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Pettis thinks tariffs imposed by America are a finger in the dike at best and highly distortionary at worst. Pettis's basic thesis is that there is a global sav

Pettis thinks tariffs imposed by America are a finger in the dike at best and highly distortionary at worst. Pettis's basic thesis is that there is a global savings glut driven by wealth inequality (Rich people save and invest; poor people spend andconsume). The USD is the global reserve currency because America is the safest investment in the world; and America is the safest investment in the world because the USD is the global reserve currency. An excess of savings from China and Germany ends up flooding into America, whatever the latest news on negative interest rates. Capital flows are not determined by the search for highest return as in econ textbooks but by searching for security and often by attempting to build currency reserves. America's trade deficit is driven by capital inflows (mainly European and Chinese savings), unlike the typically assumed situation where capital flows respond to trade. Thus, tariffs=attacking the symptoms not the disease. The goal of a tariff is to force up domestic savings by raising import prices. Domestic savings in America are being crowded out by capital inflows, so the result would just be increased debt or unemployment.

scottlocklin 6y ago
This is a reasonably good argument (upvoted), but I don't agree with it. Tariffs are absolutely not to force up domestic savings; it is to prevent the looting of your industrial base. Saying otherwise is the sheerest ideological nonsense. If the US had 1000% tariffs on, say, greetings cards, it would do jack shit for savings: but all the greetings cards in the US would be made in the US. Rich and poor have nothing to do with why there is an excess of savings from China and Germany: the average Americano is richer than the average from either country. The trade deficits, of course, are the real reason. You have trade deficits in part because of low labor costs overseas, and you have lower labor costs overseas, in part, because both China and Germany engage in currency manipulations which keep the labor costs low. The correct response, again, is tariffs. I want the US to look more like Switzerland (in every way) and less like Argentina in 1900 (aka rich country on its way down the toilet from bad policy). Some people's opinions differ apparently! Great handle, BTW. One of my favorite planes.

scottlocklin 6y ago

This is a reasonably good argument (upvoted), but I don't agree with it. Tariffs are absolutely not to force up domestic savings; it is to prevent the looting of your industrial base. Saying otherwise is the sheerest ideological nonsense. If the US had 1000% tariffs on, say, greetings cards, it would do jack shit for savings: but all the greetings cards in the US would be made in the US. Rich and poor have nothing to do with why there is an excess of savings from China and Germany: the average Americano is richer than the average from either country. The trade deficits, of course, are the real reason. You have trade deficits in part because of low labor costs overseas, and you have lower labor costs overseas, in part, because both China and Germany engage in currency manipulations which keep the labor costs low. The correct response, again, is tariffs. I want the US to look more like Switzerland (in every way) and less like Argentina in 1900 (aka rich country on its way down the toilet from bad policy). Some people's opinions differ apparently! Great handle, BTW. One of my favorite planes.