I want to underline that this is a brilliant economist who thinks it’s a good idea to,have uneducated goons and thugs wander around d the federal government’s and terrorize civil servants. He also thinks that any program he disagrees with is an example of fraud and waste and rot. Now he’s part of an effort by the Hoover Institute to find a oh so sophistication rationale for a US focus on bullying its neighbors.
Love the idea of putting defense justified expenses on the Pentagon budget. That cuts through all the rhetoric and rent seeking.
I would add that this sanctions business cannot work out. The more you hurt your adversary with sanctions the more you hurt yourself. This is another Laffer curve!
“I would add that this sanctions business cannot work out. ”
Sorry, this is wrong. While I too agree with your point in your first sentence, you understand neither negotiations nor game theory when you make this claim.
Nor legit national security. By your logic, we should impose no sanctions on Iran, huh?
The resiliency argument is something I have heard a few times in the past few months, and it strikes me as kind of strange, in the same way that arguing that you need a cat to make sure you don't get hair on your couch is strange. We are talking about the US government, right? The same institution that brought us the 2008 crisis while claiming they were trying to reduce financial crises through resiliency. It isn't clear that they are at all able to make decisions that improve resilience, or that they even attempt to. Not least because a crisis is so valuable to a politician.
I have little quarrel with wanting chip production resilience beyond Taiwan, or extra stockpiles of rare earth elements. To me both are wholly legit.
I am with you when the argument gets extended to almost anything else.
Which is part of the brilliance of JHC's "put it on the defense budget" framing. Because even if that isn't gonna happen even in these two cases, one could at least imagine it.
What do you think of “National Power and the Structure of Foreign Trade” by Albert Hirschman as theoretical framework to analyze the administration’s policies?
"Are we sure we want to cut them off, rather than keep them dependent on trade? "
They are laughing at you. They see America's economic future is a pig farm for them. And we will pay through the nose for any technology or medicine that they are willing to let us have.
The whole idea that trade would make China into just another nation like France or Britain has gone splat.
There is a war on and we aren't even trying to fight.
It is difficult to explain how a 30% tariff on American cars by Germany is good for the American citizen when the tariff on German cars in America is 2.5%. The view of a tariff on American goods being ok, and we should not reciprocate seems also difficult to explain. So we should suffer the consequences of unfair trade policy as being good for the American consumer, jobs, manufacturing, medicines, and security. It seems a mistake to have a myopic, simplistic opinion on tariffs that is not inclusive of how tariffs fit the complexity of trade policy as it relates to both short term and long term economic policy . Trade needs to be negotiated.
It seems there should be clarity of understanding that countries will act in their own best interest; we should also. These interests will include other than economics and trade. This means absolutely that trade policy will always need to be negotiated. It does not seem possible to avoid "state-craft" as integral to such negotiations. It is not the "state-craft" that is bad, it is the irrationality, biases, power motive, and ideologies that can dominate politics and lead to those centrally managed and ultimately destructive policies.
The best filters on the irrational use of limited capital, our taxes included, as well as sound economic policy are accountability and transparency. The CHIPS Act, Obamacare, Inflation Reduction Act including price controls on certain pharmaceuticals are examples of all that is wrong when the American people are lied to.
It seems that at some point, unless we can rely on some modicum of integrity and competence by our elected leadership, we will continue to discuss all that is dysfunctional without resolution.
“It is difficult to explain how a 30% tariff on American cars by Germany is good for the American citizen when the tariff on German cars in America is 2.5%.”
Uh, sorry, this statement is not true.
Germany, like the rest of the EU, has a 10% tariff on American cars.
Which admittedly is 4x the American tariff on most European cars.
However, it is only 40% of the 25% “Chicken tax” tariff the U.S. has imposed on foreign made light trucks for 60 years now.
You are clearly going from 10% to the false 30% claim by counting the VAT as a tariff. But this is false, as the VAT applies to all cars, whether they are made in the U.S., Germany or elsewhere in the EU. It is simply collected at different stages of the process for cars built within the EU vs those built in the U.S.
Imports from Non-EU Countries: Automobiles imported into Germany from non-EU countries are subject to import VAT at the standard rate of 19% and any applicable customs duties (§ 1 Abs. 1 Nr. 4 UStG). The import VAT is payable to the customs authorities but can be reclaimed as input tax by businesses if the vehicle is used for taxable activities (§ 15 UStG).
Exports to Non-EU Countries: Sales of automobiles to customers outside the EU are zero-rated for VAT purposes (§ 4 Nr. 1a UStG). The seller must retain proof of export to support the zero-rating.
Because that same 19% VAT applies to all cars made in Germany as well.
The same VAT is paid somewhere along the production process, albeit likely at multiple parts along the way - where the Value is Added to the input components and sold to the next part of the production process for a higher price - rather than the entire sum paid when the car is sold to a consumer.
And for a car not made entirely in Germany from parts not made entirely in Germany, some of that VAT will go to other EU countries.
And your last paragraph just means that the Europeans don’t hobble their own export industry by applying the VAT (which is simply a more sophisticated form of a local sales tax) to exports.
By analogy, you don’t count the 9%+ Sales tax that CA imposes (but that, e.g. Oregon and New Hampshire do not) as a tariff, since the same tax is paid for both a domestically produced and an imported car.
And CA doesn’t charge that sales tax for a Tesla built in CA that is sold in Canada.
And that perhaps better explains the reality that the German consumer has to deal with the same 19% VAT for consuming (buying) a car whether that car comes from the U.S. or Germany or France.
If the 19 % VAT is added to American vehicles, this plus the 10 % tariff amounts to 29%. This 29% (tax+tariff) is paid by the car company and is revenue to Germany (government). Since only 2.5% is collected by the U.S. on German cars that have been exported, Germany benefits to the tune of of 29% while the US only benefits to the tune of 2.5%. This is clearly unfair and unequal trade. You are correct in what you state, but your conclusion is erroneous. @.5% tariff paid to the U.S. treasury is far less than 29% paid to the German treasury.
No, you simply have it wrong claiming a 2.5% to 29% comparison. There is no such valid comparison.
The correct comparison is 2.5% to 10% for tariffs.
The VAT (19%) is a “sales tax’ that is paid on BOTH domestic German cars and imported cars BY THE GERMAN CONSUMER to the German tax collector regardless of whether she buys foreign or domestic.
It is unreasonable to add in a local sales tax paid on all products to a differential tariff comparison.
Yes European consumers face higher consumption taxes on all products to fund their higher government spending. But the VAT is not in any way shape or form an unfair form of trade protectionism that benefits local industry over foreign.
No, you have it wrong. A VAT is tariff by a different name to the exporting country. The financial advantage or disadvantage accrues to the recipient of either. The German government gets 29%, the US government gets 2,5%. This is not complicated.
“The CHIPS Act, Obamacare, Inflation Reduction Act”
While I’m not a big fan of the CHIPS Act, it is not nearly as bad and IMO should not be put in the same league with Obamacare or the Orwellian-named Inflation Reduction Act.
Thanks for the pointer to the Garicano piece. I found it generally pretty good, even as I agree with most of your criticisms of it.
My issue is one that you touched on but didn’t really expand upon:
“A Europe that faces increasingly transactional American trade policy…”
Near the end of his piece he starts to obfuscate the difference between protections for legit national security interests and things like trade disputes. Specifically U.S - Europe, where in fact there are zero such national security concerns, just potential economic relative advantage concerns - which he implies/blurs as being “economic security”.
Which leads me to the quoted line: this objection is a thinly veiled one that is much more an objection to Trump’s *tactics* in seeking reduced protectionism from European trading partners, rather than trade policy per se.
Europeans prefer the deal as currently negotiated and as practically implemented and enforced today, because they (probably correctly) believe it benefits Europeans in the short and medium run, and benefits European politicians with their voters (their special interests get to keep their protections in place).
Trump wants reduced protectionism from Europe (and also for Europe to pay more for Europe’s defense). There are no more global trade talks.
So sure, Europeans prefer/preferred the America that meekly went along with the trade status quo.
That Trump and some of his supporters talk “mercantilist” some of the time notwithstanding [to be 100% clear, I denounce mercantilism] the reality re: U.S - European trade is that Europe has more barriers to trade than the U.S. does. One of the many things Trump wants to do is change that.
For legit free marketers, Trump should be applauded for that and Europe should be castigated for their position, rather than the reverse.
But I’ve yet to see notable free market defenders like Garicano make this point.
If and when they do, criticisms of the rest of Trump’s policies and exclamations can be legitimate.
Absent such commentary, those same criticisms, especially coming from Europeans or long-time Trump haters, ring hollow and self-serving.
Imports from Non-EU Countries: Automobiles imported into Germany from non-EU countries are subject to import VAT at the standard rate of 19% and any applicable customs duties (§ 1 Abs. 1 Nr. 4 UStG). The import VAT is payable to the customs authorities but can be reclaimed as input tax by businesses if the vehicle is used for taxable activities (§ 15 UStG).
Exports to Non-EU Countries: Sales of automobiles to customers outside the EU are zero-rated for VAT purposes (§ 4 Nr. 1a UStG). The seller must retain proof of export to support the zero-rating.
As Bessent says: America is hooked on government spending. Phonics too :) Musk’s DOGE, Bessent and the Six are laser focused on cutting, slowing or redistributing government spending and increasing tax policy propaganda. Lutnick is talking rejiggering GDP numbers, smoke and mirrors to reflect Admin. desired data. Proposals of tariffs revenue to offset lower tax receipts from extending income tax (cuts) policy post 2025. Big disagreements between econ “experts” on whether tariffs imposed will be net inflationary, neutral or disinflationary.
Assume the well telegraphed mantra holds in the Public Mind “ a one time increase in the price level is not inflation” and somehow against their better judgement, common sense, Ma & Pa Kettle believe it. But what about DOGE “cuts”, “savings” is not the inverse thus true :) A one-time decrease in the price level is not disinflationary ?
My guess is the net cuts will be redistributed to other MAGA favored spending ends, ways & means, and the net revenue from extending tax policy together with new and improved tariff revenue will result in perpetual deficits.
Interesting. But everyone is focussed largely on the current account/goods balance discussion here. When we look at the US external accounts, it's important to recognise that despite being deeply in debt to the rest of the world, the US runs an investment income surplus, largely a result of the mix of debt and equity in the NIIP. And a surplus on services. These two components are almost certainly 'on the table' when the EU or Asia looks at their US relationship. The ability of the EU to hurt American service industries is without question. Likewise, the US is a massive net debtor, with the net international liability some 80% of GDP, and gross liabilities much larger. Upsetting your creditors is never a good idea when you need their finance to make ends meet.
I want to underline that this is a brilliant economist who thinks it’s a good idea to,have uneducated goons and thugs wander around d the federal government’s and terrorize civil servants. He also thinks that any program he disagrees with is an example of fraud and waste and rot. Now he’s part of an effort by the Hoover Institute to find a oh so sophistication rationale for a US focus on bullying its neighbors.
How absurd.
Love the idea of putting defense justified expenses on the Pentagon budget. That cuts through all the rhetoric and rent seeking.
I would add that this sanctions business cannot work out. The more you hurt your adversary with sanctions the more you hurt yourself. This is another Laffer curve!
“I would add that this sanctions business cannot work out. ”
Sorry, this is wrong. While I too agree with your point in your first sentence, you understand neither negotiations nor game theory when you make this claim.
Nor legit national security. By your logic, we should impose no sanctions on Iran, huh?
A presentation point: I find it difficult to impossible to read the document titles in a light colour. Could you make them easier to read, please?
The resiliency argument is something I have heard a few times in the past few months, and it strikes me as kind of strange, in the same way that arguing that you need a cat to make sure you don't get hair on your couch is strange. We are talking about the US government, right? The same institution that brought us the 2008 crisis while claiming they were trying to reduce financial crises through resiliency. It isn't clear that they are at all able to make decisions that improve resilience, or that they even attempt to. Not least because a crisis is so valuable to a politician.
I have little quarrel with wanting chip production resilience beyond Taiwan, or extra stockpiles of rare earth elements. To me both are wholly legit.
I am with you when the argument gets extended to almost anything else.
Which is part of the brilliance of JHC's "put it on the defense budget" framing. Because even if that isn't gonna happen even in these two cases, one could at least imagine it.
Maybe this comes across as cranky; but I have no idea what this piece is trying to say. Should we annex Canada or not?
What do you think of “National Power and the Structure of Foreign Trade” by Albert Hirschman as theoretical framework to analyze the administration’s policies?
Could protected sectors offer more work to US citizens? Contrary to all the rosy public statistitcs, many of us cannot find work.
"Are we sure we want to cut them off, rather than keep them dependent on trade? "
They are laughing at you. They see America's economic future is a pig farm for them. And we will pay through the nose for any technology or medicine that they are willing to let us have.
The whole idea that trade would make China into just another nation like France or Britain has gone splat.
There is a war on and we aren't even trying to fight.
“Fine. Put it on the defense budget !” Succinct economy of words.
It is difficult to explain how a 30% tariff on American cars by Germany is good for the American citizen when the tariff on German cars in America is 2.5%. The view of a tariff on American goods being ok, and we should not reciprocate seems also difficult to explain. So we should suffer the consequences of unfair trade policy as being good for the American consumer, jobs, manufacturing, medicines, and security. It seems a mistake to have a myopic, simplistic opinion on tariffs that is not inclusive of how tariffs fit the complexity of trade policy as it relates to both short term and long term economic policy . Trade needs to be negotiated.
It seems there should be clarity of understanding that countries will act in their own best interest; we should also. These interests will include other than economics and trade. This means absolutely that trade policy will always need to be negotiated. It does not seem possible to avoid "state-craft" as integral to such negotiations. It is not the "state-craft" that is bad, it is the irrationality, biases, power motive, and ideologies that can dominate politics and lead to those centrally managed and ultimately destructive policies.
The best filters on the irrational use of limited capital, our taxes included, as well as sound economic policy are accountability and transparency. The CHIPS Act, Obamacare, Inflation Reduction Act including price controls on certain pharmaceuticals are examples of all that is wrong when the American people are lied to.
It seems that at some point, unless we can rely on some modicum of integrity and competence by our elected leadership, we will continue to discuss all that is dysfunctional without resolution.
“It is difficult to explain how a 30% tariff on American cars by Germany is good for the American citizen when the tariff on German cars in America is 2.5%.”
Uh, sorry, this statement is not true.
Germany, like the rest of the EU, has a 10% tariff on American cars.
Which admittedly is 4x the American tariff on most European cars.
However, it is only 40% of the 25% “Chicken tax” tariff the U.S. has imposed on foreign made light trucks for 60 years now.
You are clearly going from 10% to the false 30% claim by counting the VAT as a tariff. But this is false, as the VAT applies to all cars, whether they are made in the U.S., Germany or elsewhere in the EU. It is simply collected at different stages of the process for cars built within the EU vs those built in the U.S.
See here for a more complete explanation:
https://taxfoundation.org/blog/trump-reciprocal-tariffs-eu-vat-discriminatory/
Allan Dobzyniak
just now
Am I misunderstanding what follows?
Imports and Exports
Imports from Non-EU Countries: Automobiles imported into Germany from non-EU countries are subject to import VAT at the standard rate of 19% and any applicable customs duties (§ 1 Abs. 1 Nr. 4 UStG). The import VAT is payable to the customs authorities but can be reclaimed as input tax by businesses if the vehicle is used for taxable activities (§ 15 UStG).
Exports to Non-EU Countries: Sales of automobiles to customers outside the EU are zero-rated for VAT purposes (§ 4 Nr. 1a UStG). The seller must retain proof of export to support the zero-rating.
Yes, you are misunderstanding this.
Because that same 19% VAT applies to all cars made in Germany as well.
The same VAT is paid somewhere along the production process, albeit likely at multiple parts along the way - where the Value is Added to the input components and sold to the next part of the production process for a higher price - rather than the entire sum paid when the car is sold to a consumer.
And for a car not made entirely in Germany from parts not made entirely in Germany, some of that VAT will go to other EU countries.
And your last paragraph just means that the Europeans don’t hobble their own export industry by applying the VAT (which is simply a more sophisticated form of a local sales tax) to exports.
By analogy, you don’t count the 9%+ Sales tax that CA imposes (but that, e.g. Oregon and New Hampshire do not) as a tariff, since the same tax is paid for both a domestically produced and an imported car.
And CA doesn’t charge that sales tax for a Tesla built in CA that is sold in Canada.
And that perhaps better explains the reality that the German consumer has to deal with the same 19% VAT for consuming (buying) a car whether that car comes from the U.S. or Germany or France.
If the 19 % VAT is added to American vehicles, this plus the 10 % tariff amounts to 29%. This 29% (tax+tariff) is paid by the car company and is revenue to Germany (government). Since only 2.5% is collected by the U.S. on German cars that have been exported, Germany benefits to the tune of of 29% while the US only benefits to the tune of 2.5%. This is clearly unfair and unequal trade. You are correct in what you state, but your conclusion is erroneous. @.5% tariff paid to the U.S. treasury is far less than 29% paid to the German treasury.
No, you simply have it wrong claiming a 2.5% to 29% comparison. There is no such valid comparison.
The correct comparison is 2.5% to 10% for tariffs.
The VAT (19%) is a “sales tax’ that is paid on BOTH domestic German cars and imported cars BY THE GERMAN CONSUMER to the German tax collector regardless of whether she buys foreign or domestic.
It is unreasonable to add in a local sales tax paid on all products to a differential tariff comparison.
Yes European consumers face higher consumption taxes on all products to fund their higher government spending. But the VAT is not in any way shape or form an unfair form of trade protectionism that benefits local industry over foreign.
No, you have it wrong. A VAT is tariff by a different name to the exporting country. The financial advantage or disadvantage accrues to the recipient of either. The German government gets 29%, the US government gets 2,5%. This is not complicated.
“The CHIPS Act, Obamacare, Inflation Reduction Act”
While I’m not a big fan of the CHIPS Act, it is not nearly as bad and IMO should not be put in the same league with Obamacare or the Orwellian-named Inflation Reduction Act.
Thanks for the pointer to the Garicano piece. I found it generally pretty good, even as I agree with most of your criticisms of it.
My issue is one that you touched on but didn’t really expand upon:
“A Europe that faces increasingly transactional American trade policy…”
Near the end of his piece he starts to obfuscate the difference between protections for legit national security interests and things like trade disputes. Specifically U.S - Europe, where in fact there are zero such national security concerns, just potential economic relative advantage concerns - which he implies/blurs as being “economic security”.
Which leads me to the quoted line: this objection is a thinly veiled one that is much more an objection to Trump’s *tactics* in seeking reduced protectionism from European trading partners, rather than trade policy per se.
Europeans prefer the deal as currently negotiated and as practically implemented and enforced today, because they (probably correctly) believe it benefits Europeans in the short and medium run, and benefits European politicians with their voters (their special interests get to keep their protections in place).
Trump wants reduced protectionism from Europe (and also for Europe to pay more for Europe’s defense). There are no more global trade talks.
So sure, Europeans prefer/preferred the America that meekly went along with the trade status quo.
That Trump and some of his supporters talk “mercantilist” some of the time notwithstanding [to be 100% clear, I denounce mercantilism] the reality re: U.S - European trade is that Europe has more barriers to trade than the U.S. does. One of the many things Trump wants to do is change that.
For legit free marketers, Trump should be applauded for that and Europe should be castigated for their position, rather than the reverse.
But I’ve yet to see notable free market defenders like Garicano make this point.
If and when they do, criticisms of the rest of Trump’s policies and exclamations can be legitimate.
Absent such commentary, those same criticisms, especially coming from Europeans or long-time Trump haters, ring hollow and self-serving.
Check it out, another Trump acolyte who didn't understand what he hitched his horse to.
Am I misunderstanding what follows?
Imports and Exports
Imports from Non-EU Countries: Automobiles imported into Germany from non-EU countries are subject to import VAT at the standard rate of 19% and any applicable customs duties (§ 1 Abs. 1 Nr. 4 UStG). The import VAT is payable to the customs authorities but can be reclaimed as input tax by businesses if the vehicle is used for taxable activities (§ 15 UStG).
Exports to Non-EU Countries: Sales of automobiles to customers outside the EU are zero-rated for VAT purposes (§ 4 Nr. 1a UStG). The seller must retain proof of export to support the zero-rating.
As Bessent says: America is hooked on government spending. Phonics too :) Musk’s DOGE, Bessent and the Six are laser focused on cutting, slowing or redistributing government spending and increasing tax policy propaganda. Lutnick is talking rejiggering GDP numbers, smoke and mirrors to reflect Admin. desired data. Proposals of tariffs revenue to offset lower tax receipts from extending income tax (cuts) policy post 2025. Big disagreements between econ “experts” on whether tariffs imposed will be net inflationary, neutral or disinflationary.
Assume the well telegraphed mantra holds in the Public Mind “ a one time increase in the price level is not inflation” and somehow against their better judgement, common sense, Ma & Pa Kettle believe it. But what about DOGE “cuts”, “savings” is not the inverse thus true :) A one-time decrease in the price level is not disinflationary ?
My guess is the net cuts will be redistributed to other MAGA favored spending ends, ways & means, and the net revenue from extending tax policy together with new and improved tariff revenue will result in perpetual deficits.
https://www.wsj.com/politics/policy/trump-tax-bill-cuts-senate-roadblocks-c6a150fd
https://www.wsj.com/politics/policy/gop-unveils-funding-plan-backed-by-trump-setting-up-clash-with-democrats-a076ebd0
https://open.substack.com/pub/davidstockman/p/how-a-600-billion-mother-of-all-rescissions?r=1z5qli&utm_medium=ios
Interesting. But everyone is focussed largely on the current account/goods balance discussion here. When we look at the US external accounts, it's important to recognise that despite being deeply in debt to the rest of the world, the US runs an investment income surplus, largely a result of the mix of debt and equity in the NIIP. And a surplus on services. These two components are almost certainly 'on the table' when the EU or Asia looks at their US relationship. The ability of the EU to hurt American service industries is without question. Likewise, the US is a massive net debtor, with the net international liability some 80% of GDP, and gross liabilities much larger. Upsetting your creditors is never a good idea when you need their finance to make ends meet.