The announcement of the widespread invoices by Trump’s administration, which was promoted by an event of the April 2nd Liberation Day, was shocked by the global economy. The next few days have seen the world markets and governments, economists and business leaders looking for answers about why the United States will take such a drastic step – and how to react to the new trade war.
“With these pricing announcements, we are in new territory,” he says Nancy KanianProfessor of Directorates of Finance and Sciences at Kellogg School and International Commercial Policy Specialist. “Invoices are wide and on this scale have not really happened in modern times.”
There are two main rationales behind the administration’s decision to impose invoices: to bring the production back states and close the trade deficit. Both come with themes.
“One of the difficulties in these duty negotiations is that the American administration is It’s not clear about what he wants By others, “Qian says.” Perhaps this is a regular negotiation, but the things they ask for are not things that other economies can deliver. ”
Management considers the revision of construction as a key to providing a more miserable domestic labor market. However, invoices themselves will lead to higher prices, which will have a disproportionate effect on the working class and lower profits for companies.
“The thing that is going to change permanently is people’s perception of the US as a stable political economy,” says Qian. “This will have huge consequences for trade relations.”
Why focus on commercial deficits?
Commercial deficit balancing, says Qian, is an ideological pursuit of Trump’s administration, which has surrounded invoices as a reaction to commercial restrictions imposed by countries around the world against the US
“President Trump and many people in his current administration simply believe that commercial deficits are bad, that it is a sign of something wrong with the economy and if we can get rid of the trade deficit, this will make the American economy stronger,” Qian says.
Whether a nation running commercial deficits is necessarily bad is an open question for economists, Qian says. In standard economic models, commercial deficits are neither good nor bad. Instead, it is the result of a complex tissue. Thus, zero in them, such as the thing that invoices will “correct” may not be an effective strategy.
“Looking at the deficit on its own is pretty much narrow,” says Qian. “The rest of the world is pleased to invest in us, buy US financial assets, including finance ministry bonds, also buy US real estate and manufacturing production facilities here.”
These deficits also change over time. An imbalance for a few years can be converted into a surplus. Thus, while the US has run larger and larger deficits since the 1980s, the risk of it is not clear because it is a relatively new phenomenon and is becoming the world’s largest economy.
“The execution of major commercial deficits for so long, while growing so much is not something that has really happened before,” Qian says. “Standard economic models say it’s not a problem, but it’s legal to ask if economists are missing something here.”
Production of construction against construction work
While the administration is trying to encourage the return of manufacturing to the US with its influence on employment, it is not clear that this will really happen. There are two reasons for this.
First, post -industrial American imports goods manufactured in countries where production costs less and maintains a trade surplus for its financial and legal services to other countries. So why would he try to bring the construction back?
“If you really want to get rid of the commercial deficit, the way to do it is to push us faster to services because this is our competitive advantage,” says Qian. “Restoring the construction to the US is like pulling us back in time.”
Secondly, increasing automation means that even revision will not restore job losses in production in the early 2000s. Even China, which has much less expensive workforce, is worried about losing jobs in automation.
“There is no way for the US, the richest and most technologically advanced country in the world, do not automate,” says Qian. “So when the construction comes back, this can add a few jobs to the beginning when we build factories, but not as much jobs as people think they will be created on assembly lines.”
Questions about US economy are: How high will prices get to bring back profitable production and US consumers will pay these prices?
“Invoices are a tax for US consumers to subsidize American construction,” Qian says. “It will be very expensive, if we increase the invoices high enough, the producers will make a profit, but due to automation, manufacturers do not need many workers, so profits will be distributed in a very regress.”
Constant tariff implications
Since its initial announcement, Trump administration has increased, decreased, postponed, removed and relieves invoices. It may take some time to sort the fall, but possible long -term impacts of policies emerge.
For example, Can bring the European Union and China closer
in trade. But even if this is not the case, it is difficult to see the EU nations embrace the US as a commercial partner to the extent it has in the past, given the uncertainty shown by the administration.
“I would watch China -Europe’s dialogue,” says Qian. “They are the second and third largest economies and for recent years the Biden administration has worked with allies to isolate China.
This is a good reminder that other nations should consider their own goals – both economically and politically – in the negotiations of duties. Thus, while they may seem like anxious partners, with Europe upset for China’s lack of support for Ukraine and Nervous for China that floods its markets with cheap goods, they can find common ground for issues such as changing climate and growth.
“The other possibility is that Europe and the US make a deal and China is isolated,” Qian says. “But in both scenarios, prices are higher in the US because of invoices.”
In addition to the constant unreliability of the US as a commercial partner, the ongoing tariff situation will negatively affect financial assets. Traditionally, US debt was a safe haven for investors during the riots. But their trust is shaken.
“If other countries consider the US as dangerous, they will be less willing to take on US debt, which will find it difficult to transfer this debt.”
