Tariffs, vendor financing and beggar thy neighbor trade policy

The title of this post is pretty wonkish. But let me break it down for those of you not versed in trade policy discussions over the past decade. And a lot of what I want to say will focus on capital flows instead of trade flows.

Now, Donald Trump is threatening to impose tariffs on China and other nations to prevent middle-class Americans from losing jobs. He believes China is an unfair trader. And he believes that the threat of tariffs will open China up to US products, bringing back American jobs. Fair enough.

However, the reality is that tariffs won't get the job done. The imbalances between China and the US are driven by policies in China that suppress domestic consumption. This boosts Chinese saving and creates a flood of money looking for a home to invest. The problem, then, is in ...


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