Matt Lutz at Humean Being:
So Trump’s basic starting point is that he thinks trade deficits are bad. They’re not, but he thinks they are. He has this very dumb idea that a trade deficit is a deficit of trade, and the dollar amount of the trade deficit is the amount that other countries are cheating us out of through nefarious… I dunno, trading?
So his solution to this injustice is to try to inflict an equal and opposite amount of damage to the other country’s economy. If they’re taking X dollars from us in trade deficit, we’ll take X dollars from them in tariffs. And that’s precisely what the formula is supposed to do. The other country is stealing X dollars from us (per the trade deficit), so we’ll take X dollars right back (with a tariff).
So, a toy example: Suppose that there is another country that we import $100 of goods from and export $21 of goods to. That’s a trade deficit of $79.
More here. And more on this from Noah Smith here.
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