Comment by Berniek | Hacker News Reader

Comment by Berniek | Hacker News Reader

The de minimis system was in theory to allow developing countries to be able to take advantage of their very low labor costs and also to save the receiving country the inspection costs. Mostly countries ("third world") have time limited agreements. Tariffs were about originally about protection of local manufacturing. But both these changed with the politics and greed. China has cheap labor costs but superb management of manufacturing. Politics are now simple. China has 3 times as many consumers as the US. China refuses to float its currency, so the major currencies can't effectively export their inflation to them like they do with other trading partners by manipulating their interest rates. The US dollar is the defacto world currency but that means countries must have reserves of US dollars. Those reserves are not piles of US bank notes they are stocks, bonds real estate in the US. These foreign reserves mean influence in the economy. The current round of tariff wars are all about long term debt and attempting to reduce the long term bond rate. But countries wont wear that because their reserves are partly in bonds. So retaliation in the form of "custom fees" occur. More than likely, the EU fees and charges are aimed at China. Already China leads the world in production in many important areas (nuclear reactors, batteries, electric vehicles, solar panels). Countries can see China becoming (if not already) the worlds biggest economy with the political power that comes with it. Sadly, its the small manufactures & businesses that suffer the most, but thats democracy and capitalist system in action

Good luck trying to rationalize US tariff policy. Shit-flinging chaos monkey gonna fling shit.

The current round of tariff wars are all about Donald Trump and his obsession with bilateral trade imbalances. Long-term bond rates would be better addressed through the balance of production and taxation in the domestic economy.

Edit: do those downvoting disagree that a focus on bilateral trade imbalances and tariffs is an idiosyncrasy of Trump, and that we would not be seeing similar trade wars with a different president? If so, please make your case. He has repeatedly stated that that is what he feels is important, and has shared explicit motivation for broad tariffs based on facile derivations from bilateral trade imbalances. So it's pretty difficult to see it instead as a reasoned response to long-term bond rates.

The trouble with running a trade deficit is that you have to "borrow" to finance it, so you issue bonds. But once the bonds become due you need to issue more bonds to replace those that expired. BUT the new issue is the original bond + its interest rate. So the deficit you are financing with bonds is growing effectively at the interest rate of the bond. It gets to the point where the debt is self sustaining, regardless of what you do in the "real" economy. The only way to stop the spiral is devalue the currency (the market wont let the fed do that they just bid up the dollar - its has become a global currency) so the next way to do it is force interest rates down...but that causes inflation because people can borrow and waste more without the increase in productivity, that normal investment should produce. Someone has to pay for all this political stupidity and it will almost certainly be the poorest in society and the small businesses.

That's true in a sense of the overall trade deficit, but not in terms of specific trade deficits with individual countries, which seems to be Trump's focus.

Even looking at the overall case though, there is an alternate way of looking at it, which is that the trade imbalance must be equal to the imbalance between domestic savings and investment. There was a NY Fed article last year that was discussed on HN and covered this well: https://libertystreeteconomics.newyorkfed.org/2025/05/why-do... https://news.ycombinator.com/item?id=44040407

So again, I think the domestic imbalance plays a larger part than this analysis gives credit. (And per my original comment, the government portion of national saving is made up of, basically, taxes minus government spending, so - while the effect is complicated because taxation also affects private spending and investment - increased taxation could be expected to reduce trade deficits.)

Basically I don't think there's an economic justification for tariffs as a solution to trade imbalances, overall or (especially) bilateral. (Bilateral trade imbalances really shouldn't be seen as a problem at all. As the saying goes, I have a trade deficit with my grocery store, but that's not a bad thing.) There are situations where they can make sense in order to strategically protect specific industries for security or long-term growth reasons, but that's a separate issue, and the key word there is strategically, something I'm not seeing a lot of.

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