Re: Tariffs and (are) hidden taxes

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Mungofitch recently posted an excellent take on the subject, from the Berkshire board:

...many of the things that they are doing are spectacularly stupid. As a prime example, bilateral trade balances, which have driven trade policy and are set to impoverish many people around the world including many Americans, are meaningless. They have no more economic meaning that the precise distance from one's arse to one's elbow. Only the aggregate across all trading partners has a meaning, and even then not all THAT much meaning.

Much of that list is mainly a demonstration of the impressive power of an unquestioned leader backing a policy based on pseudoscience, a bit like Lysenkoism, or backing pseudoeconomics, like chairman Mao ordering backyard blast furnaces in little villages which would otherwise have been producing food. Sometimes that's a good thing. Sometimes not.

Economically speaking, I doubt many people making decisions in Washington are even aware that an import tariff is just a sales tax paid by domestic importers, let alone that it is economically the equivalent of a tax on US *exports*. The Lerner Symmetry theorem showed this 89 years ago and it still stands, assuming that the economy still has a meaningful set of companies with competitive pricing.

The thing to note is that the already very large rise in the weighted average US tariff rate will undoubtedly reduce both US imports AND exports, making the US poorer. Many in the administration like Mr Bessent are well educated in basic economics and know this, but they are going along with it anyway. I presume this is because of some mix of (a) they don't care about that particular outcome, and/or (b) it is career suicide to contradict the leader.

As the US economy is likely to be on a weaker trajectory in the next few years than it would otherwise have been, and given Berkshire's near complete link to and correlation with the US economy, I expect the intrinsic value of a share of Berkshire is lower than it would otherwise have been, by a material amount. For US based investors holding it in taxed accounts, this might be partially or even fully offset by the temporarily lower tax rates. (I say "temporarily" in the sense of Ricardian equivalence...debt and deficits can not grow without bound, so lower taxes for a while generally means either higher taxes later, or a financial explosion).

mungofitch replies on "The Art of The Deal"

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