[PreludeSH]

Some believe the tariffs on South East Asian countries is to target China. Most of the investment in those countries is from China where manufacturers relocated to.

Cambodia is hard hit and it exports apparels, shoes. Exports at 12.66B and trade deficit of 12.34B ! International companies wanted to avoid overexposure to China and are now caught in this.

[Samurai]

This is one of the best explanations I have ever seen on the current situation.

https://youtu.be/IpKe_HbVG64

[BullettuPaandi]

Originally Posted by Samurai

This is one of the best explanations I have ever seen on the current situation.

I was about to share the article I read about this here- linking for those who'd rather read than watch. It explains the same in simple terms; quoting:

The amount any country's tariff will rise is equal to our trade deficit with that country, divided by our total imports from that country — with a global floor of 10%.

So, the "reciprocal" tariffs from the US are in fact retaliatory- to basically the entire world that has done a better job of adapting to trade in global market- and that makes the "retaliatory" ones like China curbing rare earth metal exports [LINK] are in fact rather 'escalator-y'.

[guru_max]

Many have claimed that the tariff formula is nonsenical. But i read a saner take on it somewhere. Due to trade restrictions and very high tariffs, export of goods from a country, say US become uncompetitive and this loss of opportunity of exports lead to trade imbalance as much as importing cheap goods does. So, from a trade balance perspective, this approach does make sense.

But the question is, does the US government really think that all these factories are going to shift enmasse to US? Even with tariffs, it is cheaper to manufacture goods in a lower income country rather than shifting the production line. So, the end game is not quite clear.

[SmartCat]

Originally Posted by guru_max

But the question is, does the US government really think that all these factories are going to shift enmasse to US? Even with tariffs, it is cheaper to manufacture goods in a lower income country rather than shifting the production line. So, the end game is not quite clear.

$10 T-shirt factory? Unlikely. But $1,000 iPhone or $500 Nike factory is a maybe.

It all depends on messaging by Trump administration. If a CEO feels that tariffs are just a negotiation tactic to gain market access for US products, then he will not bother to bring manufacturing home. But if there is clear indication that tariffs are here to stay, not just for 4 years but even beyond that, then the decision is easy.

[anandhsub]

Originally Posted by SmartCat

$10 T-shirt factory? Unlikely. But $1,000 iPhone or $500 Nike factory is a maybe.

Given the campaign against immigration I wonder who is going to work in these factories that are supposedly going to be built

[Samurai]

Originally Posted by guru_max

Due to trade restrictions and very high tariffs, export of goods from a country, say US become uncompetitive and this loss of opportunity of exports lead to trade imbalance as much as importing cheap goods does. So, from a trade balance perspective, this approach does make sense.

The trade imbalance is not always due to high tariffs. It can be simply because there is no demand.

Consider this. After the Ukraine related sanctions were imposed, Russia started selling huge volume of crude oil to India, for rupees instead of dollars. So, they collected huge amount of rupees, but they didn't know how to spend it. Why? Because rupee was only good enough to buy stuff from India, and India didn't have anything Russia wanted to buy. Should India punish Russia for not buying stuff from India?

But this is exactly what USA is doing right now. They are telling every country that they should buy equal amount of US goods whether they want it or not, whether they can afford it or not. USA is forcing barter economy on their international trade, where goods of equal value have to be exchanged between the two parties. Why do we need currency then?

[SmartCat]

Originally Posted by anandhsub

Given the campaign against immigration I wonder who is going to work in these factories that are supposedly going to be built

$1 trillion per year DOGE spending cuts will create cascading unemployment effect. They will all be put to work in factories!

[V.Narayan]

Joe Biden used economic sanctions against Russia including freezing Russia's US$ assets and forex reserves and we all know that didn't pan out too well. The US discovered, or rather the rest of the world discovered that USA's sanctions do not work too well against large economies. Not sure the US has figured this out but the rest of the world sure knows the truth of the emperor's new clothes. They had tried something similar against us in 1998-2000 too albeit at a softer level.

Now Trump will discover that the second tool USA has against disobedient naughty countries, i.e. tariffs, don't work too well either.

In all this USA has lost credibility that most invaluable of intangibles whether in people or companies or countries. Their most potent asset or weapon depending on how it is viewed is the US$. And its omnipotence rests on credibility + consistency of policies + depth and size of the US debt markets. Size of the economy matters but that is shrinking in relative terms. Till circa 1925 the GBP was what the USD is today. Then c.1925 the UK Pound was taken off the gold standard and very gradually lost its omnipotence as a reserve currency and as a trading currency over the next 25 years till a massive devaluation in 1948.

Recognizing the need to keep the $ indispensable Kissinger, that brilliant and machiavellian politician, pushed OPEC circa 1973 to trade and price oil only in US$ thus sealing its primacy for the next half century. Hence the phrase petro-dollar.

And now we see the first stirrings over the last 5 years of major nations quietly moving away from the USD as both a reserve currency for their central banks and as a currency for trade. The new Chinese RMB block chain backed settlement system, albeit still in the initial stages, is a step in that direction. China, India, Russia and Brazil quietly buying gold for their reserves and replacing the $ in their forex coffers is another step. Country pairs deciding to trade in their own currencies is a small third step.

In 1970 the USD accounted for 77% of global forex reserves. This is now ~57% and gradually shrinking. This is not the lowest it has been since Bretton Woods that was 1989 - 1990 when it had dropped to 50%. No reason it cannot decline to that level again. Without the world backing the US$ very slowly American ability to borrow from the rest of the world will decline, its interest rates will rise, its ability to borrow to consume will shrink and.... and... its ability to impose tariffs and sanctions at will shall increasingly become impotent.

There is nothing on the horizon to replace the US$ right now. However, I would not assume that some form of a digital currency backed by block chain cannot come about over the next 15 to 25 years. Afterall we need a system independent of powerful nations or regulators controlled by powerful nations. Don't assume things can't happen just because they are difficult to imagine. As per their archives till as late as 1938 the British thought they would be ruling India till the turn of the century. That dream ended rudely with a thud 9 years later.

This transition away from the US$ to assets still unclear will come with its share of disruption to the markets - forex, debt and stocks. At some point {after Trump?} the US will scramble to regain its credibility. But like the huge smelly fart the US has just released this credibility cannot be put back in! - it will hang there in the minds of allies and the BRICS for years.

There comes a time in the affairs of mice and men when events, changed status, economics and technology simply force the change - independence from colonial powers, digitization of our lives, disappearance of land lines, demise of ocean liners, collapse of the USSR etc. De-dollarization is on that list now. When the Ukraine war started in February 2022 and the $ was weaponized some of us on that thread wrote of the impending de-dollarization. That dawn is here now. Collapse comes slowly till suddenly there is an abrupt end*

*with due respect to Ernest Hemmingway who famously said, and I quote,
“How did you go bankrupt?"
Two ways. Gradually, then suddenly.”"

[DigitalOne]

Originally Posted by guru_max

Even with tariffs, it is cheaper to manufacture goods in a lower income country rather than shifting the production line.

Originally Posted by anandhsub

Given the campaign against immigration I wonder who is going to work in these factories that are supposedly going to be built

Modern manufacturing is no longer labour intensive in many sectors. The level of automation is more than 90% in factories like auto-sector.

Think about this - Japan or South Korea despite their ageing/declining populations are still able to churn out thousands of cars and electronic goods. How? Modern Tesla factories in China or Germany come up within a couple of years. How?

In fact, if you analyse deeply, this is the problem India is facing. There is capital investment in new factories but there is no corresponding labour increase. Maruti Suzuki is opening a new factory every 3-4 years but there is not proportionate employment increase. Even agriculture and construction are highly automated.

As an aside, my brother works in the food industry where the levels of automation are increasing to incredible (or alarming, if you prefer) levels. They are able to churn out meals for around 800 people daily with just handful of employees.

Only a few sectors like garments or leather are still labour intensive.

[PreludeSH]

Originally Posted by Samurai

The trade imbalance is not always due to high tariffs. It can be simply because there is no demand.

Consider this. After the Ukraine related sanctions were imposed, Russia started selling huge volume of crude oil to India, for rupees instead of dollars. So, they collected huge amount of rupees, but they didn't know how to spend it. Why? Because rupee was only good enough to buy stuff from India, and India didn't have anything Russia wanted to buy. Should India punish Russia for not buying stuff from India?

But this is exactly what USA is doing right now. They are telling every country that they should buy equal amount of US goods whether they want it or not, whether they can afford it or not. USA is forcing barter economy on their international trade, where goods of equal value have to be exchanged between the two parties. Why do we need currency then?

I have heard Russians wanting to invest rupees back in India. They are open to new businesses coming up to use it. Any startups or tech companies can use the opportunity.

Just hope what they show in movies doesn't happen with Russians visiting you if things dont go according to plan

[neeraj0272]

I think it is a once in a lifetime opportunity for countries to get on the true spirit of capitalism which is what made USA great. Trump has shot USA in the foot with tariffs. With these tariffs USA is now heading towards inefficiency.
I like to read on corporates and what I have gathered is there is always so much churning in USA Companies (and wherever there is true capitalism) and these companies are always on the move to compete in the global world. One example is that these corporations have learnt to offshore their production and many services but they are still able to sell their products all over the world and also in USA in spite facing tariffs in rest of the world.
In this trade war whosoever has the lowest tariffs will win because their Businesses will learn to compete in face of free imports.
My advice to our government will be do Nothing in response to American Tariffs. Our industrialists and businesses will have to innovate and compete to face these tariffs. These innovations can be in
1. cost cutting
2. management practices
3. discovering new markets
4. innovating new products and services
5. innovating new marketing techniques

In short they will learn to be truly self-reliant. Otherwise all our Tatas, Birlas, Amabanis, Adanis etc are just using their influence on governments to keep on expanding their business empires and nothing else.

[dragracer567]

Originally Posted by Samurai

The trade imbalance is not always due to high tariffs. It can be simply because there is no demand.

Precisely, for example, those from the Trump administration complain about how Americans roads are filled with car brands from Japan, Korea or Germany but not vice-versa. These countries aren't avoiding American cars because of tariffs, plenty of German cars sell in Japan and vice-versa, it's because American brands just don't build cars that the rest of the world want to buy, they barely make cars that Americans want to buy. My cousin recently moved from a 2014 Jeep Grand Cherokee to a new one and is constantly complaining about the step-down in built quality, constant niggles etc which requires frequent visits to the garage to get fixed under warranty..

The few competent American cars like the F150 or Tahoe are models only the Americans and perhaps those in the Gulf states will purchase, sort of like how vehicles like the Bolero or Force Gurkha would only sell in India and some other limited markets.

What I don't get is, if a lowly science major like me can understand this, why can't these geniuses who elected to run the world's largest economy armed with the world's best economic advisors get it? All we can presume is that the present US administration has surrounded itself with 'yes men'.

[DigitalOne]

Originally Posted by dragracer567

What I don't get is, if a lowly science major like me can understand this, why can't these geniuses who elected to run the world's largest economy armed with the world's best economic advisors get it? All we can presume is that the present US administration has surrounded itself with 'yes men'.

Not trying to justify Trump tariffs or anything here, but I have often seen Trump or his advisors referring to American agriculture products, especially dairy or beef, facing tariffs in other countries including Japan. Being in an auto-enthusiast forum we often forget that US is a major agriculture producer. Not everything is about cars .

[dragracer567]

Originally Posted by DigitalOne

Not trying to justify Trump tariffs or anything here, but I have often seen Trump or his advisors referring to American agriculture products, especially dairy or beef, facing tariffs in other countries including Japan. Being in an auto-enthusiast forum we often forget that US is a major agriculture producer. Not everything is about cars .

To be fair, agriculture constitutes a very low portion in terms of trade value, the US trade deficit is certainly not because of agricultural imports. Further, while the US does not deploy as much tariffs on agriculture imports, they do heavily subsidize their farmers, much more than other parts of the world, even India. This is because, agriculture is directly linked to food security which is a key component of human sustenance, so countries are very picky about allowing too much foreign imports, making their own agriculture unsustainable.

Even here, the current administration seems to have a problem with the EU's non-trade barriers because they have very high standards for food products being imported. Keep in mind that it's not just from the US, everything from Vietnamese dragon fruits to Filipino bananas have to meet these requirements to sell in the EU. The US itself has strict barriers for agriculture imports like high rates of preservative chemicals in Indian and Ecuadorean shrimps and even imposes anti-dumping duties (which are again tariffs), so everyone plays this game quite evenly.