It’s worth asking the question — what do states do? Or, rather, what do the vast majority of developing country states actually do apart from buying military hardware and negotiating alliances at the United Nations? In large part they are like clientelist business corporations managing and facilitating a set of smaller corporations within defined territories while divvying up protections, subsidies and contracts for the country’s business elites. The CEOs and their extensive kin or provincial retinues get chucked out or rotated periodically, but the core corporation and its infrastructure prevails. It turns out that much of what these states actually do is micro-engineer tariffs to benefit their national corporations. Ministers and their bureaucracies spend a great deal of their time calculating the price of exports and imports relative to their subsidies and operational protections for their most favoured business elites.
[THOUGHT FOR THE DAY: Are India and China ‘country corporations’?]
That nasty thought came to me this morning over my EU-tariffed ‘Fair Trade’ organic coffee as I read Kimberley A. Strassel’s excellent column, which I reproduce below.
But first … in my coffee-stimulated state of mind (it is a sunny morning in Australia) I googled with a little embarrassment my 2018 Marginal Revolution soliloquy.
Michael G. Heller
2018-02-23 05:25:40
Me, I’m not surprised to read about this sudden enormous interest in getting access to the WSJ, whatever the topic may be. I’m a fairly wide-spread reader. Start every day by looking in at a diverse range of maybe 10 news and opinion outlets in Europe, UK, USA, Latin America, Australia, Asia (I could go on). Oh yes, and Marginal Revolution of course. Increasingly I just read the headlines. It’s not the news that is depressing, it’s the slant, the prejudice, the mass hysteria, and the treating of salt of the earth commonsense people as if they were morons. For years I taught lefty ’media studies’ students at universities who for some reason wanted to take my subjects as electives. Got to know them well under adverse conditions, so I do have a little bit of insight into the twisted culture they emerge from.
Now I shall offer y’all my genuine PhD-level Political Science Most Learned & Cosmopolitan Opinion ... free of charge. Here goes — Since Trump was elected WSJ is the ONLY major news outlet worldwide to consistently provide intelligent, alert, savvy, balanced reporting and opinion on Trump and the very many shenanigans that relate to Trump both directly and tangentially.
I will even go so far as to say the WSJ comes closer to scientific objectivity than any other major news outlet at the present time. That’s quite a claim, but it’s a solidly-founded opinion.
For the second time at MR, I will highly recommend the Potomac Watch podcast with Paul Gigot. I never miss an episode. Of course there are also a large number of other excellent columnists at WSJ, each of them with their own angle and style. One of them died unfortunately, Joe Rago, very young guy, very brave and smart. I think he was on the Editorial Board, talking intelligently about Trump when such talk was widely regarded as a clear sign of covert demagogy meriting some intelligence agency scrutiny. I wondered if WSJ would remain good after he died. It did.
I tell you the one who should get a medal for bravery and stamina. She might be heading for a Pulitzer. Kimberley Strassel. Really outstanding week after week. Digging up the dirt. Telling it as it is.
I wasn’t paid for this soliloquy.
[END OF MGH AND BACK TO BUSINESS]
Anatomy of a Trade Deal: What’s the likelihood of Team Trump landing 90 trade deals in 90 days? Consider the complexities of just one: India
By Kimberley A. Strassel, April 16, 2025 at 12:21
Newsletter: All Things with Kim Strassel
Anatomy of a Trade Deal
White House trade advisor Peter Navarro stated the administration’s trade goal to “run 90 deals in 90 days,” meaning within the pause Donald Trump granted for his reciprocal tariffs. Yet while Trump levied those tariffs on more than 180 countries and territories, a handful of closer trading partners are receiving higher negotiation priority. They include India, Japan, Taiwan, South Korea and Vietnam—all countries (besides Canada, Mexico, China and some European Union countries) that top the list of partners with which the U.S. runs a trade deficit.
Even a single trade deal can take years, so 90 deals in 90 days is an insanely aggressive goal. Because it isn’t as if these deals are just about settling on tariff numbers. The Trump team has repeatedly noted that it wants wholesale change in the more expansive universe of “trade barriers”—foreign laws, regulations and policies that impede competition. For an idea of the challenge of cementing even one of the deals (much less dozens) consider India, a useful example given that it boasts a wide array of the barriers Trump wants to upend:
The stats: According to the U.S. trade representative, India in 2024 exported more than twice the value of goods ($87.4 billion) to the U.S. that it imported from us, leading to a $45.7 billion trade deficit. Trump remains obsessively focused on these imbalances, including India’s, which grew to nearly twice the size it was at the end of Trump’s first term. And while India is the U.S.’s 10th-largest trading partner, the U.S. is India’s top export market—making it highly vulnerable to the Trump tariff regime and eager to talk.
Tariff rates: A recently released USTR report on global trade barriers (broken out by country), notes that India’s average applied tariff rate was 17%—“the highest of any major world economy”—and that its maximum rate on certain agricultural goods (the most allowed under World Trade Organization commitments) can hit 300%. A Reuters analysis of WTO data found that (prior to Trump’s new tariffs) the U.S. applied a trade- weighted average tariff rate on India of about 2.2%, whereas India imposed a weighted average on the U.S. of 12%. That’s a big gap to narrow all on its own. Now add the other “barriers.”
Food fight: India’s average tariff of 38% on agricultural goods grates on U.S. exporters, though for some products the number is significantly higher: apples and corn (50%); flowers (60%); coffee, raisin, walnuts (100%). The U.S. is also frustrated with India’s range of subsidies and supports for its agriculture sector, which include subsidies for inputs like fuel and fertilizer, crop insurance and debt waivers (though the U.S. does plenty of its own ag subsidizing). And then there’s India’s “Minimum Support Price” program for key products—including rice and wheat—which the USTR report labels the worst sort of distortions, as it “bolsters planting decisions, resulting in overproduction, limited demand for imports and artificial export competitiveness.” The Trump team wants sweeping changes to this domestic farm program.
Import restrictions: India bans a range of items from coming into the country (for instance oils of animal origin, or ethanol for fuel use). It requires import licenses for others goods—including livestock products, chemicals, pharmaceuticals, technology products, and refurbished goods—which U.S. exporters complain are difficult to obtain. And it maintains a list of goods that can be imported only by government-controlled monopolies. U.S. negotiators want to an end to much of this.
Customs and inspections: U.S. companies complain Indian custom officials “sometimes reject the declared transaction value of an import”—which further raises the cost of their exports— and engage in “extensive investigations” into U.S. companies’ process for valuing exports, says the USTR report. U.S. firms also claim to be subject to “extensive inspections and seizures of imports that do not appear to be risk-based.” The U.S. wants India to harmonize customs and document procedures at a central level, versus current regional and changing approaches.
Technical restrictions: India (like the U.S.!) wields health, environment and safety rules as a rationale for restricting some goods. In India’s case this means chemicals, alcohol, genetically engineered products, biotech, dairy and other animal products, to name a few. It uses cybersecurity arguments to subject telco equipment (routers, switches, firewalls) to costly testing at labs in India. The U.S. wants the country to embrace international accreditation and certification standards.
Service barriers: India significantly restricts foreign equity in, and foreign participation in, many professional services, including banking and insurance, as well payments, telecom, accounting and legal services. One example: While India in 2023 said it would for the first time allow foreign law firms to open offices to practice international law, it has yet to get going on registrations. The administration has a huge list of demands here, as well as complaints about digital trade barriers and copyright and patent law.
Simple, right? If anything, this abbreviated list of huge issues explain why deals often take years. Tariff rates are one thing, but dismantling trade barriers can require countries to tackle longstanding laws, regulations and processes.
Moreover, changes often cannot be promised by a government trade negotiator, as final decisions rest with parliaments or regional governments. Put it in the U.S. context: Trump negotiators would never be able to promise sweeping changes to the U.S. farm subsidy system, since Congress’s farm-state caucus (Republicans and Democrats alike) would refuse to go along.
Trump in this case isn’t likely to have to promise much of anything, even though some of its complaints are exaggerated and though India has its own legitimate gripes about U.S. trade barriers. The severity of the Trump tariff threat, and India’s reliance on the U.S. import market, is likely to make this a particularly one-sided deal. India’s barriers are voluminous enough that even a modest retreat may be enough to allow Trump to claim a big win and move on. Indeed, don’t be surprised if many of the big “deals” contain relatively minor adjustments to thorny trade barriers.
But that won’t be the scenario in negotiations (if there are any) between the U.S. and its own largest export markets—Canada, Mexico, the EU, China—which have the heft to make demands of their own. In short, best of luck to those negotiators. They are going to need it. And a whole lot of—preferably nontariffed—coffee.
[END]
Also at the WSJ, James Freeman reminds us of the ultimate Trumpian goal — Zero Tariffs. The tired old leftwing political ignorance and stupidity of Financial Times and The Economist commentariat styles lies, I suspect, in their tired old elitist claims that Trump is “ignorant” and “stupid” about the tradecraft of economics. Wait and see. If states really do function like corporations on behalf of elites it may take a bulldozer to flatten worldwide barriers to trade. Adam Smith & Joseph Schumpeter understood that business-as-usual can be business lost.
Vintage Trump: Reciprocal agreements for zero tariffs will enable his promised golden age for Americans.
By James Freeman, April 15, 2025 at 4:45 pm ET
Like nearly everyone else, this column is hoping for quick resolution on trade agreements that bring tariffs down all across the globe. The world seems ready to deal. Now let’s see some art. …
What will be the provisions of such deals? Let’s hope the United States advocates the position that Mr. Trump brilliantly advanced at the 2018 Group of Seven summit in Charlevoix, Quebec. Here’s an excerpt from his closing press conference:
Q Mr. President, you said that this was a positive meeting, but from the outside, it seemed quite contentious. Did you get any indication from your interlocutors that they were going to make any concessions to you? And I believe that you raised the idea of a tariff-free G7. Is that —
TRUMP: I did. Oh, I did. That’s the way it should be. No tariffs, no barriers. That’s the way it should be.
Q How did it go down?
TRUMP: And no subsidies. I even said no tariffs… We don’t want to pay anything. Why should we pay?
We have to — ultimately, that’s what you want. You want a tariff-free [sic], you want no barriers, and you want no subsidies, because you have some cases where countries are subsidizing industries, and that’s not fair. So you go tariff-free, you go barrier-free, you go subsidy-free. That’s the way you learned at the Wharton School of Finance. I mean, that would be the ultimate thing. Now, whether or not that works — but I did suggest it, and people were — I guess, they got to go back to the drawing and check it out, right?
Sadly for the world the other heads of state did not jump at the chance to enable free trade. But the president was surely speaking for all the world’s consumers in asking why we should pay. Mr. Trump continued:
It’s got to change. It’s going to change. I mean, it’s not a question of “I hope it changes.” It’s going to change, a hundred percent. And tariffs are going to come way down, because people cannot continue to do that.
He was right in 2018, and the markets are surely telling him that rising tariffs are intolerable today.
What a missed opportunity it would be for the president in 2025 to negotiate merely for tariffs that are lower than his threatened levels but higher than they were at his January inauguration. Combined with his 2017 corporate income tax reform that made the U.S. competitive again, zero-rate taxes on trade will help to ignite an economic boom, especially given Mr. Trump’s burgeoning assault on costly red tape. …
[END]
Finally, snippets from the WSJ’s podcast interview with Douglas Irwin. Does any democratic presidency last long enough for the slow process of “strategic decoupling”? I don’t think so. Realpolitik Disruption may be superior when dealing with corporate dictatorships. This is a short disequilibrium moment with a democratic mandate for ceiling-to-floor transformation.
Trade Historian Douglas Irwin on Trump's Unprecedented Tariff Shock
Paul Gigot interviews Dartmouth economist Douglas Irwin on why Trump's tariffs are unlike any other in U.S. history, how they will change the global trading system, and what to do about the special case of China. …
… Paul Gigot: Quite naturally, depending on what we produce, some countries would have a trade surplus with us, some people would have a trade deficit with us. We have what, about a $300 billion surplus in services right now, something like that with the rest of the world?
Douglas Irwin: Yep, and there's a great cover story in the Wall Street Journal on the services trade and how that's getting ignored in these calculations and intellectual property and so many strengths of the US economy don't get counted in the merchandise numbers. Then of course, we have trade surpluses with some countries, Australia and Peru, and are we taking advantage of them? The whole notion that if you're getting, have a trade deficit, you're getting screwed, well, are we screwing the other countries by having trade surplus? No, we're not taking advantage of them. Certainly looking at bilateral balances is just completely bonkers. It makes no sense. If you're worried about the overall trade deficit, you have to use fiscal policy to adjust that because one of the reasons we're drawing in so much capital from the rest of the world, or at least one reason, it's not just the US is doing well, but we have a big fiscal deficit that needs financing.
Paul Gigot: Right.
Douglas Irwin: If you worry about the trade deficit, worry about fiscal policy, but don't worry about bilaterals and in general, don't worry too much about the overall deficit either.
Paul Gigot: That's very helpful. Now, let's talk about China in particular because when you think about China, because of its size, because of its economic production and because of many of its policies, it poses a particular problem as to the world trading system. I think it's fair to say it doesn't play by the normal trading rules [MGH: Understatement of the Year!]. I mean it subsidizes exports, for example, because it has domestic financial repression at home. They want to push exports, and that tends to be disruptive to some industries around the world, like steel, for example. It spies on US businesses in my email for example. It steals secrets from companies, it steals IP and so on. Does it pose with its now record, I think it's going to be a trillion dollar trade surplus with the world. Doesn't China pose a particular problem for free traders? What do you do with a large mercantilist actor like China?
Douglas Irwin: It is a difficulty, and I think it's created a big problem for the world trading system and led to this environment in which we're revisiting our trade policies, unfortunately against our friends and not just our foes. If President Trump and previous presidents had just focused on China and the unfair trade practices, which are manifest, and you're right, it works through the financial system. It's not through, it's not the state-owned enterprises. It's the cheap credit, the overcapacity, you don't have to pay back loans, the implicit subsidy there, if they tried to address those things, those aren't necessary repairs to the world trading system without going in on all the other problems or all the other countries from which we have a normal trading relationship. Once again, there's a national security element to this too. It's not just the economic disruption of excessive mercantilism on the part of the Chinese, but if they are putting things in ships where they have back doors and can turn off the lights in New York City or turn off the water system in Cleveland or Detroit, that's something that we have to pay attention to. I'm not privy to classified intelligence, but I'm told that these are concerns that reasonable people have and that means that we have to temper our trade relationship with China.
Paul Gigot: Well, that certainly was a concern with Huawei, and it's even a concern with TikTok. Then what do we do? What do you do with China? I mean, my preferred policy has been what I would call strategic decoupling rather than a broad tariff on everything in China. Pick certain industries that we really feel where we can't trust them to produce our imports, pharmaceuticals, say, or certain kinds of electronics. I mean, what else do you do, I guess, go martial allies and maybe get them on your side to be able to present to China, "Look, you have to change your policies here because we're going to unite," and essentially say, "We're going to punish you if you don't."
Douglas Irwin: Well, you're absolutely right. When you think about those allies, many of them are the Asian Pacific region.
Paul Gigot: Right.
Douglas Irwin: One way you cement an alliance is by a trade agreement, and there was such a trade agreement. It was called the Trans-Pacific Partnership that unfortunately President Trump pulled out of in his first week of office in his first term. That was exactly that alliance, building relationships across Asia, that it would exclude China and get us working on the same page and give us leverage against China. But also, here's another problem, is that the Trump tariffs are exactly backwards in terms of trying to do this. We're imposing high tariffs on semiconductors from China, but we're not imposing tariffs on the final goods, electronics and the iPhones and things of that sort. In terms of strategic decoupling, we're letting in the final goods, but we're not letting in the intermediate goods. We might want to rethink that. We talk about apparel and shoes, there should be no problem there with respect to China. We're not going to be excessively dependent on footwear. But once again, for these other goods where there is a strategic purpose, we have to think very carefully about what it is we're going to do to reduce our dependence. …
… Paul Gigot: I want to step back a bit and think about this in historical terms, which of course is your specialty. As you think about the global trading system, you go back a couple hundred years, we have had, except for a couple of decades in the '20s and the '30s, the last century, we had a global economic leader that was willing to import world goods. Of course, Britain after repeal the Corn Laws, did that for the 19th century through I would argue up through World War I. It emerged from that war unable to continue that role. As Charles Kindleberger wrote in his great history of the Great Depression, the US wasn't willing to take over that leadership from Britain at that time and didn't really until after World War II, and then we did and have since then. Except for those two very unfortunate decades, the decade of Smoot-Hawley and the Great Depression, the world had a global trading leader who thought that it was in its own national interest to be a market for, in Kindleberger's phrase, distressed goods, and you had a leader. When there was no leader, the world trade deteriorated and you ended up with a tremendous mess. Now, if the US is really backing out of that leadership role, which I think it is right now, we don't know if it'll end up there, but it is at least on that path now. What kind of world trading system are we going to end up with?
Douglas Irwin: I think it's going to be very fragmented. We're going to have various trade blocks. It'd be one thing if the US said letting China into the WTO was a bad idea and China's a bad actor, and we have to pull back and form a different arrangement with our allies in Western Europe, in Asia democracies and the other market oriented economies. We want to form our own new institution, our own trade block. That would be fine, that would be understandable, because geopolitics really is supreme. It's not just economics, it's the geopolitics. But the US seems to be doing more than that. As President Trump has said, "Friend and foe are against us, and sometimes our friends are worse to us than our foes." …
[END]
Dr Michael G. Heller tracks evolutionary progress, creative destruction, and extinction.
