Trump's Second Term: The Economy

[DOR]

Trade War, Redux

Under the 1897 US tariff laws – those are the McKinley era ones the Orange Anti-Christ loves so dearly –

• $1 per pound import duty on opium;
• $6 per ounce for opium prepared for smoking;
• 25% for Cocaine and its derivatives (but, coca leaves: free of charge)

(Schedule A, section 43)

And, under that law, “all persons are prohibited from importing into the United States from any foreign country … any article whaever [sic] for the prevention of conception…” (Sec. 16)

[DOR]

I realize none of this is taking place in Trump’s second term

US 2024 Trade

In 2024, US merchandise trade totaled $5.33 trillion, up 4.6% over 2023 and the largest amount in history. Exports totaled $2.07 trillion, up 2.3% and just $1.27 billion below the all-time record set in 2022. Imports rose 6.1% to a new high of $3.27 trillion. That left a $1.20 trillion deficit with the world, the largest ever.

Where did it come from, and where did it go? Trade with Asia comprised 36.7% of the two-way total, up from 35.9% in 2023 but still below the 1985-2019 average of 37%. The European Union held an 18.3% share, two points higher than the pre-COVID average. Canada’s 14.3% was down from the earlier 17.6% share, but Mexico’s 15.8% portion was up from a 12% average.

Sales abroad
In 2024, 29.1% of overseas shipments went to Asia, as compared to 30.3% in the 2010-19 decade. The table below shows destination values and trends. Note that share data below Asia are percent of shipments to Asia.

Destination _ _ _ $ value 2024 _ _ % YoY _ _ 2024 Share _ _ 2010-19 Share
E.U. __ _ _ _ _ _ _ $370.2 bn_ _ _ _ +0.7%_ _ _ _17.9% _ _ _ _ 18.2%
Canada _ _ _ _ _ _ $349.4 bn_ _ _ _ -1.4%_ _ _ _ 16.9% _ _ _ _ 18.7%
Mexico _ _ _ _ _ _ $334.0 bn_ _ _ _+3.5%_ _ _ _16.2% _ _ _ _ 14.9%

Asia _ _ _ _ _ _ _ $600.3 bn_ _ _ _ +4.0%_ _ _ _ _29.1% _ _ _ _ 30.3%
Of Asia –
China _ _ _ _ _ _ $143.5 bn_ _ _ _ -2.9%_ _ _ _ 23.9%_ _ _ _ _24.6%
Japan _ _ _ _ _ _ _$79.7 bn _ _ _ _+5.4% _ _ _ _ 13.3% _ _ _ _ 14.5%
NICs _ _ _ _ _ _ $182.1 bn_ _ _ _ +3.6%_ _ _ _ _29.1% _ _ _ _30.3%
ASEAN _ _ _ _ _$124.6 bn _ _ _ +16.5%_ _ _ _ _20.8%_ _ _ _ 16.8%

The first thing that becomes clear is that sales to Asia are nearly twice as important as those to either Europe or our American neighbors. The second point is that shipments to ASEAN are roaring ahead faster than to other destinations in our analysis, and that exports to China are lagging.

From whence it came
On the import side, things are shifting around a bit more. To put it in perspective, Asia’s share is nearly double that of the EU, and close to three times Canada’s slice of the pie. But, with Asia, the shift away from traditional bogeymen in Japan and China are redefining America’s trade with the region.

ASEAN – the near-free trade zone in Southeast Asia – is taking huge chunks (10 percentage points) away from the rest of the region, with Vietnam leading the charge.

Source _ _ _ _ _ $ value 2024 _ _ % YoY _ _ 2024 Share _ _ 2010-19 Share
E.U. __ _ _ _ _ _ _ $605.8 bn_ _ _ _ +5.1%_ _ _ _18.5% _ _ _ _ 18.2%
Canada _ _ _ _ _ _ $412.7 bn_ _ _ _ -1.4%_ _ _ _ 12.6% _ _ _ _ 13.6%
Mexico _ _ _ _ _ _ $505.9 bn_ _ _ _+6.4%_ _ _ _15.5% _ _ _ _ 12.9%

Asia _ _ _ _ _ _ $1,356.9 bn_ _ _ _ +8.2%_ _ _ _ _41.5% _ _ _ _ 43.3%
Of Asia –
China _ _ _ _ _ _ $438.9 bn_ _ _ _ +2.8%_ _ _ _ _32.3%_ _ _ _45.9%
Japan _ _ _ _ _ _ $148.2 bn _ _ _ _+0.7% _ _ _ _ 10.9% _ _ _ _ 13.7%
NICs _ _ _ _ _ _ $297.1 bn_ _ _ _+19.3%_ _ _ _ _21.9% _ _ _ _13.5%
ASEAN _ _ _ _ _$352.3 bn _ _ _ +13.3%_ _ _ _ _26.0% _ _ _ _15.0%

What does it all mean? First, moving purchases from Japan or China to Vietnam does not cost a single American job. Second, it is almost certainly leading to lower costs to American consumers and businesses, because otherwise, why move away from an established export base? (Bear in mind that many of the companies manufacturing in Asia for export to the USA are in fact American companies.) Third, those lower price points directly benefit the profits of businesses and standards of living of those in the United States.

Final thought. A 10% import tariff on everything purchased from China would be the same as imposing a new $43.9 billion tax. Not smart.

[DOR]

A Letter on Tariffs From Economists to Trump
Like our predecessors in 1930, we oppose the use of tariffs as a general tool for economic policy.
Phil Gramm & Larry Summers

In an extraordinary act of unity, 1,028 American professional economists in the spring of 1930 signed a letter urging Congress to reject and President Herbert Hoover to veto the Smoot-Hawley Tariff Act. Yet that June, Congress passed it and the president signed it into law. The Smoot-Hawley Tariff helped turn a stock market rout and a building financial crisis into a worldwide depression and triggered a global trade war that halved American exports and imports.

Today, we write this letter in a similar spirit of unity. While the professional economists who have signed today’s letter differ on many issues, we are united in our opposition to tariffs as a general tool of economic policy. Even in efforts to promote national security, tariffs are prone to abuse. Many of the worst restrictions on trade, such as the Jones Act, have been implemented in the name of promoting national security.

Our united opposition to non-defense-related tariffs is based not on our faith in free trade but on evidence that tariffs are harmful to the economy. Protective tariffs distort domestic production by inducing domestic producers to commit labor and capital to produce goods and services that could have been acquired more cheaply on the international market. That labor and capital are in turn diverted from producing goods and services that couldn’t be acquired more cheaply internationally. In the process, productivity, wages and economic growth fall while prices rise. Tariffs and the retaliation they bring also poison our economic and security alliances.

The primary argument for the implementation of broad-based tariffs is that they will reverse the hollowing out of American manufacturing and reduce the trade deficit, which is causing a “hemorrhaging of America’s lifeblood.” Contrary to the repeated claim, there has been no hollowing out of American manufacturing. Industrial production in the U.S. is at an all-time high. The U.S. is producing 2.5 times as much real industrial output as it did when we last ran a trade surplus in 1975. We are producing that record output with the smallest percentage of the labor force involved in manufacturing since America became fully industrialized. The percentage of the civilian nonfarm labor force employed in manufacturing peaked during World War II and has been in secular decline ever since. This has been a great success for productivity and not a failure of trade, as today’s full employment attests.

It is telling that the Trump tariffs implemented in mid-2018 and the Biden expansion of those tariffs didn’t stop the secular decline in manufacturing employment as a percentage of the total labor force. The decline in manufacturing employment as a percentage of total employment is being driven by the same secular forces that caused employment in agriculture during the 20th century to fall from 40% to 2% of the labor force: a vast increase in labor productivity and a decline in the demand for manufactured products relative to services. This is a worldwide phenomenon occurring in both developed and developing countries.

In the long history of the country, there is little evidence to substantiate the claim that America prospers more when trade deficits fall than it does when they rise. During the Reagan recovery, as the level of economic growth surged, foreign investment rushed into the U.S. and the trade deficit soared. The same phenomenon occurred during the Clinton boom: So strong was the attractiveness of investing in America that the trade deficit continued to grow even as the federal government ran budget surpluses. The annual real trade deficit nearly doubled during the four years in which the U.S. government was running a budget surplus. When the economy started to grow faster in 2017 and 2018 during the first Trump term, the trade deficit rose despite the tariffs that were imposed in mid-2018.

The tariffs on steel and aluminum created only a small number of jobs, but since for every worker in the steel and aluminum industries there are 36 workers employed in American industries that use steel and aluminum in production processes, those modest gains were offset by the jobs losses in industries that use steel and aluminum as inputs. With foreign retaliation, the estimated cost to the economy of jobs created by the 2018 tariffs on washing machines, steel and aluminum clearly amounted to many times what the jobs paid in wages.
In sum, tariffs don’t have a predictable effect of reducing trade deficits, and trade deficits aren’t necessarily an adverse economic development. Indeed, trade deficits often arise as foreign investors choose the U.S. as a preferred destination for their capital.

Foreign capital has always played an important role in American economic development. The history of America is the history of foreign capital—initially from Britain and Holland—and labor from all over the world coming together to create the American economic colossus. Foreign capital today performs the same role. The countries whose citizens today make the largest investments in America—Japan, Canada, Germany and the Netherlands—invest in the U.S. because they see the investments as being more productive than the alternatives in their home countries or elsewhere. At least in the modern era, it seems that when the American economy is working well, it becomes an irresistible magnet for foreign workers and foreign investors.

The argument that foreign investment is making America poorer flies in the face of recorded history. From the settlement of Jamestown, foreign investment has enriched America and those who have invested in it. A review of the economic history of our nation yields no credible evidence that broad-based tariffs have benefited the nation as a whole. Protectionists often point to the 19th century as a period of high tariffs and strong economic growth. But a close look at the data for the 19th century shows conclusively that the country industrialized fastest when tariffs were falling, not when they were rising.

Sound fiscal policy and effective incentives to work, save and invest can increase economic growth, but the implementation of broad-based tariffs impedes that growth and in a full-blown trade war would overwhelm it. While we have fundamental differences in our views of how to produce a sound fiscal policy and implement effective incentives for productive efforts, we are united in our belief that broad-based tariffs will impede economic growth, risk triggering a trade war, and inflict long-term harm on the economy.

We therefore urge Congress not to adopt the administration’s proposed tariffs and urge the president not to implement those tariffs by executive order.

Or, as UC Berkeley Economics Professor Brad De Long puts it,

“Economists Who Are Neither Bought Nor Crazy Oppose Broad-Based Tariffs”

[Versus]

US is so done and I mean done...
https://www.youtube.com/watch?v=TCyysMU66VA
but the best part is the Kelly from the valley is chewing gum and texting with the Chad behind him while he describes catastrophe.Zero fucks given, priceless. US is copying Serbia on so many levels that is mind boggling..

[rj1]

Read yesterday the market now has 9 months' supply of housing comparing houses on the market to how much are being sold, which is a level when housing price recessions have normally occurred in the past. This is all due to interest rates being high but the reason interest rates are high is inflationary pressures wrought by the response to Covid from both Presidents Trump and Biden, as well as Yellen as Secretary of Treasury did these historically massive bond sales to fund the federal government which is providing pressure moving interest rates upward and can't simply snap your fingers and get rid of all those, you just have to wait until maturity under current setup. If you want to have real criticism of Biden's running of the economy, bonds are a good place to start.

Bond investor Andy Constan yesterday:

Terming out the debt was always going to take a long time.

What do we know. The Treasury has the largest proportion of bills outstanding in a non-recession non-wartime setting.

The Fed has $4.19 trillion in U.S. Treasures with a WAM (Weighted Average Maturity) of 8.6 [years] and is desired heading of a WAM of 5.9 which is $1.13 trillion 10-year WAM to adjust.

They will end QT [Quantitative Tightening] on schedule and all future action will be reserved neutral. They also have $2.2 trillion in mortgages.

The Treasury is irresponsibly dependent on bills and the Fed is irresponsibly long duration. Oh the banks who are NOT constrained by SLR (Statutory Liquidity Ratio - minimum amount of cash, gold, securities a bank must keep on hand) aren't buying and have been lugging around $1.3 trillion in bonds they bought that are low coupon and underwater.

This is a large headwind for assets and the government's deficit which so far shows no likelihood of falling.

I know Democrats don't really like to hear it, and Republicans don't like to hear it when they're the ones in charge, but our country's debt of spending compared to income is reaching the point it's affecting normal people. High interest rates and mortgages for example.

Jim Bianco yesterday related a scheme he shared on CNBC and got some play by Bloomberg he calls the "Mar-a-Lago Accord" that the Trump administration are considering "forcing" U.S. allies to exchange their existing Treasury bonds with new "zero coupon perpetual Treasury bonds". Here's a summary:

Trump’s team has a bold economic strategy to address the $36T U.S. debt—a three-pronged approach that could redefine global finance & security:

1. Tariffs as Leverage & Revenue

•Trump aims to use tariffs as both a negotiation tool and a funding mechanism.
•Plan to create an External Revenue Service (ERS)—shifting from income tax reliance to tariff-driven revenue.

2. U.S. Sovereign Wealth Fund

•Executive order signed to monetize U.S. assets (gold, land, potentially Bitcoin).
•Revaluing gold from its official $42 price to market rates (~$2,900) could unlock $800-900 billion. [@tomyoungjr point of view is that revaluation to a much higher number should be considered -- say $10K or higher]
•DOJ holds 207K Bitcoin (~$12 billion) from criminal seizures—likely moving to this fund.
•Unlike traditional sovereign funds (Norway, UAE), this is more of a leveraged hedge fund than a cash surplus investment vehicle.

3. Restructuring Global Security

•End of free U.S. military protection for allies (NATO, EU, etc.). NATO must pay 5% of GDP AND pay USA for "security back taxes".
•Debt swap plan: Countries holding U.S. treasuries must exchange them for 100-year, zero-coupon bonds. The zero-coupons cannot be sold, BUT bonds can be used in repo arrangements with the Fed at Par - providing liquidity and yielding interest payments to Fed.
•If allies refuse? Expect tariffs & potential U.S. military pullback.

Potential Outcomes & Risks

If successful:
•U.S. reduces debt burden, boosts domestic industry, and forces allies to pay for security.
•Gold & Bitcoin rise as stores of value.
•The dollar weakens, making U.S. exports more competitive.

If rejected:
•Trade wars, fractured alliances, & rising inflation.
•NATO & EU may seek alternatives, shifting alliances (China, Russia?).
•U.S. bond markets face volatility, leading to higher interest rates.

Big Picture:

•This could be as significant as Bretton Woods (1944) or the Plaza Accord (1985).
•The status quo is ending—whether through debt restructuring or crisis.
•Trump’s “America First” economic strategy is shifting global power dynamics in a way not seen in decades.

Bianco says "if Trump is willing to blow up NATO, he's willing to blow up the global financial order". Which has precedent, Nixon blew up the global financial order in the 1970s taking us off the gold standard, something everyone in this country except libertarians say was a good idea.

[DOR]

I find no correlation between federal deficits and 30-year fixed mortgage rates over the past decade. Nor do existing home sales correlate with the deficit. Nor inflation.

What does correlate is COVID-19.

cf Occam's Razor.

[Monash]

I thought this would be an excellent place to post this video which should be required reading for every Trump voter in the country. The first 6 minutes of it would suffice.

https://www.google.com/search?client...QEebQnejo,st:0

[JRT]

Thursday, 06 March 2025
Maddow warns of likelihood of Trump admin cooking economic stats to hide poor performance
(08 min, 41 sec)

Rachel Maddow points out a suggestion made by Commerce Secretary Howard Lutnick on Fox News that he could change the way economic data is calculated in order to make the shortcomings of the economy under Donald Trump look better.

Jared Bernstein former chair of the White House Council of Economic Advisers, joins to discuss the vital necessity of accurate economic data, and his concerns about Trump disbanding the Federal Economic Statistics Advisory Committee and the Bureau of Economic Analysis Advisory Committee, two agencies devoted to assuring the accuracy of economic data.

...