Things from my Newsblur; 2025 Part II

This “Things from” post is the opposite of the last one; a single speech, which I’ve also excerpted the key section of below.   It was made a fortnight ago by the Bank of Japan’s Deputy Governor Ryozo Himino and is about the Trump Administration’s strategy, but not politics. I’d encourage everyone to read the excerpted piece – especially the non-financial folks.

The speech is very good, but the excerpted section is probably the most insightful thing that's come from a policymaker or the mainstream media re. the Trump Administration.  For those who  want to read it, the whole speech is here.

I think it's an impressively concise observation that makes no judgments.  For the finance people, please note his second point - which the markets think of as ‘TACO’ - is far more what regular folks would do if they ran a business, or a portfolio!   

The Philosophy and Policies of the New U.S. Administration
Eight months have passed since the new U.S. administration took office, and I tend to believe I have learned a lot about its approaches. However, the unexpected developments I face almost daily make me realize that there are still things to be learned.

So, I am still in the process of formulating my view, but if I could offer some personal and tentative reflections, I would argue that there are three characteristics that define the current administration's way of thinking.

First, the administration adopts a holistic approach and treats political, economic, and cultural matters, as well as domestic and international affairs, as integral parts of a single, inseparable policy agenda.

Second, while it is highly flexible in its tactical decisions, switching its approaches as situations evolve and choosing when to press ahead, pause, or make temporary retreats, the administration remains persistent in its strategic choices about what it ultimately aims to attain.

Third, it is unfettered from conventional wisdom and orthodoxy, focuses on facts that define the locus and sources of power, and explores opportunities that have thus far not been exploited.

Consider, for instance, trade policy. Our textbooks teach early on that the rationale for preserving a free trade system lies in the principle of comparative advantage -- each country specializes in what it produces best, thereby promoting an international division of labor, enhancing global economic efficiency and growth, and ultimately benefiting all countries. The conclusion, therefore, is that the global community should work together to pursue a positive-sum game. This is part of the foundational logic of the Washington Consensus, and I believe it contains much truth.

However, this framework does not necessarily capture all aspects of the matter. A superpower tends to possess a market large enough for its trade policy to influence import prices. It also has sufficient leverage to deter retaliatory tariffs from trading partners. According to the theory of optimal tariffs, for such superpowers, imposing moderate tariffs may improve the terms of trade and be more advantageous than forgoing tariffs.1

Moreover, given today's geopolitical environment, it is increasingly important to consider economic security and ensure strategic autonomy and indispensability.

Additionally, some argue that the most efficient economic system is not necessarily ideal in terms of fairness and distribution, and that a government's redistribution policies may not be sufficiently effective. This kind of argument may become more relevant as we face increasing social and economic divides.

Even considering tariffs alone, one may thus detect a confluence of various elements: an economic goal (i.e., better terms of trade), foreign policy considerations (economic security), and a political agenda (fairness and distribution). An element of cultural protest against intellectual elites may be at play as well, alleging that they have defended neoliberal systems and the resultant extreme inequality on the grounds of economic efficiency. Tariffs may thus be seen as a manifestation of a broad, transversal movement involving economics, diplomacy, politics, and culture.

In this light, discussing U.S. policy solely in terms of tariffs is too narrow an approach. A more holistic perspective on the policy is needed to assess the medium- to long-term outlook for Japan's economic activity and prices. That said, given that I am not an expert in politics, diplomacy, or culture, in the remarks that follow, let me focus on the near-term effects of tariff policy.