Speaking of the market's price discovery, this is one of my favourite charts of all time, from a Bank of Canada Deputy Governor - www.bankofcanada.ca/2013/11/pric... - market price discovery implies law of one price holds - oops.

Charts from @adamtooze.bsky.social and @pkrugman.bsky.social show striking changes in a time frame that coincides with the "age of machine knowledge capital" in my "ages of capital" parsing of economic history (The Ages of Capital: A Primer - papers.ssrn.com/sol3/papers....). How about that?

This also links to "precarity" - elimination of consumer surplus means one shock pushes a household into a precarious state. Which means households are living on the edge. Which has implications for consumer sentiment. See Krugman's puzzle: paulkrugman.substack.com/p/lies-damne...

In my own work, I've done a similar exercise trying to put a value on the international data flows that US platforms have been hoovering up in a very imbalanced barter trade - beads for Manhattan all over again - based on equity market valuations of data-rich firms. papers.ssrn.com/sol3/papers.....

Obviously cheaper to buy the chickens from the farmer than to bomb them - and going the commercial route would have increased the supply of eggs and poultry and reduced affordability problems in the United States even as it reduced the threat of chickens smuggling drugs or engaging in terrorism.

But not to be out-done by Obama, the Trump administration has pulled a gun on its erstwhile allies, something that cannot be unseen, in its so-called "National Security Strategy", not to mention the attack on US institutions. Contrast "America First" with Nixon:

Here's the chart that compared the "West's" assets to China's. Collectively, the US, with its then-allies, held a dominant position in every significant metric, including manufacturing output, despite having a collectively smaller population than China. /x

If the retailers do not pass on the tariffs to the consumers, there is no gain for American manufacturing because there will be no substitution away from imported products. Cue Bart Simpson on the chalkboard. "There's no gain without pain, there's no gain without pain, there's no...."

But here is the interesting thing, this framing ignores the rest of the world. So, at a minimum, you have to expand the model to a 3-region model, Vietnam, the US, and the rest of the World. That's easily done in GSIM. So lets rerun the model in this format but with the same tariff on VN.

The discrepancy between lost sales by Vietnam and captured sales by the US is explained by the increase in US domestic prices, which curtail US domestic demand. US producer revenues and price markups (the producer surplus figure) increase but total economic welfare in the US is a loss of $15.8 bn

The US ships about $15 trillion worth of goods to itself but only
$13.8 billion to Vietnam. Vietnam ships almost $119 billion to the US and about $883 billion to itself. The US tariff that stops the rip-off is 53.7%. So what happens when Trump imposes this:

I take Vietnam-US trade as an example and, using reasonable estimates of parameters, calculate for illustrative purposes the tariff that stops the rip-off and what that actually means in terms of trade impacts. The chart below shows the trade relationship in a 2-country setting as the model assumes.

This obviously is an intolerable situation once you realize it exists. Trump has taken on the job of stopping the rip-off when others are ripping off the US. It's up to other countries to stop the US from ripping them off. Whole lot of tariffs to calculate to make that happen. Enter USTR formula

In my contribution, I show how the reciprocal trade formula works when you put it into a standard trade model. But first, let's identify the countries that rip-off the US - and the countries that the US rips off. I show the same chart for Sweden. In trade, everybody is ripping everyone off!

Guernica after Hitler; and Hroza after Putin.