Josh Hendrickson (81:29)
Well, I think, too, there's a reason why there's a pushback against the government, right? There's a reason why this is a sort of populist thing, is that what you see is this system where you have to send dollars abroad leads to the dollar being overvalued for longer periods of time than maybe it would be otherwise. And the thing is, if the dollar becomes sufficiently overvalued, well, then it makes sense to, to move production someplace else because now things become a lot cheaper. And so when, if you're, if you're living in these towns and your factory leaves because it's now cheaper to produce the stuff in China or Vietnam or wherever they're going, that's a seen cost. Like, you observe that cost and you associate that with US Trade policies, right? And so, so you're looking at that and you're seeing that, but then on the other, and, and then what you're told though is, is that the, the messaging from politicians for a long time is, look, this is just comparative advantage. We just go to the, you know, like, production goes to where the cost is the lowest, and this is just comparative advantage. And we don't really have to compensate, like, you know, the losers from, from trade, Right? And I think this is, I think this is an important point because if you teach international trade, trade, what you teach is that, yes, international trade makes us all collectively better off, right? Just in the same way that just local trade makes us better off, right? Specialization and trade make us better off. The issue is, is that when you go from a world, when you have a policy change that changes the relative cost of trade, well, that's a deliberate action that you've taken, right? And so when people see that there's this deliberate action that's been Taken well, yeah, collectively, like that might make us all better off, but one of the things that we teach is that there's distributional effects, right? And so the distributional effects of trade mean that like, yes, collectively we're better off, but there are going to be people who win from this and there are going to be people who lose from this. And the policy response has always been, well, we don't need to do anything to compensate the losers. They're being compensated with like lower prices and things like that. That. And first of all, just from a pure politics perspective, like that just seems like it's inevitably a loser, right? Like if, if these, if these changes are very small in magnitude, yeah, that's probably not something that you're going to have to worry about. But if you, if you're seeing this on a much larger magnitude, well, people are going to start getting upset because you have these losers who see these costs right, from these policies and they're looking to the winners and saying, hey, you know, you're, you're way, you know, I have cheaper goods, but I also don't have this job anymore, right? And now I have a worse job. And so, yes, things are cheaper, but like you have the same job and things are also cheaper. And so like, why should you get that benefit? And just politically, I just think it's obvious that you're going to get this kind of conflict. I mean, in fact, this is how we segue from international trade theory to international trade policy when we're talking about this in classrooms. Is that you, you hinge on this distributional argument and you say, okay, well this is what creates some political conflict. And so like, let's talk about, about the policies and things like that. So I think that's also an important aspect of this. And then on top of that, like, I don't think that like the entire populist sentiment is driven by lots of different things because simultaneous to this, what you're also seeing is you're also seeing large scale immigration in the United States and large scale immigration that's coming with a lot of government benefits. And so when, and so when you look at this and you say, well, wait a minute, I can't be compensated from trade, but then you're, you're going to compensate like these people who come here. It's inherently going to create political conflict whether, you know, whether you think that we don't need to worry about, you know, the trade or whether you think we don't need to worry about immigration or not, like to, to Deny that this is going to create political conflict is just to not recognize reality. Right. When you see groups who see them, who, who see these policies and say, hey, I'm suffering from this and you're not doing anything to help me, and then you see other people who are being helped built, it's natural to say, hey, wait a minute, what about me? And so I think that the, that's something that sort of gets lost in all this as it relates to the tariffs. Yeah, I mean, I think, like, we're, we're, the three of us are not necessarily going to give you the typical response because the, because like the instinctual thing for economists to do is say, like, free trade is good, we shouldn't infringe on, on free trade. Right. That since trade makes us better off, restricting trade must make us worse off. I think there are a couple aspects to this that, that are important is that a lot of the arguments as, as Thomas kind of alluded to, a lot of the arguments against tariffs are actually just arguments against taxation, right? So they just say, well, this distorts this. And so, you know, we don't want to do that. And it's like, well, any proportional tax distorts economic activity, right? Any tax, tax that, you know, anytime you're taxed for doing an activity, people are going to do less of that activity to avoid the tax. And so the idea that it's distortionary, that's, that's not the end of the story. That's the start of the story. Like, it's always the, the relevant question in economics is always compared to what. And so if you were going to have slightly higher tariffs and slightly lower income taxes, that actually might be a win for, for everybody. Right. The other thing too, is that, that getting back to the international monetary system, when we think about the tariffs, there is an important point that the Trump administration has made that I don't think gets enough attention, which is the fact that since the dollar is the global reserve currency, when the US Government imposes tariffs on the rest of the world, we typically think about, okay, what's the cost in terms of the tax incidents? Right. So how much does the price to the consumer go up and how much does the price to the foreign producer go up, go down. Right. And one aspect of this, though, is that what we really need to think about this is in real terms, not in nominal terms. And so one of the things that, that people like Steven Moran have pointed out is that if you look at the tariffs on China, for example, that the United States imposed during the first Trump administration. Yes. What happened is, is that the goods priced in terms of yuan went up, up right after these tariffs. But the thing is US Consumers pay for those things in terms of dollars. And what happened is that the dollar appreciated after these tariffs. And the reason is that when you levy these tariffs, the price goes up initially, people start importing less. That means fewer dollars are going abroad, which creates an excess demand for dollars. And so dollars become more valuable. And so if the price in terms of yuan is going up, but the, but you can buy more yuan with a given dollar than you could before, then at least part of that cost is being offset by, by that arrangement. And so that's also kind of a relevant question that we have to ask, is that if, if those, if those two forces are going to offset, then the typical costs of the tariffs that we talk about are not going to be, be as large as people predict.
