Tariffs: Trade Imbalance or Trade Irrationality?

The Trump Tariff Wars are displacing almost every other issue of late in the news. The stock markets alone are a Direct Measure of Questionability (DMoQ) with respect to whether the ever shifting policies are well-conceived and particularly indicate if our political leadership is the king or the knave in the US Economy.

Since “Liberation Day”, America and the rest of the world have yet another opportunity to ‘learn’ from the least desirable of all educational institutions: The School of Hard-Knocks. Now this isn’t the first time that Americans or anyone has had opportunities to learn about some basic principles and aspects of the US Economy, the global economy, or general economics. However, the gravity of the current situations may be sufficiently critical as to determine whether the US and the rest of the world may be on the brink of an economic “black-hole”; all due to the competence of one man.

The view that America is being (has been) cheated and abused by other nations (friends and foes, alike) is based on particular ways of looking at the world, economics, and trade. This of course is completely appropriate in terms of the perspectives from which one must assess reality. To adequately and competently come to understand reality, you must look at what is occurring in the world and what the ‘causes and effects’ at play are. From a STEM-perspective this is just how one learns and how knowledge advances.

Do “reciprocal” tariffs solve America’s problems? No. If the problem is an ‘imbalance’ then all that is required is for other nation’s to buy more from America. There is only an imbalance because the US buys more and another nation buys less. It’s just simple math, right?

Now, for another nation to buy more, its people must buy more as a general rule. What would that take and mean for various nations’ citizens? The chart illustrates how much each countries’ individual households would have to spend to balance the trade between the two nations; and it shows how much of each countries’ households’ incomes that would take. Perhaps this “view” sheds some light on the rationality or irrationality of thinking that trade can realistically be balanced on a spreadsheet basis or that that would actually be in everyone’s best interests. Mexico for example doesn’t have either a large enough population or they don’t earn enough to afford to buy from America. The “reciprocal” tariffs are mathematically just more “fool’s gold”.

What about those nations who buy more from the US than the US buys from them? How do “reciprocal” tariffs make any sense in that circumstance. Don’t think that happens? Well, just another ‘reality’ that probably doesn’t matter unless you live in the real world.

This doesn’t mean that there are not good, smart, and beneficial ways to use tariffs to address some important aspects of America’s trading policies; however, all of those adjectives come with requirements, criteria, and the ability to competently understand the problems and issues to be addressed. So far, I haven’t seen any evidence that any administration or president has been able to deliver on even one of those attributes.

The challenge is to find one of those rare individuals who looks at a problem as a problem to be understood and solved. I would suggest not looking in the dark recesses and backrooms of partisan political parties where the basic skill sets required are not just persona non grata, but are stamped out if they even seem to be developing.

The best way to characterize the US’s current trade and tariff policies would be irrational. There is a simple path to correcting course and putting American on a path to a more successful and profitable future. It’s really simple: Just ask.