I heard a nice joke the other day:
After astrology, came astronomy. After alchemy, came chemistry. And after economics ..?
The world has been watching and waiting in a state of fear and loathing for Trump's long-awaited, bizarrely-telegraphed barrage of punches. What will happen now?
To me, the hilarious aspect is that nobody has a clue. I suppose everyone agrees it will act as a brake on world trade. Well, duh. OK, and ... ?
If macro-economics means anything whatsoever by way of a 'science', there should be a definitive answer when such extreme measures are taken. And to me, an avowed econo-skeptic, this all looks to be as significant as, say, the oil-price hike of 1973-4.
Anyone round here got anything better? What we're after is solid, unequivocal, drop-dead economy-related predictions beyond the short-term and the trivial.
ND
27 comments:
I suspect Trump thinks as I do — politics trumps (no pun intended) economics (or “the economy”) every time.
There will be some impact to the US GDP, maybe a little, maybe a lot.
But for Trump, the payoff was never intended to be some notional increase in US output (already stellar, by comparison with literally everyone else, so it can afford to trim a percent off GDP, more likely fractions of a percent).
Just one example: to the BRICS, Global South, Global Majority or whatever you’re calling yourselves these days (generally the usual suspect gang of west-haters), try doing international trade settlement without resorting to the US dollar. Let me know, says Trump, metaphorically speaking, how you’re going to find a pool of deep and resilient liquidity, market sophistication, institutional capability and capacity, free and fair dispute resolution and universal acceptance outside the dollar. You’re going to come up with your own US dollar alternative are you (you’ve been wittering on about that for years)? Great. Let me know how you get on with that. I’ll hold your beers.
TRUMP is one hell of a "card"
US output literally stellar by comparison with everyone else?
https://www.worldbank.org/en/programs/icp/brief/ICP2021_DataViz_1
"China’s GDP stood at $29 trillion in PPP terms in 2021, representing 18.9% of global GDP, while the United States’ GDP was $24 trillion, accounting for 15.5% of global GDP. India, at $11 trillion or 7.2%, was the third-largest economy, followed by the Russian Federation, Japan, Germany, Brazil, and France. Together, these eight economies accounted for more than half of global output."
Caveat here. I have no idea how gdp is calculated, I only know that the UK does it in such a way that if house prices double, GDP goes up. "Imputed rent". So at least the UK figures are fraudulent.
Fair enough, anon: important things to remember
But I'm with Clive on "deep and resilient liquidity, market sophistication, institutional capability and capacity, free and fair dispute resolution and universal acceptance". Can't easily be superseded. Heaven knows, China would like to: but the CCP will not readily accept free & fair, putting itself squarely above all laws: and everyone knows this
But: never rule these things out in the long run. In our time we've seen liquidity in several markets gradually migrate. We've seen the Chinese make tech breakthroughs in ways many folk airily stated Chinese culture would never facilitate. If we wake up one day to find China has overtaken Taiwan in chip manufacture, who could be utterly amazed?
I'm with him too, but making things or producing energy is important, and on that sadly the US isn't what it was in the days when they could turn out Liberty ships in less than two days. Now I don't think the US has any domestic non-military capacity - and how good can military construction be when not supported by civil?
Of course we have no right to bemoan the situation when the UK has fallen so far from so high. Our own house is horribly out of order - see the disasters at Port Talbot and Scunthorpe. It's a good job Putin's no threat to us, we'd be up the creek if he was. But that won't stop HMG spending a fortune on weapons (I would mind less if he spent it on anti-missile defence, although my impression is that's an escalating cost spiral.)
Ahh, the first cuckoo. Another Purchasing Power Parity victim.
At best, to be used with caution (https://www.oecd.org/en/data/insights/data-explainers/2024/06/purchasing-power-parities---frequently-asked-questions-faqs.html, see especially section 3).
At worst, it just rewards the level of shittiness in a country.
Even if you accept PPP as a measure well, yes, of course China with three times the population is going to have a larger economy, especially as many parts are still dirt poor. But GDP per capita in PPP, still much ground to make up https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
What are they teaching kids in school about statistics since my day? Not much, from the evidence I see here sometimes.
What do the Austrian School of Economists have to say about it?
All GDP figures are made up to the extent that they include some arbitrary way of treating government expenditure. As I understand it (amateurism warning!) most countries just add the cost of government expenditure to GDP on the absurd grounds that every dollar spent by government is used 100% effectively to add to the production of the nation.
A franker justification for this bogus practice might be, I suppose, to ask "What else can we do?"
However during the lockdowns, when the schools were closed, it turned out that the UK subtracted the expenditure on schools for those periods while those schools weren't open. Good for them.
But most countries didn't do the same, allowing opponents of our govt to yell that the Tory scum had reduced GDP more than it had decreased in comparable countries.
No good turn goes unpunished.
Whereas my impression is that it's almost entirely bogus. Deterrence is your only hope.
Here's my prediction. Because the US is overdue for a stock market setback and a recession they will happen, now or quite soon. They will be blamed on whatever Trump has done. If all he'd done was spend his time golfing and guddling for trout it would still be blamed on him. Because his critics are, by and large, even bigger chancers than he is, and much, much more crooked.
If in country A a mobile costs y, and a house costs 1000y, and in country B a mobile costs 3y and a house of the same size/desirability costs 3000y, is country B really three times richer than country A? Germany in 1923 must have been an economic colossus, what with a sack of spuds costing 3 barrowloads of DM.
In terms of UK housing, my house is LESS desirable than when I paid £120k for it 25 years ago, because rural living isn't what it was. My village is now full of London and Birmingham refugees with his'n'hers Range Rovers.
I'll stick my neck out with the predictions.
Prices will start rising in the US, and the most hit will be the red states, especially the MAGA regions. They're also due to find out that Federal dollars make up a fair chunk of the money inbound to their states economy soon enough too, which, combined with the tariffs will see a lot of Trump voters finding themselves in front of many fans, all with shit hitting them.
The fairweather MAGA voters will not be impressed, and we're already seeing a fair bit of buyers remorse in the US, so Something Will Be Done.
That Something will be some minor fiddling with trade deals, which Trump will announce as beautiful, beautiful, deals, much better for Americans, and that the tariffs have done their work, blah, blah, blah, spin, spin, spin.
Inflation will reduce, which will be used as evidence that the Tangoed One is an economic genius.
Of course, perhaps Something won't be done, in which case Vance had better load up on all those memories of voters loving him, as the next set of protestors won't be from the left side of the political divide.
@ dearieme1
Yes, I agree completely. All GDP (be it nominal, PPP or whatever) calculations are but a proxy to try to capture real economic output and worth. The OECD explained I linked to above had already started on the sleight of hand by using a litre of Coca Cola in its illustration. Coca Cola is a standardised and commoditised product. It’s the same all over the world. The quality is consistent whether it’s sold in the US or China. But what about an hour of education in the classroom? How good or bad was it? How was that effectiveness measured? And so on.
But to return to my main point, the US is phenomenally wealthy. It’s got wealthier these past few years quicker than any advanced economy. There’s enough slack in the system to suffer from some consequences of Trump’s tariffs. It can, in short, trade some reduction in economic output for policy and political gains.
The US has a big inequality problem which isn’t captured in GDP at all, but that’s a tale for another day…
CH - what if Trump plans to lavish the tariff $$$ on MAGA states? - kind of leftish redistributionary play. Would that alter your view?
(I have no idea what he plans, BTW)
It's fun watching the Lib Dems and nationalists (non-English), not to mention the Guardian commentariat, saying that Starmer should declare all out war on Trump and all his works.
America will be fine. As I've stated before on here, it's geographically large enough and with a sufficiently large population that it can act like min-countries. You could even give them a name like "States" to show they are different constituents of a greater whole.
What isn't going to be pleasant is toy-town Austria-Hungary trying to go toe-to-toe with the Donald. A continent with massive self-inflicted problems (rampant wokery and green bullshit) hasn't got the capability to stare the US down.
The Chinese are also screwed. Having scuppered their economy trying to get rid of the Wuhan flu, they are now facing a restless populace without a major export market to fuel growth in living standards. It's all going to come crashing down like so many tofu-dreg buildings.
I think the Chinese will be OK.
"they are now facing a restless populace without a major export market to fuel growth in living standards"
They can and will export to Europe. Already have Africa sewn up. You see Chinese brands there which are unknown in Europe.
At some stage their internal market will be self sustaining.
They also have their internal "politics" sewn up - to put it mildly. Any leadership that can perform the handbrake turn Xi pulled on Covid - without the slightest observable political hiccup - doesn't have to worry too much about his (armour-plated) back.
Nils Pratley in the Graun agrees with M. Hemera that it's when, not if, the solids hit the ventilator.
"what will Trump do when, as virtually every economist predicts, the tariffs backfire?"
"“So, there is likely a limit to how much pain he and his administration are willing to endure in order to rebalance the economy, but when that is or what that looks like remains to be seen. For now, we should assume that his pain tolerance is pretty high and that tariffs stick around for a while.”"
But ...
"There is a story (maybe apocryphal) that, not long after The
Times published its letter from the 364 economists, Margaret
Thatcher was asked in debate whether she could name two
economists who agreed with her. Margaret Thatcher replied that
she could, and named Alan Walters and Patrick Minford. On
returning to Downing Street, a civil servant said to her, ‘It is
a good job he did not ask you to name three.’ This anecdote
illustrates how much opposition there was in 1981 to fiscal and
monetary policies that would today be regarded as mainstream.
Indeed, the policies that were followed in the early 1980s were
not just necessary to achieve their stated objectives of lower
inflation, fiscal prudence and lower interest rates, they were
arguably essential to prevent the economic chaos that arises
from unmanageable levels of government borrowing and debt. It
is easy to forget just how precarious Britain’s financial situation
was in the late 1970s. "
As wealth grows, people needs stores of value. Land or property are perfectly legitimate assets classes. There have been documented land price appreciations dating back nearly 800 years (https://research-information.bris.ac.uk/ws/portalfiles/portal/325978116/Bell_Brooks_and_Killick_2022.pdf) and it’s unlikely that this was the first.
If potential buyers wish to purchase higher priced properties, but do not have the means to do so, the resolution is to earn more money. Or else wait for and take advantage of the intermittent but regular market corrections.
"They can and will export to Europe. Already have Africa sewn up."
Europe is about to make itself about as wealthy as Africa. Neither will be replacing the US in Chinese exports anytime soon.
"Plans" might be a bit strong but he's floated the idea of abolishing federal income tax for everyone earning less than some threshold: $150k I think it was. That might be particularly helpful to MAGA people.
""what will Trump do when, as virtually every economist predicts, the tariffs backfire?""
If economists are predicting economic doom I would take the contrary stance and suggest things will turn out pretty well, for the US at least.
Definition of an economist - someone who can explain the distant past perfectly, but struggles to tell you what will happen tomorrow.
@ND - that's a possibility, but they've taken an axe to many of the mechanisms that would handle that, so I'd expect a lot of the money to disappear in fees and the like to white collar grifters.
There's also a lot of pride and ancestral history, and not all the issues will be financial. For example, the axe has been driven into agencies enforcing safety in mines. One avoidable disaster and that'll hit their belief in Trump.
Maybe Musk thinks they'll be using robots next year to dig, but what happens to those communities then?
@ Caeser
Are you seriously suggesting that government agencies enforce anything?
The idea that cut throat capitalists will happily kill mine workers unless a lazy government wonk is around is complete bollocks.
Predictions?
Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes... The dead rising from the grave! Human sacrifice, dogs and cats living together!
That sort of stuff?
No?
Well, pretty much everything is getting caned right now, the VIX has almost doubled in three days. Thus far, I believe that only China has responded in-kind, so there's potential for volatility to extend over 6 weeks or so, maybe longer, as other nations review the situation.
Congress might be getting its' act together with the "Trade Review Act of 2025", how ever far that may get.
On the other hand, Treasury futures are up, so yields are getting lower. At max, the announced tariffs might raise around $830b, one more realistic estimate is $700b. That's about;
38% of 2024's Federal deficit. 14% of total Federal revenues, or 33% of income tax revenues. That's yuge. And that fiscal headroom has been achieved without having to go via Congress to introduce a new tax. It's also stealthy, in that domestic tax rates haven't changed. Which is just far too tempting for any future administrations.
How much tooling (capital goods) could they subsidise the purchase of with $350 to $500b per year, over the next two or three? Who would the main buyer be for this output?
Pew gives median household income for lower, middle and upper tiers as (approx.) $29,000, $87,000 and $207,000 as of 2018. Apparently, median US manufacturing wages are on the order of $102,000, about one third higher than in Germany, obviously much, much higher than elsewhere.
There would appear to be some scope for increasing the lower household income level by about 1.5x ~ish, by on-shoring via initial subsidies, and wages in the sector remaining lower than other countries. I think the implication is that trade deficits would actually get worse, before they begin to contract. As lower income wages improve, immigration would probably increase. That'd help with downward wage pressure, so the US exports would remain competitive. But nobody really wants to talk about that right now.
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