Socalled experts continue to predict dire consequences of a trade war, tariffs in particular, but without objective evidence or credible theory. The models used by economists in support of globalization clearly predict the separation of wealth, loss of jobs and poverty but apparently underestimated the damage and the extreme concentration of wealth. Only history and objective evidence will tell the final outcome.
Discounting the apparent strategy to use tariffs as a chip in renegotiating deleterious trade agreements, there already exists a history of tariffs associated with thriving if not improving economies. We hold a clear numeric advantage in these negotiations. All the pain occurs on the supply side hurting big business and big banks while releasing a surprisingly large dose of added liquidity directly to consumers and small business. The even greater effect might arguably be attributed to the multiplying effect of that added liquidity as it turns over multiple times within the economy, potentially trillions with the present trade deficit -- a thing that cannot happen with the purchase of foreign goods or at least not to such an extent,
Below, an estimate of this year’s trade illustrates a decrease in both imports and exports resulting from a trade war. Even an unbalanced difference based on decreased price elasticity of demand at the higher prices, reduces the trade imbalance releasing in maybe over half a trillion added dollars into the consumer market and into the hands of those most hurt by the present structure of global trade. The added liquidity representing purchase dollars spent elsewhere due to the tariffs, then multiplies (GDP=velocity/multiple times the money supply) currently 5 or more times to give the GDP a multiple trillion-dollar boost.
Of course, it won’t work out exactly that way, it never does. There are many other things going on, but this one is neglected. Only history will tell, but the consumer’s alternative spending due to tariffs infuses, none the less, an enormous liquidity where it’s needed the most, in the consumer market.
The status quo helps only the oligarchs, investment banks and multinationals, perhaps also economists and pontificators who want to keep their jobs.
Trade Deficit in Goods-only with contributing consequences of 25% tariff both sides
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actual 2018
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estimate
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in billions
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(an uncertain guess)
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7 months
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12 months av
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Tariff
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Elasticity, PED
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Sales
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velocity/mult
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+ GDP
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imports
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1,466.90
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2,514.69
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25%
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0.4
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1,508.81
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added liquidity consumer market*
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8,419.92
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Exports
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976.75
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1,674.43
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25%
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0.5
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837.21
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lost reveue mult nat corporations*
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-4,672.07
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Deficit
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490.15
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840.26
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+ Liquidity =
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671.60
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5.5805
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3,747.85
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Elasticity = % change in demand / % change in price
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* a passive redistribution of wealth
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velocity/multiple = GDP / M1 = 20.412/3.657.7 = 5.5805
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