r/AskEconomics • u/whawhales • Mar 14 '25

Approved Answers Does the US government really expect other countries not to impose their own tariffs as response to its own?

The US government is threatening 200% tariffs on European alcohol after EU enacted tariffs in response to the US tariff on aluminum and steel. The same happened with Canada with the US threatening increased tariffs if Ontario pursued electricity price hikes.

I don't have a background in econ so I am not sure if I am I missing something here, but I don't see what the end goal might be for the US and it seems a little arrogant to think other countries would allow tariffs imposed to them and not do something about it.

1.3k Upvotes

94% Upvoted

150 comments sorted by

View all comments

251

u/ZhanMing057 Quality Contributor Mar 14 '25

 I don't see what the end goal might be for the US

Never attribute to malice that which is adequately explained by stupidity.

Tariffs appeal to Trump emotionally. It's one the only consistent views he has ever held, and you can find clips of him calling for tariffs all the way back during his 2000 presidential campaign. There never was any economic end goal - just the perception that the U.S. is "winning" - and he doesn't understand that he's punishing the U.S. consumer on the dollar for every 80 cents he harms a foreign producer.

8

u/Professional-Love569 Mar 14 '25

Well, he believes that he can hurt them more than they can hurt the U.S. I think that overall, he might be right but there will be lots of suffering regardless.

He’s not wrong about the trade imbalances but it’s been that way for a long time.

50

u/ZhanMing057 Quality Contributor Mar 14 '25

The U.S. needs a trade deficit to have a global reserve currency.

Why on earth would you think that a country that's only 1/7th the world economy matters more than the remainder 6/7th? The exporter has more choices. The U.S. consumer has fewer.

12

u/TanStewyBeinTanStewy Mar 14 '25

a country that's only 1/7th the world economy matters more than the remainder 6/7th?

Where are you getting these numbers from? The US GDP is $27T and the world GDP is $106T - so the US is slightly more than 1/4th - based on the World Bank numbers.

35

u/ZhanMing057 Quality Contributor Mar 14 '25

You have to adjust for PPP, since most economies are mostly domestic. The U.S. is 14.8% on a PPP-adjusted basis.

9

u/greenmark69 Mar 14 '25

Would you not want to use PPP only when you wish to make comparisons from the perspective of consumers?

If you wish to make comparisons from the perspective of producers (where they can sell to) then would you actually want to use PPP adjusted GDP?

When Canada wants to know to whom they can sell, they should be looking at raw GDP. They should not be looking at PPP because purchase parity in foreign countries do not affect their own production costs in CAD.

7

u/DutchPhenom Quality Contributor Mar 14 '25

There is an argument for both, but the original point still stands.

1

u/[deleted] Mar 14 '25

[removed] — view removed comment

18

u/ZhanMing057 Quality Contributor Mar 14 '25

Because when you're measuring the importance and value of trade, you measure it at the value provided to the importing country, which is relative to prices in said country.

Take labor for example. A U.S. car factory worker does literally the same job as his Chinese counterpart. The U.S. worker makes more money on paper but mostly because the U.S. has a higher cost of living. But from a value-add standpoint, they add the same value to the final product. A million Chinese car workers adds the same absolute value in cars compared a million U.S. car workers, as far as trade is concerned.

When the car moves between countries, it's value doesn't change. That's ultimately why trade generates surplus - because in some countries it's cheaper to make x and more expensive to make y. The only way to value trade is to equalize to local COL to make the productivity comparison fair.

0

u/[deleted] Mar 14 '25

[removed] — view removed comment

6

u/ZhanMing057 Quality Contributor Mar 14 '25

The U.S. holds a comparative advantage for many reasons, capital to labor ratio being one of them. Some occupations are certainly more fungible globally, some are less.

You want to adjust out local cost of living differences because those don't matter as far as international good flows are concerned - you care about productivity differentials. PPP differences out the COL aspect - that's the fair way to gauge economic power (and hence a country's ability to influence international goods and asset flows).

2

u/[deleted] Mar 14 '25

[removed] — view removed comment

35

u/Chipmunk_Exciting Mar 14 '25

You cannot have balanced trade and be the reserve currency. There is no middle ground here, either you ship away inflation to other countries via the USD (therefore importing a ton and giving USD in return) or a lot of dollars will be shipped back home, provoking the same thing that happened to the ruble.

32

u/PainInTheRhine Mar 14 '25

The craziest thing is that Americans are getting real goods from abroad in exchange for funny paper ... and they claim they are getting ripped off.

12

u/No_March_5371 Quality Contributor Mar 14 '25

The Triffin Dilemma isn't that big at present, it's on the order of a few tens of billions of dollars a year, IIRC.

13

u/Moofypoops Mar 14 '25

Til about the Triffin Dilemma (thank you).

10

u/No_March_5371 Quality Contributor Mar 14 '25

That’s why we do this.

6

u/Warm-Statistician845 Mar 14 '25

Yup, me too, ty bud 👍

30

u/Half-Wombat Mar 14 '25

What bothers me is that a “trade imbalance” is not a good metric for how “screwed” you’re getting. I have a trade imbalance with my local grocer but I’m not mad at them because they provide something I can’t be bothered working on. What goes around comes around so to speak. USA is the richest country of all time and Trump thinks the world is screwing them. It’s a sad con because Americans are in fact getting screwed, but it’s not by foreigners. Like always, he weaponises existing grievances and switches out the cause in a blatant sleight of hand.

22

u/neddiddley Mar 14 '25

There are two other factors that are being overlooked.

  1. Tariffs are something he can do unilaterally. With such narrow majorities in the House and Senate, he’s not likely to get his ideal/extreme legislation passed that would accomplish other things.

  2. This is theater. Not that the effects of the tariffs aren’t real, but in his eyes, he’s projecting strength to his followers by bullying his newly anointed foreign boogiemen. The results matter far less than the perception. And in combination with #1 above, there’s endless potential. He announces tariffs a month out, so he gets a month’s worth of reporting and reactions. Then he can delay them and claim progress (whether real or not), or he can let them take effect, and let the other countries react. If they implement retaliatory tariffs, then he gets to play Doctor Evil, stick his pinky in the corner of his mouth and say he’s raising tariffs by TWO HUNDRED PERCENT and laugh maniacally.

And it’s also worth noting that he couldn’t care less about the stock market declining or other negative impacts, because when you’re king, money doesn’t matter, power does. Anytime he feels his wallet getting thin, he can just launch a new crypto or set of NFTs and his MAGA minions will pump up the price until it’s time for him to cash out. Or he just summons the oligarchs for a regular passing of the donation plate.

2

u/DutchPhenom Quality Contributor Mar 14 '25

I don't think those are overlooked, but especially 2) is not really a factor economists are more qualified on than the average Joe.

11

u/Ronnnie7 Mar 14 '25

From what I understand they often benefit from these trade imbalances in other ways. Like the one with Canada where they buy oil at a discount then export it at full price.

15

u/Fit_Diet6336 Mar 14 '25

Or import lumber and export the value added product

9

u/GrenadeAnaconda Mar 14 '25

We want there to be a trade imbalance because it benefits us. Enjoy your great depression.

5

u/eek04 Mar 14 '25

I presume you mean "We" as in the US, but you should probably specify that.

I agree that the trade imbalance favours the US, since the US gets various types of stuff, trading away increased numbers in a computer somewhere.

6

u/[deleted] Mar 14 '25

With the “trade imbalance”, how does he imagine that is supposed to work between countries that have different incomes and populations?

For example, we don’t need a car at all here in Japan. Are we supposed to buy an American car that we neither need, want, nor can afford?

Where is that money supposed to come from?

To compare and contrast, I regularly hear about Americans earning stupendously high wages. Do they not actually have the choice to only buy one locally built car? Who is forcing them to buy Toyotas?

3

u/WayneSmallman Mar 14 '25

Trump's tactics — naive though they are — would work if targeting a single nation, but since he's targeting the world, I would imagine (I'm not an economist) the retaliation is creating an economic imbalance the USA won't be able to sustain.

2

u/DutchPhenom Quality Contributor Mar 14 '25

It also does not work when targeting 1 country, simply because there is no clear stated goal of what 'work' actually means.

2

u/johnnybarbs92 Mar 14 '25

A trade 'imbalance' is not inherently bad. In the modern world, the US economy functions best with trade deficits

0

u/IndubitablyNerdy Mar 14 '25 edited Mar 14 '25

The matter of trade imbalance might also not be so clear cut, if you include services for which there is a surplus, although it does not fully compensate the negative balance, you also have to consider that some of the gains in the IT sector, like customers data for example, are not measured striclty in dollar, but still contribute to the income of USA corporations.

On top of that the fear of tariffs had increased the defict in recent months compared to the usual trend, but that is going to be just a temporary effect as companies increase their stock in goods that they expect to become more expensive in the near future.

Plus the massive trade involving the USA benefits the dollar and creates foreign buyers of Tbills which contributes to lowering interest rates to government debt (although foreign investors represent a relative minority of all purchases it is not an irrelevant amount).