Posted on 04/03/2025 1:23:07 PM PDT by SoConPubbie
The Establishment’s Big Guns Come Out Blazing Against Tariffs
Olivier Blanchard is a renowned economist—former chief economist of the IMF, Robert M. Solow Professor Emeritus at MIT, and Senior Fellow at the Peterson Institute for International Economics. When he speaks, the establishment listens.
So, when Blanchard took to social media Wednesday morning—or “Liberation Day,” as President Trump is calling it—with a long post warning that Trump’s forthcoming tariffs could plunge the U.S. economy into recession, the commentariat responded with glee that their bias against Trump’s economic proposals was being confirmed from on high. His argument boils down to this: tariffs may initially reduce imports and boost domestic demand, but that effect will be offset by rising interest rates, a stronger dollar, falling exports, and ultimately a return to the same trade deficit—just with added costs and a misallocation of resources. In his view, the result is “a general mess”: a recession, no long-term gain, and higher prices paid by U.S. consumers.
Blanchard also says the worst part may not be the tariffs themselves, but the uncertainty they generate. If businesses don’t know whether Trump’s tariffs are transactional, temporary, or permanent, they’ll delay investment decisions. Everyone will “wait,” he says, and that pullback in investment will reduce aggregate demand and trigger a downturn.
It’s a familiar, polished take. But it doesn’t hold up.
Blanchard’s argument starts with the assumption that the U.S. economy can’t scale up production fast enough to meet demand shifted by tariffs. That’s why he believes prices will rise, interest rates will go up, and exports will fall.
But this assumption quietly undermines one of the central claims of free trade itself—that production migrates to wherever it’s most efficient. If U.S. producers can’t respond to increased demand when imports fall, then the “most efficient producers” abroad
(Excerpt) Read more at breitbart.com ...
Will there be uncertainty? Yes. But uncertainty isn’t always economically harmful. In fact, the tariffs of Liberation Day may be exactly what we need to break out of the low-investment, high-dependence trap that the free trade consensus left behind.
However ignorant the left is about economics, there may yet be a Reagan-Era-Type recession if spending is cut anywhere close to what should be cut.
But as with Reagan, so now, the recession would be just a temporary economic reaction like cold turkey, to getting off a crazed spending binge.
The recovery that would follow would be awesome.
There’s experts in economics on both sides that say the exact opposite of what the other says.
I don’t give rats ass about economist regardless of who’s side their on. I’ll trust a billionaire businessman any day to a professor at any college when it comes to business.
The uncertainty of the energy situation in the EU vs the certainty of the energy situation in the US, combined with the tariffs will bring a lot of manufacturing here. You can’t build a plant that runs on wind and solar.
Trump’s energy plan for AI domination will have massive positive effects for manufacturing and consumers. That and tax cuts will be the grand salami.
If Trump can just shut up about tariffs it would be welcome. Every day he mentions them or adds confusion the markets get a massive hair cut.
BINGO
I forget, was he speaking about the need for tariffs on the campaign trail before he won the election?
There will be pain. And it may last years. If Trump sticks to his “reciprocal tariffs” as they are now calculated, the only way a country can avoid tariffs over 10% is to decrease their trade surplus with the US to 20% or less. That takes time, and involves massive shifts in industry. They either have to decrease exports to the USA (primarily by shifting manufacturing here), and/or increase imports of American goods. For ANY country, shifting manufacturing and the associated jobs to the US will be a bitter pill to swallow. We should know, as we’ve been the ones taking that pill for over 40 years.
And I’m sure there’s more to come, as Trump attempts to reduce and eliminate the non-tariff barriers that so many countries use to block US products (regulations, currency manipulations, taxes, etc).
Pain is watching factory after factory close. Year in , year out. Towns destroyed and lives ruined. I would pay a 10% premium on imported goods to stop all of that. I buy TV’s,iPhones, appliances etc. every 5 to 10 years, but I am an American every day.
Other factors have driven outsourcing in addition to “where it’s most efficient”. For one, the biggest companies are publicly owned and under pressure from investors to show quarter-over-quarter improvement in ROI (either sell more or produce it for less). In addition there was a nonstop drone from the business schools, consultants like McKinsey and BCG, academia, and the business media (think Thomas Friedman) promoting the virtues of globalization and that building your product in a low-cost region just meant you could grow faster.
Almost all of this was BS. Take electronic components for instance - the only way they can be built is on highly automated machinery with virtually zero dollars of direct labor. It doesn’t matter if the people who program and repair the machines speak English or Chinese, or what the tax rate on the factory building is - that’s all noise.
Companies moved manufacturing out of the US because the investment community rewarded those who did so with higher stock prices (and resulting executive bonuses). Everyone knew it was devastating American communities and families but - they didn’t care.
So now the market is rocking around because of uncertainty - well good, that’s how it’s supposed to work. When things settle out, the markets will swing back the other way - and keep swinging. Trump is undoing the blunders of 20 years worth of “smart people” who had an Obama-like understanding of what the hell they were doing.
Yep, as I said “We should know, as we’ve been the ones taking that (bitter) pill for over 40 years.” Every politician talks about bringing American jobs back, but none have done it. This is by far the most significant policy change I have seen to actually make it happen. I pray it pays off.
more than 20 years of it, bigbob
This trade war is difficult to analyze, but my intuitive take on it is that 3.75 years of tariffs is not long enough to generate a large boom in investment and move a large amount of manufacturing back to the USA. We need longer-lasting tax incentives to spark a major boom in investment and relocation of manufacturing. There’s still time to add this into the big tax bill that the Republicans are working on now, which has at least a 10-year time frame, IIRC. We need some simple but large tax incentives to move more manufacturing back to America. Something like the following incentives should work well, using years that start on the day the big tax bill is signed into law:
Year 1: If the corporation’s total percentage of American-made manufactured content increases by 10 percentage points in that year, then they get a 10 percentage point cut in their corporate tax rate (from 21% to 11%), starting in Year 1 that lasts for 4 years.
Year 2: If the corporation’s total percentage of American-made manufactured content increases by another 10 percentage points in that year, then they get an additional 4 years of 10 percentage point cut in their corporate tax rate, giving them a total of 8 years of tax cuts.
Year 3: If the corporation’s total percentage of American-made manufactured content increases by another 5 percentage points in that year, then they get an additional 2 years of 10 percentage point cut in their corporate tax rate, giving them a total of 10 years of tax cuts.
All percentages of US content are calculated off a base that is the first year preceding the signing of the tax bill. If a company misses the Year 1 minimum of 10 percentage point increase in American content, then the start of tax cuts can slip by 1 year and they can still count the progress in US content made in the first year. So now they can qualify for 9 years of tax cuts starting in Year 2 of the tax bill, but strong incentives are still there. The same thing would happen if they miss 10 percentage points in year 2: they can count the progress made in the second year, but the additional 4 years of tax cuts wouldn’t start until year 6, instead of year 5, and they get 9 years of tax cuts.
We need to add something like this kind of simple but large tax incentives onto the tariffs, to give corporations sufficiently lengthy benefits from combined tariffs and tax incentives, so that they move a lot of manufacturing back into the USA. The goal is to increase total corporate manufactured content made in the USA by at least 25% within 3 years. That includes all foreign subsidiaries of the corporation that operate overseas. That’s a really big jump in domestic-made content in 3 years for complex products like cars and trucks.
The GOP needs to add large tax incentives onto the tariffs to give corporations large enough incentives that last long enough to make investments in new manufacturing capacity pay off. The corporate tax cuts should basically pay for themselves through income taxes generated on all the new manufacturing jobs created in the United Sates.
The Trump Team is on the right track here, but they need to crank up the tax incentives to move manufacturing back into the United States, to make sure we get big results and cut our trade deficit substantially, resulting in a huge political victory for the Trump Team.
The issue here is that the Trump tariffs are only certain to last for 3.75 years. If another Republican wins the 2028 presidential election, then the tariffs could last much longer. But corporate finance people do their financial analysis based on certainties, and not based on probabilities. So they’re going to use only 3.75 years of tariffs in their base case analysis, and I think that’s not long enough to make most big investments in manufacturing capacity pay off.
Did he not cryptically muse about the “External Revenue Service”?
If only YOU were president then everything would be perfect! /sarc
The tariffs are here and they have been finalized for now so we will see the results come in over the next quarter.
I have a BA and grad degree in economics.
It’s like arguing about okra.
The vehicles already being made in the USA will outsell vehicles that are imported and their production will increase rapidly due to that demand.
Tariffs work, just look at China now and America prior to 1920 or so.
There are certain similarities.
If we put England in the place of the USA today, the USA tended to do what China has been doing to us.
England never had a Donald Trump to perform a correction.
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