Short version: Even a good indicator of protectionists, that’s a bad thing.
On July 23rd, US and Japanese trade negotiators will be in charge of dealing with tariffs, investments and other international transactions. There’s a lot written about how bad a transaction is from a standard economic standpoint (see, for example, here). But President Trump and his administration negotiated the deal, but are merchantists. So, here we evaluate trade contracts from a mercantalist perspective, focusing primarily on the trade deficit.
First a few notes:
Not only the details of this transaction, but others negotiated are rough and subject to controversy. To benefit the Trump administration of doubt, I will use the terms announced by EYR. These are not trades in the traditional sense of legally binding aggregates. As we can say, they are oral guarantees of potential frameworks of legally binding assemblies. But for the sake of discussion, I treat this transaction as if it were a formal, legally binding agreement between the two countries.
Let’s start so that the qualifying rounds don’t get in the way.
Trade deficit
Trade deficits are a major concern in general, especially for President Trump’s merchantaists. Certainly, for the Trump administration, that is a top priority concern. I have invoked the authority to do these transactions by declaring mere witnesses of the trade deficit as a national emergency. So let’s start our analysis by examining how this transaction affects the trade deficit.
This transaction will inevitably increase the US trade deficit with Japan. Part of the transaction is a $550 billion investment from Japan to the US. When foreign investors invest in the US, it is necessary for you to increase the trade deficit. Therefore, this investment portion of the transaction increases the trade deficit.
Furthermore, Japanese people need US dollars to achieve this investment. The only way they can get those dollars is to sell the goods to the US. In other words, US imports from Japan will inevitably need to rise, and US exports to Japan will inevitably not change or fall. Trade deficits are defined as when exports are less than imports, so in this scenario the trade deficit should increase.
There is another, indirect way that is likely to worsen the trade deficit. US tariffs on Japanese cars are currently at 15%. US automakers face higher tax rashes, including steel fees (50%) and auto parts tariffs (various). Japanese car manufacturers are not facing such an atif. Consenkory and Japanese imported cars are cheaper than American-made competitions. At margin, America buys more imported cars than home cars. Similarly, American car exports are now more expensive and reduce exports. Again, the trade deficit will rise.
So, given merchantist concerns about the trade deficit, this transaction is bad.
Work protection
The less concern for commercialists is that they are doing their jobs. The impact of transactions on jobs is vague. Assuming the investment contract has passed and it will turn into a surprisingly scary project like Foxconn, a subjob will be created in the US for the purpose of LNG exports. However, as in the discussion above, American automakers are currently facing important competition with Japanese automakers. Therefore, a subjob is created. Others were destroyed. The net effect is a near zero probability. Therefore, from a job-related merchant’s perspective, this transaction is potentially bad. Especially since automotive supervision is another industry that American merchantists want to protect.
Conclusion
Other details of the transaction are still dark, so writing isn’t much of a brunt. But given the information we have based on an announcement from the Trump administration, this is a bad deal with their own metrics.
