Thelma and Louise economics
By 
Maia Mandel has an excellent post about the underpinnings and impact of Trump’s trade war:
So it’s just not true that the problem is insufficient national savings to fund investment in manufacturing because of depressed wages – the US does have sufficient capital. In fact, it has more than enough capital: American savings rates are low precisely because foreign capital allows Americans to consume more than the US produces – or, put another way, the dollar being the reserve currency means that US consumers enjoy a superior standard of living than they would if the US actually did need to pay for all its imports with real goods or services. Of course, these imbalances can have severe macroeconomic consequences (more on this later). However, insisting on balance also has: countries that take the exports-first approach are China and Germany, which repress consumption and wages respectively in order to remain competitive in global manufacturing – and both of them have had substantial economic slowdowns in the post-COVID era precisely because suppressing consumption is not necessarily sustainable either.
So if the theoretical case for Trump/Miran “MAGAnomics” is so weak, then why exactly do they want to reduce America’s “exorbitant privilege”? Well, if you read the tariff post, you know what I’m about to say: political economy. Exorbitant privilege results in the US trading more, and on average, trade is good for the average person: trade raises GDP from between 2% to 8%, or around 1 to 4 years of economic growth every year. However, these gains are not evenly concentrated: for instance, when China joined the World Trade Organization in 2000, US counties most exposed to Chinese competition saw steep declines in employment and output, particularly because of its effects on manufacturing. While, on average, these losses were offset by big gains by consumers, the effects were very concentrated in manufacturing heavy areas, which did not recover because the sectors that benefitted from exports and created jobs were elsewhere. In particular, the employment opportunities for non-college workers shrank, while the “knowledge economy” grew, which led to education-based political polarization: counties most exposed to trade with China saw the biggest shifts from Democrat to Republican, particularly after Donald Trump entered the scene in US politics – places where trade took the “jerbs” swung from left to right for a number of values-and-social-trust-related reasons, a fact common to all developed economies. I am going to, however, double down on the fact that trade is obviously beneficial – for example the reason why Chinese accession to the WTO was so destructive to US manufacturing was because trade with China increased, which meant that Chinese firms became more productive, because trade is good and beneficial. And even if US manufacturing is indeed important, the tariffs are unlikely to bring it back.
The political economy of MAGAnomics is such that the costs of exorbitant privilege are concentrated among one specific group – men without college degrees, who disproportionately worked in the manufacturing sector, and who now disproportionately support Trump. At the same time, the people benefitting the most from exorbitant privilege are the college educated (especially women), who are also Trump’s biggest detractors. So it means that Trump isn’t necessarily paying a political cost because he’s quite literally buying off his supporters – which also squares with the Tech MAGA agenda of punishing their own employees for pure economic self interest, as well as culture war and “structurally oriented” reasons.
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The 1991 movie Thelma and Louise ends with the two titular characters surrounded by the police at the edge of a cliff – and their options are, placed in an unsustainable situation, to either give in, or fly off the cliff. They decide they can’t go back, and jump off at full speed – the film ends with a freeze frame of the car suspended in the air, finally having achieved the freedom they wanted all along.
That’s sort of the MAGA project – to turn back the clock, bring the factories back, own the libs, and put everyone back in “their place”. To achieve this, besides Big Tariffs, Stephen Miran and his posse also have some “practical” proposals: commitments to buy US products, a swap of Treasuries with 100-year old bonds in order to reduce pressures on the dollar, or just a straight-up protection racket where countries pay directly to the US for the privilege of using its currency. This is, of course, not a workable or logical plan in the real world. But even if it won’t work in practice, the “Mar-A-Lago Accord” logic also don’t work in theory.
The “exorbitant privilege” of the US economy that MAGA wants to get rid of is not unique to the dollar – in fact, over the past four centuries, some country has had some variety of it, resulting in the same pattern: increased borrowing and economic benefits from it. The USD, as those in the business call it, has been the reserve currency for around a century, and its importance to global monetary and financial operations heightened after Nixon took it off the gold standard in 1971. But this doesn’t come for free: the key cost, besides distributional considerations, is a commitment to stability. The biggest risk to any hegemonic effort is that the “world’s banker” might want to wipe out a lot of its debt by devaluing its currency, which would completely wreck the global economy by affecting every other country’s monetary policy. Like, for example, during the Great Depression….
[…]
The main effect of the agenda of isolationism and protectionism isn’t just some misguided masturbatory RETVRN fantasy of white male supremacy – it also undermines the basic world order, the rule of law, and liberalism itself.
Plenty more detaul and context at the link.
The biggest problem with Trump’s trade war is that it’s based on nostalgia for something that can’t be reconstructed — even if we assume arguendo that different trade policy could have slowed the decline of the manufacturing sector, Trump’s tariffs aren’t going to bring it back. But because the trade war is based on a web of resentments, initial economic failure probably isn’t going to dissuade him, either. And this is bad, because he really believes his own insane bullshit on trade deficits.
Trump: "We were losing hundreds of billions of dollars with China. Now we're essentially not doing business with China. Therefore, we're saving hundreds of billions of dollars. It's very simple."
[image or embed]— Aaron Rupar (@atrupar.com) May 4, 2025 at 7:12 AM