MAGA Economics

[IvanV]

It turns out that there are a few thoughtful people behind what MAGA is doing, with a particular idea a lot more interesting than raising money from tariffs to pay for tax cuts for the rich. And they have written stuff down we can look at, and so see what there idea is. This seems to have been substantially overlooked. I'll start by setting out their ideas, and then we can try to decide if they are mad. I am not an international or trade economist by any stretch, so this is difficult stuff for me.

These people, who have plausible backgrounds, include:
- Scott Bessent, the new Treasury Secretary, and
- Stephen Miran, an economic advisor to the administration

The more detailed study is from Miran, who published this extended paper on Restructuring the global trade system just after the election. Bessent published an invitational paper in the Economist on restructuring the international economic system, just before the election. It's a much shorter piece, but a bit stuffed with economists' jargon.

As you will gather, neither of them like the current international economic system for trade or otherwise, what we can call the "globalisation" structure, but known by specialists as the Plaza Accord of 1985. This system of floating exchange rates, a liberal trading system and relatively free movement of capital, with the dollar as the de facto reserve currency, was ushered in by Reagan/Thatcher on the ruins of the former Bretton Woods system. BW had fixed exchange rates, explicit dollarisation, a gold standard, and a bunch of specific trade deals.

What globalisation has done to America is make it rich, you could say. The US benefits from a strong dollar, which comes from its de facto status as the reserve currency. This means the US can have a large trade deficit without a financial crisis, and its residents can buy imports cheaply. But the strong dollar makes manufacturing relatively expensive in the US, and it has driven down the size of manufacturing in the US to only 10% of value-added in the economy, half of what it is in Germany and Japan. And - Bessent argues - it has driven a growth in inequality in the US by creating a rust belt of closed industry, and the sufferers of that are substantially MAGA voters. This also presents a geopolitical risk to the US, in that a strong manufacturing sector is needed to repurpose the economy to war in the case of major conflict. These are the reasons MAGA wants to bring back manufacturing in the US, at least by these people's ideas.

Many would say you can only recreate the US manufacturing sector by having a much cheaper dollar, which is inconsistent with its status as reserve currency. And they certainly don't want to lose the benefits of that. But these people argue that there is a way, if you can armtwist a large part of the world into having more fixed exchange rates, a bit like the old Bretton Woods but without the gold standard, and more specific trade deals. The way it would be set up would in effect make US "allies" pay for the security benefits the US gives them. Not everyone will agree to that or be persuadable, regardless of the US holding them to the fire. We would go back to a more 70s/80s polarised world of spheres of influence, where the US had its sphere of influence of those who joined, and China etc had their own spheres of influence.

So by this reading, today's tariff chaos is not an end in itself, but rather to hold other countries to the fire to get them to agree to a new international trading and financial system more amenable to America and MAGA. Though those who stay outside the US zone would remain heavily tariffed.

An initial summary of these ideas, which led me to look for the sources, were set out in an overlong youtube video by Flemish economist Joeri Schafoort.

The idea that globalisation as an architecture for the world economic system is now broken is now much said by many people, but I've not seen any convincing ideas as to how it should be adjusted to the new world. Can this idea even work? What sensible alternatives are there, when we see other poles of the world clearly fighting for international hegemony and not caring who they tread on? Clearly getting to a new international economic order will hurt. The reform of money and banking in the mid 19th century hurt but was necessary for the ruination that the older system left. The 2WW hurt and gave the requirement for Bretton Woods. Globalisation came out of the ruin of BW and the 1970s economic dislocations, which really hurt. Stuff is really hurting today, and Trump tariff chaos will add to that. But if it produces a new more reliable economic system that will be good. Even if it is one, as designed, to make the US No 1 in its bloc, and everyone else within that bloc its vassals. Britain has behaved as the US's vassal for a long time.

But is this new architecture they sketch mad and won't work? I don't know.

[lpm]

There's no point in kicking out cheap Vietnam clothes and household products, if your goal is a manufacturing sector that can be repurposed for military needs.

A WW2 scenario involves the populations simply ceasing to buy routine stuff. Nobody in Britain was repainting their homes or buying clothes or upgrading their consumer lifestyle and by 1950 homes were looking unkempt and neglected. Having a factory that churns out plastic toys is worthless. What mattered was industrial capacity for serious stuff.

Which in 2025 means drones and vehicles and artillery shells. The USA already dominates the aerospace sector, has ample car manufacturing and is a major arms exporter. And has (had) very close allies in Canada and Europe who would also produce on its behalf. The "geopolitical risk" theory makes no sense - if you want to boost the key sectors then do so directly with highly targeted tariffs or subsidies.

Which leaves the mad idea of bringing back routine industrial jobs from China, Vietnam, Bangladesh, Korea etc. The value-add of a factory churning out televisions or trainers is pretty low. None of this would be well-paying secure jobs. Being an expert in AI and robotic factories is where the careers are - which means highly educated urban elites, not small-town rust-belt blue-collar types.

There's a lot of MAGA romanticising of blue-collar hardworking jobs, of bread-winning men heading off to the factory to haul around vats of molten steel or making physical products. There's no romanticising of the real value-add jobs of a 21st C economy, of product design or insurance innovation or fine-tuning restaurant supply chains. I think the average MAGA likes the idea of industrial jobs - but for other people, never for themselves.

[IvanV]

There's no point in kicking out cheap Vietnam clothes and household products, if your goal is a manufacturing sector that can be repurposed for military needs.

A WW2 scenario involves the populations simply ceasing to buy routine stuff. Nobody in Britain was repainting their homes or buying clothes or upgrading their consumer lifestyle and by 1950 homes were looking unkempt and neglected. Having a factory that churns out plastic toys is worthless. What mattered was industrial capacity for serious stuff.

Which in 2025 means drones and vehicles and artillery shells. The USA already dominates the aerospace sector, has ample car manufacturing and is a major arms exporter. And has (had) very close allies in Canada and Europe who would also produce on its behalf. The "geopolitical risk" theory makes no sense - if you want to boost the key sectors then do so directly with highly targeted tariffs or subsidies.

Which leaves the mad idea of bringing back routine industrial jobs from China, Vietnam, Bangladesh, Korea etc. The value-add of a factory churning out televisions or trainers is pretty low. None of this would be well-paying secure jobs. Being an expert in AI and robotic factories is where the careers are - which means highly educated urban elites, not small-town rust-belt blue-collar types.

There's a lot of MAGA romanticising of blue-collar hardworking jobs, of bread-winning men heading off to the factory to haul around vats of molten steel or making physical products. There's no romanticising of the real value-add jobs of a 21st C economy, of product design or insurance innovation or fine-tuning restaurant supply chains. I think the average MAGA likes the idea of industrial jobs - but for other people, never for themselves.

Very reasonable points.

I was thinking specifically about the first point you make, and not really knowing what to make of it. The particular point that seems to worry MAGA, that you see mentioned quite often, is that just one shipbuilder in China built a larger tonnage of shipping in just one year, 2024, than the whole US has built since the 2WW. So that's an issue of if you need to into shipbuilding for military purposes. But clearly the US builds its own navy, and it is a big navy. There's big shipbuilding also in Korea, Japan and Poland.

Biden tried to kick-start US manufacturing with subsidies, and some targeted tariffs, just as you suggest would be the better method. But the modern US factory is highly mechanised with relatively few workers. So even if there has been some expansion of manufacturing in reaction, in some sense, it continues to look smaller and smaller in economic statistics, at least as value-add, because it employs so few people and most value-add is in wages. Perhaps value-add isn't the best way to look at it, it is just the one they choose to make their points conveniently.

[dyqik]

Quite a few people have pointed out that MAGA types are openly calling for teachers, researchers, engineers, health workers etc. to be fired from their jobs and forced to work in factories, where their labor does not result in much productivity.

The correct analogy for this policy is somewhere between Mao's cultural revolution and the Khmer Rouge's economic policies, with similar outcomes to be expected.

[monkey]

...
An initial summary of these ideas, which led me to look for the sources, were set out in an overlong youtube video by Flemish economist Joeri Schafoort.
...

There was another similar bit in the Guardian this morning too, if people prefer reading short things to watching long videos - clicky

[bjn]

There are some critical industries that the US, and most of the rest of the "West" don't have. One is top end microprocessors fabrication, the Taiwanese own that, using European equipment. Another is the supply of rare earths (mainly processing them), a third is batteries, and a fourth is solar panel production. The Chinese own those.

Even if those jobs, and more manufacturing in general, were to be re-established in the USA, along with all the supply chains and a suitably trained population to do the work, there wouldn't be that many jobs anyway, most manufacturing is highly automated now, even in China. The one thing that is bl..dy hard to automate is making clothes. Making sweatshops great again doesn't quite have the same ring.

[noggins]

Nah. Trump is Putin's stooge, or an idiot, or both.

[FlammableFlower]

Weirdly, we could (at least according to that equation the Trump administration waved about) raise tariffs to a degree and still be in the same place. If we raised our tariffs so the US had a 20% trade deficit in goods with us, we'd still have a 10% tariff.

[Martin Y]

... So by this reading, today's tariff chaos is not an end in itself, but rather to hold other countries to the fire to get them to agree to a new international trading and financial system more amenable to America and MAGA. Though those who stay outside the US zone would remain heavily tariffed.

I'm sure Trump's tariffs were never intended to be other than a temporary bit of extortion to force other countries to sign up for some other slightly less harmful scheme, but I had no idea what that deal would look like. Trump obviously won't have any insight into what that will be as he's only interested in the bit where other world leaders kiss his ass and beg him for favours, and he dreams of expensive imports bringing coal-powered factories back to America.

[Martin Y]

Weirdly, we could (at least according to that equation the Trump administration waved about) raise tariffs to a degree and still be in the same place. If we raised our tariffs so the US had a 20% trade deficit in goods with us, we'd still have a 10% tariff.

It's a fascinating perverse incentive, though of course it would just raise import prices for UK buyers and give the extra money to the treasury. But <shrug> 10% is the minimum punishment available and the least we deserve for all these years we other nations have been cheating by allowing Americans to buy stuff from us. Never forget America is the victim here.

[jimbob]

Utterly deranged opinion piece in the FT



Donald Trump’s tariffs will fix a broken system - https://on.ft.com/4louIRh via @FT

The writer is President Trump’s senior counsellor for trade and manufacturing

The international trade system is broken — and Donald Trump’s reciprocal tariff doctrine will fix it. This long-overdue restructuring will make both the US and global economies more resilient and prosperous by restoring fairness and balance to a system rigged against America.

For decades, under the biased rules of the World Trade Organization, the US has faced systematically higher tariffs from its major trading partners and far more punitive non-tariff barriers. The result is a national emergency that threatens both our economic prosperity and national security.

[Martin Y]

So much gaslight. Almost daily Trump tells us he will never alter his tariffs, and then changes them.

Thanks to Ivan for that insightful OP. I'm quite convinced tariffs are not the plan. We haven't yet seen what the plan is. Tariffs are only the leverage with which the rest of us will be intimidated into accepting the plan.

[Gfamily]

Must be some kind of grift

Screenshot_2025-04-10-14-27-39-52_40deb401b9ffe8e1df2f1cc5ba480b12.jpg (205.86 KiB) Viewed 722 times

[bjn]

So much insider trading would have happened, a big spike of trades were placed in various markets a few minutes before the announcement of the 90 day tariff pause.

[IvanV]

So much insider trading would have happened, a big spike of trades were placed in various markets a few minutes before the announcement of the 90 day tariff pause.

In particular, that delightful person Marjorie Taylor Greene has been observed making trades at convenient moments.

I suspect that the DoJ might not be in the mood for prosecuting Trumpites for insider trading just now, knowing that Trump has given pardons to insider traders such as Michael Milken and Chris Collins.

[monkey]

Insider trading on political decisions is a tradition, or an old charter, or something. It's not normally done so obviously as The President posting "Now is a great time to buy" a little bit before the announcement is made though. I imagine there were a lot of stock sales just before the tariffs were announced too.

But I think it's still a side effect (as it normally is), rather than the purpose. Trump caved due to losing domestic support and the international community pondering whether they actually need the USA to get stuff done instead of kissing Trump's arse. Plus the cost of borrowing going up. The plan to stymie China is still on. China has a massive tariff and the rest of the world is at 10%. It's the same position, just not quite as "f.ck you, do as I say" as before.

What it definitely isn't is the amazing 4D chess wheeling dealing magic that Trump's loudest fans and grifters are trying to tell you it is. They blinked because they are not as powerful domestically or internationally as they think they are.

[Gfamily]

Must be some kind of griftScreenshot_2025-04-10-14-27-39-52_40deb401b9ffe8e1df2f1cc5ba480b12.jpg

The surge was predicated on the Chinese tariffs benefitting Tesla. Not sure it's been sustained

Screenshot_2025-04-10-19-07-04-82_40deb401b9ffe8e1df2f1cc5ba480b12.jpg (169.99 KiB) Viewed 646 times

[dyqik]

So much gaslight. Almost daily Trump tells us he will never alter his tariffs, and then changes them.

Thanks to Ivan for that insightful OP. I'm quite convinced tariffs are not the plan. We haven't yet seen what the plan is. Tariffs are only the leverage with which the rest of us will be intimidated into accepting the plan.

Trump doesn't have a plan beyond "tariffs will make America great again". There's really nothing there.

[dyqik]

You also need to start factoring in the collapse of international air travel to the US on economics.

Right now I'm on an Air France flight to Boston that's about 5-10% occupied in economy.

[bjn]

So much gaslight. Almost daily Trump tells us he will never alter his tariffs, and then changes them.

Thanks to Ivan for that insightful OP. I'm quite convinced tariffs are not the plan. We haven't yet seen what the plan is. Tariffs are only the leverage with which the rest of us will be intimidated into accepting the plan.

Trump doesn't have a plan beyond "tariffs will make America great again". There's really nothing there.

The grift! You forgot the grift!

[monkey]

So much gaslight. Almost daily Trump tells us he will never alter his tariffs, and then changes them.

Thanks to Ivan for that insightful OP. I'm quite convinced tariffs are not the plan. We haven't yet seen what the plan is. Tariffs are only the leverage with which the rest of us will be intimidated into accepting the plan.

Trump doesn't have a plan beyond "tariffs will make America great again". There's really nothing there.

Trump doesn't, but the people advising him do and they've not been particularly secret about it either.

[Martin Y]

Trump doesn't, but the people advising him do and they've not been particularly secret about it either.

Yes, that's what I think is going on. Trump doesn't have a plan, but there is a plan, and they'll keep reminding him if he forgets what the next step is. By now he'll have forgotten exactly whose idea the plan was but he'll guess it was probably himself because it's really smart, like nobody ever saw before. Yes, he thinks it was his idea. The best plan. He gets to give all the orders and collect all the flattery and they've assured him he gets to do the next bit where all the world leaders kiss his ass and tell him how great and powerful he is and beg him for favours. That's the best part.

[Grumble]

You also need to start factoring in the collapse of international air travel to the US on economics.

Right now I'm on an Air France flight to Boston that's about 5-10% occupied in economy.

Can’t see those numbers going back up unless the USA walks back from fascism.