents (families, companies and state) want to invest is greater than what they want to save. It turns out that the American internal savings are much lower than investments, therefore, while the situation remains, the United States will be lacking abroad.
Since the essentials of the American deficit is not due to the absence of public reciprocity, nor to the deliberated and systematic glow of commercial partners, the import rates brutally increase obviously will obviously not solve anything rigorous.
The real solutions could be a significant and conceived dollar devaluation internationally as it seems to defend Scott Beesent, the current secretary of the Treasury of the Trump administration, the image of the famous Plaza agreements of the eighty years or the resolution of the internal macroeconomic imbalances.
Unfortunately none of the solutions that could be effective is available. Following the acrimony generated by the Trump Administration, with its absurd and aggressive tariff policy, it is not seen where the climate is to generate international consent for a concerted and unconcen unconvented devaluation of the dollar.
On the other hand, it is also not seen how the theme of the American public deficit can be resolved when what Donald Trump promised was a tax reduction and, on the other hand, the added customs recipes that will save the day will certainly not be.
The increase in US customs rates will not strictly solve the basic problem, but has the potential to hurt a lot for America and the world.
Prices will increase, probably hindering the descending path of interest rates and is not to exclude a recession, both in the United States and in the countries most affected by the brutal increase in rates.
The reactions of the markets were those that would have waited with a considerable exception.
The scholarships have fallen to the fear of a possible recessive episode, the prices of the obligations of the US treasure have increased (which is the same as to say that implicit interest rates have decreased) because they have become the activity of the refuge, but curiously the dollar has decreased.
It is usually not so – in times of turbulence the dollar tends to appreciate that it is seen as the safer refuge.
I confess that I have not yet found any reasonable justification for this anomaly.
However, it is not excluded that this disability behavior of the powerful dollar is a sign of the times. Perhaps, the world as we know it in recent decades has come to an end and what has been coming, unfortunately, may not be nice to see. A war with just expired …
* Economist. Article originally published in the online newspaper Solidarity.pt.
