WHAT IS TRUMP DOING? 3d short answer: i dont fucking know....
Gianluca c1 bis@gianlucac1bis
11 views
Feb 09, 2025
~5 min read
Advertisement
1
WHAT IS TRUMP DOING? 3d
short answer: i dont fucking know. unexplicable
Potus has targeted the trade deficit during the campaign, highlighting tariffs has the way to
1) raise indirect taxes (on consumers) to cut direct taxes
2) re-shore manufacturing
1/n
short answer: i dont fucking know. unexplicable
Potus has targeted the trade deficit during the campaign, highlighting tariffs has the way to
1) raise indirect taxes (on consumers) to cut direct taxes
2) re-shore manufacturing
1/n
2
3) as a tool to deal with border control/immigration
4) as a tool to limit fentanyl import
5) as a tool to show his negotiating power on every other issue that comes to his mind (feel free to add)
Lets talk the important point aka 1) and 2) and 3),
the rest being propaganda
2/n
4) as a tool to limit fentanyl import
5) as a tool to show his negotiating power on every other issue that comes to his mind (feel free to add)
Lets talk the important point aka 1) and 2) and 3),
the rest being propaganda
2/n
3
Point 1): without any shadow of a doubt any tariffs is paid by american consumers. Technically the US importers have to pay the tax "at the border" to a Government agency (External revenue service aka ERS).
Assume a flat 10% tariff on any imprted good.
3/n
Assume a flat 10% tariff on any imprted good.
3/n
4
How much is the US consumer going to pay?
It depends by many things, but in essence
a) how much is the dollar appreciating vs the exporter currency (assume 4% in this case)
b) how much the importer is gonna slash his profits to compensate the tariff
4/n
It depends by many things, but in essence
a) how much is the dollar appreciating vs the exporter currency (assume 4% in this case)
b) how much the importer is gonna slash his profits to compensate the tariff
4/n
5
Importers work with very low margins. So lets assume the absorption is limited to 1%
c) how much the exporter, subsidiazed or not, is gonna slash his profits. Lets assume 2%
So a tariff of 10% will have a pass through of only 3%, aka 30%
5/n
c) how much the exporter, subsidiazed or not, is gonna slash his profits. Lets assume 2%
So a tariff of 10% will have a pass through of only 3%, aka 30%
5/n
6
High or low 3% pass through might be, it is inflationary vs no tariffs. period.
The pass through obviously depends on other macroeconomic conditions (expansion, recession, employment)
The better the economy the higher the passthrough
6/n
The pass through obviously depends on other macroeconomic conditions (expansion, recession, employment)
The better the economy the higher the passthrough
6/n
7
The so called ERS would have collected taxes on all imports
In '23 US imports of Goods and services were 3.8trn.
So retrospectively 10% on '23 imports would have collected 383bn
In 2023 all taxes collected by US treasury were circa 4.4trn of which 2.2trn were income taxes.
6/n
In '23 US imports of Goods and services were 3.8trn.
So retrospectively 10% on '23 imports would have collected 383bn
In 2023 all taxes collected by US treasury were circa 4.4trn of which 2.2trn were income taxes.
6/n
8
So 383/2.200=18% income tax cut, at same deficit of no tariff situation
Clearly there would be distributional consequences to take care of when allocating tax cuts, or tariff would risk be regressive
7/n
Clearly there would be distributional consequences to take care of when allocating tax cuts, or tariff would risk be regressive
7/n
9
Needless to say than a much higher tariff (25%, 60% or whatever) would be much more difficult to manage by exporters, importers and consumers
2) RE-SHORING
Manufacturing Companies take investment decisions when the conditions are stable.
8/n
2) RE-SHORING
Manufacturing Companies take investment decisions when the conditions are stable.
8/n
10
Rule of law, taxes, regulation and so on, must be non-volatile in a decent investment horizon (5-10yrs)
Investment decision entails front-end capex with multi-year amortisations of plants
9/n
Investment decision entails front-end capex with multi-year amortisations of plants
9/n
11
If the regulation is volatile you simply dont go, as you risk your investment becoming a stranded asset
Clearly manufacturing needs qualified labour force. No labour force no investments.
Alternatively you might automized everything, but then little employment effect
10/n
Clearly manufacturing needs qualified labour force. No labour force no investments.
Alternatively you might automized everything, but then little employment effect
10/n
12
MY THOUGHTS ON TRUMP ERRATIC BEHAVIOUR ON TARIFFS
So far Trump spoke a lot about tariff. But no tariffs were enforced.
It was "wax on, wax off"
SO ON POINT 1) (raise indirect taxes and inflation to cut direct taxes), NADA, ZERO, NUNCA.
11/n
So far Trump spoke a lot about tariff. But no tariffs were enforced.
It was "wax on, wax off"
SO ON POINT 1) (raise indirect taxes and inflation to cut direct taxes), NADA, ZERO, NUNCA.
11/n
13
Hence any the tax cut will have to be done in deficitor thx to Doge
ON POINT 2) (re-shoring)
In order for tariffs to cause re-shoring, they have to be
a) permanent
b) high enough in order for tariffs not to be neutralised partially by the effects described above
12/n
ON POINT 2) (re-shoring)
In order for tariffs to cause re-shoring, they have to be
a) permanent
b) high enough in order for tariffs not to be neutralised partially by the effects described above
12/n
14
c) there has to be "capacity" in the tariffing country aka the USA.
Enough internal demand, supply of investment goods (you cannot import them, due to tariffs), labour force, credit.
In essence you need high demand, and slack of resources
A highly improbale scenario
13/n
Enough internal demand, supply of investment goods (you cannot import them, due to tariffs), labour force, credit.
In essence you need high demand, and slack of resources
A highly improbale scenario
13/n
15
GDP growth in the USA is circa 2.5%/3%, Inflation is 2.5%/3%.
The USA is in full employment at 62.5% participation rate
AND POINT 3) of the first tweet, Trump has restricted immigration
14/n
The USA is in full employment at 62.5% participation rate
AND POINT 3) of the first tweet, Trump has restricted immigration
14/n
16
So if i am a manufacturer i would have to go to the USA and pay labour force substantially higher than in any other country. Like 30US$ an hour vs 7$ in mexico
And maybe more, as there is no unemployment in the USA at the moment
15/n
And maybe more, as there is no unemployment in the USA at the moment
15/n
17
But wage growth would be inflationary, and would add up to tariffs caused inflation
ALL IN ALL
no tariffs have been enforced so far. And 10% to China is peanuts for them considering the "overcapacity of everything" China has
So Point 1) and 2) are not gonna be achieved
16/n
ALL IN ALL
no tariffs have been enforced so far. And 10% to China is peanuts for them considering the "overcapacity of everything" China has
So Point 1) and 2) are not gonna be achieved
16/n
18
BUT more important, point 1) and 2) are colliding
If you have re-shoring, you have no tariff income
So for now Trump has just caused a massive policy uncertainty, which will slow down investment and spending decisions
16/n
If you have re-shoring, you have no tariff income
So for now Trump has just caused a massive policy uncertainty, which will slow down investment and spending decisions
16/n
19
SO I DONT GET TRUMP
But probably, he doesnt get himself either
17/17
@ThManfredi @CrossWordsCW
cc
@AndreaRoventini @MarastiMattia @jeuasommenulle @degiorgiod
But probably, he doesnt get himself either
17/17
@ThManfredi @CrossWordsCW
cc
@AndreaRoventini @MarastiMattia @jeuasommenulle @degiorgiod
20
ADD ON
Usually tariffs are temporarily used in emerging economies which needs industrialisation (they have slack) to protect their newly born industries
That is why they worked in the USa during McKinley
In other cases like UK textile industry, or Smoot Hawley act in USA
18/17
Usually tariffs are temporarily used in emerging economies which needs industrialisation (they have slack) to protect their newly born industries
That is why they worked in the USa during McKinley
In other cases like UK textile industry, or Smoot Hawley act in USA
18/17
21
where Supply Value Chain were altready specialised and international, they caused bankruptcies of the industries in the tariffing country (UK), or the great depression in the USA
just saying....
19/17
@ChristosArgyrop
just saying....
19/17
@ChristosArgyrop
22
ADD ON #2: FINANCIALS
The other side of the coin of the trade deficit is that exporting countries receive dollars
And they recycle dollars in the USA tresury market
That is why the USA can finance itself at decent costs
20/17
The other side of the coin of the trade deficit is that exporting countries receive dollars
And they recycle dollars in the USA tresury market
That is why the USA can finance itself at decent costs
20/17
23
Therefore any itnterpretation of Trump actions as the begining of a de-dollarisation would imply
1) that the USa goes bust coz nobody would be buying Tbonds
or
2) that the USA becomes Japan, balcanising its bond market
21/17
1) that the USa goes bust coz nobody would be buying Tbonds
or
2) that the USA becomes Japan, balcanising its bond market
21/17
24
IMHO it is unlikely that the USA decides a drastic contraction of internal consumptions hence a lower trade deficit, and then gives up the dollar
(NB Trade deficit was there in the USA even in recessions thx to credit by banks)
Maybe that is the dream of bitcoiners
22/17
(NB Trade deficit was there in the USA even in recessions thx to credit by banks)
Maybe that is the dream of bitcoiners
22/17
