Pierre Lemieux again explains the economic error of leaping to the conclusion that imports reduce GDP from the fact that imports, in national-income accounting, are subtracted from gross domestic product.
In a new paper, Aaron B. Flaaen, Fariha Kamal, Eunhee Lee, and Kei-Mu Yi explore “An anatomy of U.S. establishments’ trade linkages in global value chains.” Here’s the abstract (emphasis added):
Global value chains (GVC) are a pervasive feature of modern production, but they are hard to measure. Using confidential microdata from the U.S. Census Bureau, we develop novel measures of the linkages between U.S. manufacturing establishments’ imports and exports. We document three new GVC patterns. First, for every dollar of exports, imported inputs represent 13 cents in 2002 and 20 cents by 2017, substantially higher than what aggregate data suggests. Second, we find strong complementarities between input and output markets reflected in “round-trip” trade linkages where an establishment sources inputs from and exports output to the same country. Third, we find a strong positive association between regional trade agreements and GVC trade flows. The aggregate data used to build global input-output tables requires proportionality assumptions that we find mute these relationships. Finally, with a simple model, we show that the round-trip results are consistent with a notion of firm and country-specific fixed costs that are at least partially common between sourcing (imports) and foreign sales (exports).
So now Trump will impose tariffs punitive taxes on Americans who choose to pay to watch non-American made films – on the grounds, of course, that foreign-made films poses a threat to America’s national security. And Scott Linicome reacts on X:
No Harry Potter. No James Bond. No Godzilla. No Squid Game. No Seven Samurai. No Life Is Beautiful. And on and on.
Protectionists actively look for ways to make our lives worse.
The Editorial Board of the Wall Street Journal writes “about those auto tariff exemptions.” Here’s the Board’s conclusion:
But the auto exemptions are only a reprieve as long as Mr. Trump deems. If the companies don’t follow his orders about where to build their cars, they could be slaughtered.
Norbert Michel and Jerome Famularo have data showing that “free markets did not fail the middle class.” Two slices:
Today’s populists peddle two narratives to support their agenda. The first one is that the middle class suffered broad income stagnation for the past 50 years. The second one is that policymakers’ blind devotion to free markets—especially through free trade—decimated the US manufacturing sector, “hollowing out” the middle class by causing the alleged income stagnation.
The problem is that both stories are wrong.
…..
Here’s just one more example of how wrong the populists’ income stagnation story is. Real median household income, for all American households, increased 73 percent from 1968 to 2024. That’s not stagnation. Interestingly, that figure is biased downward because of changing household characteristics, such as smaller families, an aging population, and more single folks.
America is stuck in a tight box. Foreigners, especially in China, are already cutting back on purchases of our Treasury bonds—owning only 23% of our bonds vs. 34% in 2014. A weak dollar and upward inflation could easily send 10-year Treasury rates higher. Maybe 5%? And fiscal deficits mean lots of bonds for the Treasury to issue—it announced $514 billion worth this quarter—and fewer buyers. Another Harvard-like liquidity issue? Even the Fed’s monetizing our debt could send the dollar down further. Not good.
We’re in an economic pickle, and it’s self-induced. Home sales were down 5.9% in March. Consumer sentiment is chasing 10-year lows. Capital spending plans are way down. Cargo shipments from China to the U.S. are down by about a third. Truckers don’t get hired to haul empty containers. Retailers may lay off workers as store shelves empty. Apollo Global Management predicts all this by late May and a summer recession. Then look out below for corporate earnings. Increased private credit loan defaults could drive stagflation, the worst of all worlds.
Trump continues to inspire people world-wide to vote for economically uninformed ‘progressives.’
