[notme]

I see a potential upside in Trump's actions, he may significantly reduce America's excessive consumption and, in turn, lower greenhouse gas emissions.

This could help cool our overheating planet and buy precious time for future generations to secure a more sustainable future.

[V.Narayan]

The diagramme below shows America's export break-up. Note the pre-ponderance of services. Employees needed to deliver those services are normally better educated & more competent than the very poorly educated folks coming out of the rust belt, the inner cities and the weaker schools. Trump is hoping to bring in more manufacturing to employ these folks. But the US is already at 4% unemployment which is an entitlement level i.e. pushing it to zero means you are trying to employ the unemployable! And by shutting off immigration from Mexico I'm not sure where them folks are going to be found to fill those factories!

In order to feed its insatiable appetite for debt i.e. more printed currency notes, the USA needs to stoke global demand for the $. Without this constant supply of debt the US will literally go bankrupt like Greece, maybe at a slower pace but still - the US is literally borrowing to pay old debts. In order for the world to demand more dollars world trade with USA and between other countries needs to go up. With this tariff war the Trump administration will slow down global trade which will slow down demand for the US$ which in turn will slow down demand for US debt and....this does not even take into account countries slowly and steadily moving off the $ for both their reserves and their trade settlements.

USA's biggest export is the $ which in turn depended on US's reliability and consistency and it being the world's largest deficit trade partner. All these are interlinked. If USA like China starts running a trade surplus $ demand will take a dent. When USA runs a trade deficit each year, year after year it is really putting dollars into the rest of the world by paying $ to buy goods and services and those $ come back as subscriptions to US treasury bonds which funds their debt. It is a closed loop.

Trump through his actions has destroyed that reputation for consistency. Like virginity it can be lost only once. Even if Trump reverses everything and goes back to how it was 3 months ago it will not help.The reputation built over literally 80 years since 1945 is damaged.

If the US has to make itself competitive in low value manufacturing it needs to devalue the dollar by half literally, more maybe.

We are witnessing the biggest geo-political event since the collapse of the USSR in 1991.

[BullettuPaandi]

Originally Posted by V.Narayan

If USA like China starts running a trade surplus $ demand will take a dent.

Exceptionally informative post, V.Narayan! If it wasn't for such detailed explanation, I'd never ever have come to wrap my head around this counter-intuitive position the US is in (or any country holding a 'reserve currency' status would be in, I guess).

I find it counter-intuitive because, it sounds like there's actually not much incentive for countries that are productive- unlike what we're taught in schools as Economics 101. 'You produce valuable goods and services, and your currency will be valued' is the theory I'm familiar with. I don't have an incredible memory, but I'm certain that I can find texts from our school books that still preach this. But the Global system seems to prioritise those that are always there to consume all that(?)- that doesn't sound right to me. (Kindly correct me, if it is just that I haven't understood your post properly)

But hey, If that is the way of the world now- with consumption incentivised more than production- what difference would it really make if it were Mexicans across their border producing for cheap in those factories, or their own people from 'rust belt' or wherever, who probably will take those jobs tomorrow if not today?

Other than trust, the major reasons for the need for a singular reserve currency can simply be boiled down as ease of transaction. But, if such system benefits one disproportionately more, and for all the wrong reasons, is that ease really worth it? Shouldn't we rather take up the challenge of maintaining multiple reserve currencies, for the relatively more reasonable system it provides?

I'm not trying to play the Devil's Advocate here- although I think I ended up sounding very much like one. I'm fairly new to most of these topics, and am just trying to understand better.

[DigitalOne]

Originally Posted by V.Narayan

In order to feed its insatiable appetite for debt i.e. more printed currency notes, the USA needs to stoke global demand for the $. Without this constant supply of debt the US will literally go bankrupt like Greece, maybe at a slower pace but still - the US is literally borrowing to pay old debts. In order for the world to demand more dollars world trade with USA and between other countries needs to go up. With this tariff war the Trump administration will slow down global trade which will slow down demand for the US$ which in turn will slow down demand for US debt and....this does not even take into account countries slowly and steadily moving off the $ for both their reserves and their trade settlements.

All true, but what I am not able to fathom yet is how is a weaker dollar bad for the US domestically? Yes, the dollar will lose its status as the reserve currency; they will not be able to wage endless wars, support NATO, or "save democracy" in foreign countries under the name of "aid". But Trump has shown disdain for all these repeatedly and cut these expenses. They are self-sufficient for their basic needs. US produces surplus oil for their own consumption and export it also. A bit of less consumption of cheap Chinese goods is not going to fundamentally affect them, might even do them good as a society.

So, what is wrong in being conservative, bring down their debt - a weaker dollar and lower interest rates automatically brings down the debt - and being more fiscally responsible? How is it bad for the average Joe American on the main street (not the wall street types)?

Originally Posted by BullettuPaandi

But the Global system seems to prioritise those that are always there to consume all that(?)- that doesn't sound right to me. (Kindly correct me, if it is just that I haven't understood your post properly)

You are right. The world has been fed on a high sugar diet of excess US consumption, powered by US debt and dollar strength. It is time for a reality check. US Dollar, Gold, Bitcoin, Euro, Yuan, JPY (and hopefully INR) all need to be on par on trust and acceptability. At the very least, US should not be able to finance its wars/interference/"aid" by being the reserve currency. And I don't believe this will impact the average Americans much.

[Samurai]

Originally Posted by BullettuPaandi

I find it counter-intuitive because, it sounds like there's actually not much incentive for countries that are productive- unlike what we're taught in schools as Economics 101. 'You produce valuable goods and services, and your currency will be valued' is the theory I'm familiar with. I don't have an incredible memory, but I'm certain that I can find texts from our school books that still preach this.

It is still true. VN's post didn't contradict this all.

Guess what is the most valuable goods produced by USA?

DOLLAR

Nobody will buy Indian rupee unless they want to buy Indian products or services. But people will buy dollar even if they are buying something from a third country, because dollar will be accepted as a valid currency in any country.

Only US can be a high consumer country like this because they can just print dollar as they please and exchange it for goods and services from around the world.

India can't try that because we still have to buy dollar from USA, before we can try to buy anything from abroad.

Therefore, USA is a unique case. If they stop buying from around the world, they won't be sending the dollar out, which used to come back again in exchange for T-bonds. That means their biggest goods aka dollar has less circulation, printing it would cause hyperinflation. The whole world economy would shrink too, since finding new markets would be hard.

[BullettuPaandi]

Originally Posted by DigitalOne

All true, but what I am not able to fathom yet is how is a weaker dollar bad for the US domestically?

From what I managed to understand, it is because of how dependent their economy currently is on debt. Yesterdays dues are paid with today's bonds sold on tomorrow's promises- that is essentially the US economy as of now.

A weaker US dollar, being a result of trade surplus from the US, basically means that the promises get progressively watered down- as they'd be accepting more influx of foreign currency, than the outflow of their own, which they rely on. Bonds and other means via which they "earn back" the dollars they just spent, will increasingly become hard sells.

So, while I can see how they'll accumulate less and lesser debts as the dollar grows weaker, I can't see how the prevailing debts will be brought down, just by this.

It is a fact that every country that preaches for 'Free Market' today, took a 'Protectionist' route to get there and kicked away that ladder, before doing so. So, other than the fact that it is simply inexplicably weird for a country who have done all this to now 'andhar balti' all of a sudden for seemingly no good reason, such drastic change in direction should've ideally been preceded by fixing the reliance on the existing system (thereby not making it drastic), should the change in direction really be in their prerogative, regardless of whether it is actually being conservative.

Originally Posted by Samurai

Guess what is the most valuable goods produced by USA?

DOLLAR

I'm afraid I ran out of IQ. 'Currency as Goods/Service' is Inception levels of convoluted plot for me. I'll have to table this for some other day.

[SmartCat]

For US, everything is fine if interest rates on 1 to 10 year treasury bonds are 0.5% to 2%. But things don't look very rosy if interest rates move higher. At 4% current rates, interest payments are 20% of overall expenses in the federal budget. It will head towards 25% soon if yields stay at 4%. What if interest/inflation rates move to 7% or 8% and stays there?

After all, some say Democrats lost because they could not keep a handle on inflation (which touched 8% pa in 2023)

So conservative economists agenda of cutting expenditure, increasing revenues and improving trade deficit is not totally without merit. The point is, there is lot of hidden risks in the US financial system, which is not obvious right now. $30 trillion federal debt is not just some random/large/meaningless number.

So one could say Trump's overall idea is right, but execution (DOGE chainsaw cuts, tariffs on all goods and countries etc) is terrible. Also, If increasing manufacturing jobs is the goal, tariffs should be highest on finished goods and lower on components or raw materials

[vishnurp99]

Originally Posted by m8002?

Whats the opinion on the 90-day pause? Has Trump blinked after seeing the impact of his actions? Is it possible for US to work out a tariff strategy for each country in this 90 day period?

And what happens if the major economies follow China and hold out?

The answer depends on whether you like Trump or you hate him.

If you like Trump, some context setting is required.

In this worldview, Trump is redefining a world order where the elites(business & political) in America have profited at the expense of the normal blue collar American. The manufacturing goods business owner has enriched themselves by moving their factories to low cost locations and setting up trade policies which favour these factories in China & Vietnam. The politicians have allowed this to happen & in the process enriched themselves.

What is currently happening is a high stake poker game to redefine these rules where players start with maximalist positions. Trump was essentially testing the water to see how countries will react.. For a countries like India & EU regions , 10% tariff looks really good suddenly in comparison to the 30/40% that was previously stated to be imposed. The stock markets are rejoicing . Trump has set a new baseline for the upcoming trade negotiations.

China of course deserves special treatment. They have dared to think that they can go toe to toe with the US. Hence the 125% tariff. This is also aimed at securing a trade deal but Trump has shown that he has the political will & staying power to throw China under the bus if he needs to. This is critical since a lot of the manufacturing & automobile elite across both parties have deep relationships with China. So Trump needed to prove that he means business.

[car_addict]

Originally Posted by vishnurp99

In this worldview, Trump is redefining a world order where the elites(business & political) in America have profited at the expense of the normal blue collar American. The manufacturing goods business owner has enriched themselves by moving their factories to low cost locations and setting up trade policies which favour these factories in China & Vietnam. The politicians have allowed this to happen & in the process enriched themselves.

What is currently happening is a high stake poker game to redefine these rules where players start with maximalist positions. Trump was essentially testing the water to see how countries will react.. For a countries like India & EU regions , 10% tariff looks really good suddenly in comparison to the 30/40% that was previously stated to be imposed. The stock markets are rejoicing . Trump has set a new baseline for the upcoming trade negotiations.

It is well known that during his previous term, his advisors applied a lot of brakes to his stupid policies. Now, during his second term, he has fired all those people and is surrounded himself with yes men. They are willing to bend the knee to whatever he says.

With Trump, Never attribute to 5D chess kung-fu moves, what can be attributed to stupidity / screaming into the void with your ears closed. Even his advisors were blind-sided with the reversal, even as they were trying to defend the tariffs at press meets.

Most of his friends/advisors are the same people who have benefited from manufacturing moving overseas.

Even his deal making skills are really bad. https://www.deccanherald.com/opinion...ut-him-3439912

Its just that someone called out that the emperor was wearing no clothes (aka lost a bunch of money). That is why he blinked.

[alpha1]

Originally Posted by BullettuPaandi

... Economics 101. 'You produce valuable goods and services, and your currency will be valued' is the theory I'm familiar with.

The problem with most economic theories is that they ignore some of the most basic drivers of human actions: fear, tribalism, politics/dominance and sovereignty.

The might is always right, and that's what everyone aims for (individually as well as collectively) in order to dictate his terms contrary to the equilibrium necessitated by economic conditions.

Other than trust, the major reasons for the need for a singular reserve currency can simply be boiled down as ease of transaction. But, if such system benefits one disproportionately more, and for all the wrong reasons, is that ease really worth it? Shouldn't we rather take up the challenge of maintaining multiple reserve currencies, for the relatively more reasonable system it provides?

You think people haven't tried doing it?
https://www.firstpost.com/explainers...-13840828.html

Remember, might is always right, economic principles come later after "saving our arse".
As they say in Hindi: जान है तो जहाँ है

[Samurai]

Originally Posted by vishnurp99

If you like Trump, some context setting is required.

In this worldview, Trump is redefining a world order where the elites(business & political) in America have profited at the expense of the normal blue collar American. The manufacturing goods business owner has enriched themselves by moving their factories to low cost locations and setting up trade policies which favour these factories in China & Vietnam. The politicians have allowed this to happen & in the process enriched themselves.

No, you need not like or dislike Trump to do proper analysis. In fact, such bias will affect the reasoning.

In a free market, jobs will go where the labour is cheapest, and people can't always follow the jobs. You can't really blame politicians or businesses for this. Let's see what would have happened if US had not sent jobs out.

While the top three sources for US imports (China, Canada, and Mexico) account for about 45% of the total value, the same three countries are also the top destinations for US exports, accounting for almost 39% of the total value. If US didn't import parts and raw materials, they have to find local sources for the same. That would make it lot more expensive, lesser quality and harder to export.

Excellence in any product or service comes from specialization in every aspect of creating it. One country trying to do all these by itself would be like competing in Pentathlon, which involves fencing, swimming, riding, shooting and running. No one person can be the best in all five sports. The Olympic gold medalist for Pentathlon won’t even place in the top 100 in the individual competitions of each of those sports.

This is same reason why companies outsource, and not just to save money. One could try to build all the competencies within the company by hiring the right talent for each discipline. However, building any new product or service takes time and requires many iterations before it is mature enough to meet customer expectations. This is an expensive gamble, with high risk and little reward. After spending many months and quarters, the company may find itself doing Pentathlon, because one or more modules are performing well below expectation. Meanwhile, the marketing window would have slipped away. It would be a far better option to work with multiple partners who already have field proven product/service, with the required performance from day one. Successful product/service delivery should run like a relay race with each discipline delivering their best. It is no different than a supply chain. Even a single under-performer or weak link in this chain can lead to total failure.

Let's say USA forced all their companies to outsource and collaborate only within USA. Rest of the world doesn't have this restriction. They will outsource all around the world (mostly to China) and produce goods at a fraction of the price USA will spend to create them. This basically kills all US exports, and they will be restricted to domestic market. And nobody is buying stuff from USA, the demand for dollars lessens and that also means it won't be a reserve currency for long.

[dust-n-bones]

Lets look at China for a minute.

USA is the society with the largest per capita consumption appetite that humanity has ever seen. China, over the last 50 years, has built the most efficient factory to produce it all for them.
You go to a Walmart, Target, and to a slightly lesser extent, Macy's, to see this partnership of giants in action. Chimerica, as it is also known as.

America cannot find a better manufacturing source, but neither can China find a market that can match the appetite.

The Chinese economy has grown so far (sometimes above 10% for decades together) by state companies building world class infra and factories. That phase has run its course, China has by far the best manufacturing capacity of any country now in the world. The next hen with the golden egg was town corporations selling/leasing real estate for Chinese working class to park their savings in apartments, and that trick has also famously run its course.

The Chinese government is now directing their vast resources to building cutting edge factories as the next growth engine, and the Trump tariffs have come in the way, at least for now.

Many analysts think Chinese will now flood their surplus in other markets, but I don't think that is so easy. Nearly every country has anti-dumping protections, and after all it is crazy to think anyone else can replace the American purchasing power or appetite.

The export led model of growth followed by all Asian tiger economies and now scaled to perfection by China is in jeopardy. The last avenue for China is raising domestic consumption, which is a decision full of dangers to the communist party. More retail consumption means more purchasing power for the middle class, which leads to 'no taxation without representation'.

That's a road the communist party would only take with a gun on its head. Interesting staring match, this one.

[PreludeSH]

Originally Posted by dust-n-bones

Lets look at China for a minute.

USA is the society with the largest per capita consumption appetite that humanity has ever seen. China, over the last 50 years, has built the most efficient factory to produce it all for them.
You go to a Walmart, Target, and to a slightly lesser extent, Macy's, to see this partnership of giants in action. Chimerica, as it is also known as.

.

Chinese trade with US is 2% of its GDP. That is the reason they haven't been blinking on US tactics.

[SmartCat]

Originally Posted by PreludeSH

Chinese trade with US is 2% of its GDP. That is the reason they haven't been blinking on US tactics.

It is supposed to be 3%, but it is not a valid metric to track. It greatly underestimates the importance of US exports to China. That's because it does not measure indirect effects like factory closures and job losses, across the entire supply chain.

Better metric would be -> USA accounts for 15% of all China's exports. The effect is equivalent to a large corporation losing a major client, which accounts for 15% of its revenues. However, we can also speculate that:

- Some percentage (say 20%) of Chinese imports to USA is probably irreplaceable
- If other countries prioritize US exports, China is likely to replace these countries in rest of the world.

Also, India/Vietnam/Malaysia etc might import electronics components from China. And export smartphones/laptops/TVs/ACs/Washing Machines to USA. So Chinese electronics/electrical supply chain companies will still have most of the business. Instead of sending to goods to Guangzhou, they might need to ship them to ports in India/Malaysia/Vietnam

Basically, it is quite a mess and it is impossible right now to measure first and second order effects of this tariff war.

[WhyMe]

(I'm sure this is asked before but not sure how to search in a long thread)

Given this changing world (Trump tarrifs, Chinese exports, Indian import duties, etc.), how will all this affect car prices in India in next 6 months, including EV's ? costlier or cheaper cars here ?
(I'm planning an EV, so curious )