Joseph Gagnon
@gagnonmacro.bsky.social
International macroeconomist. I specialize in exchange rates, trade balances, monetary policy, and inflation.
I’ll be working on that next month. First priority is to cut the budget deficit. Also get foreign countries to boost their domestic spending, including on US exports, in exchange for tariff reductions.
July 25, 2025 at 2:05 AM
I’ll be working on that next month. First priority is to cut the budget deficit. Also get foreign countries to boost their domestic spending, including on US exports, in exchange for tariff reductions.
This result holds up with dozens of different auxiliary variables to control for an array of possible omitted factors and in many different country samples.
April 30, 2025 at 8:13 PM
This result holds up with dozens of different auxiliary variables to control for an array of possible omitted factors and in many different country samples.
Surprising fact. The most important variable in explaining differences across countries in the rise of inflation under COVID is where inflation was decades earlier. This is true for both advanced and developing economies. Even true within the euro area!
April 30, 2025 at 8:12 PM
Surprising fact. The most important variable in explaining differences across countries in the rise of inflation under COVID is where inflation was decades earlier. This is true for both advanced and developing economies. Even true within the euro area!
Finally, the President's ability to negotiate exceptions to the tariffs in exchange for financial or political support creates a threat to democracy and the rule of law that Congress should oppose. n/n
April 3, 2025 at 1:09 PM
Finally, the President's ability to negotiate exceptions to the tariffs in exchange for financial or political support creates a threat to democracy and the rule of law that Congress should oppose. n/n
The odds of a recession just went way up. That would reduce our trade deficit (unless the whole world goes into recession--a distinct possibility). Is that worth it? 4/n
April 3, 2025 at 1:09 PM
The odds of a recession just went way up. That would reduce our trade deficit (unless the whole world goes into recession--a distinct possibility). Is that worth it? 4/n
Even more importantly, tariffs are a horrible tool for this purpose. They will not reduce our trade deficit unless they persuade investors to dump US assets because our government is pursuing harmful policies. 3/n
April 3, 2025 at 1:08 PM
Even more importantly, tariffs are a horrible tool for this purpose. They will not reduce our trade deficit unless they persuade investors to dump US assets because our government is pursuing harmful policies. 3/n
Second, overall trade surpluses are a better (but not perfect) indicator of foreign policies that contribute to the US trade deficit than bilateral surpluses. 2/n
April 3, 2025 at 1:08 PM
Second, overall trade surpluses are a better (but not perfect) indicator of foreign policies that contribute to the US trade deficit than bilateral surpluses. 2/n
With reported US net international liabilities having reached an astonishing 90% of GDP, continued foreign borrowing (i.e., trade deficit) is not on a sustainable path.
April 1, 2025 at 4:03 PM
With reported US net international liabilities having reached an astonishing 90% of GDP, continued foreign borrowing (i.e., trade deficit) is not on a sustainable path.
Yesterday I discussed why tariffs will not reduce the US trade deficit. Today I show 2 policies that can do so and I link to the latest paper backing up these results in a more complete model. www.piie.com/research/pii...
Fiscal and exchange rate policy, not tariffs, can reduce the trade deficit
The Peterson Institute for International Economics (PIIE) is an independent nonprofit, nonpartisan research organization dedicated to strengthening prosperity and human welfare in the global economy through expert analysis and practical policy solutions.
www.piie.com
February 25, 2025 at 7:10 PM
Yesterday I discussed why tariffs will not reduce the US trade deficit. Today I show 2 policies that can do so and I link to the latest paper backing up these results in a more complete model. www.piie.com/research/pii...
Argentina clearly has comparative advantage in agriculture. But we know from Lerner that barriers to imports are also barriers to exports. So the result you cite--loss of grain exports in favor of import-substituting products--is exactly as expected.
February 12, 2025 at 8:02 PM
Argentina clearly has comparative advantage in agriculture. But we know from Lerner that barriers to imports are also barriers to exports. So the result you cite--loss of grain exports in favor of import-substituting products--is exactly as expected.
I agree with Dani, but he omits the point that even he lists as Trump's first objective: to reduce the trade deficit. Tariffs do nothing for the deficit. I blogged that back in 2017 and a great 2019 IMF WP by Furceri, Hannan, Ostry, and Rose documents it convincingly. www.piie.com/blogs/trade-...
We Know What Causes Trade Deficits
On March 31, President Donald Trump ordered a study of the causes of the US trade deficit that will focus on trade barriers and unfair trade practices in foreign countries. Economists, however, broadly agree that trade barriers do not cause trade deficits. A country can have a trade deficit only if it is borrowing on net from the rest of the world. Trade barriers have only minor effects on borrowing and lending decisions.
www.piie.com
January 22, 2025 at 7:21 PM
I agree with Dani, but he omits the point that even he lists as Trump's first objective: to reduce the trade deficit. Tariffs do nothing for the deficit. I blogged that back in 2017 and a great 2019 IMF WP by Furceri, Hannan, Ostry, and Rose documents it convincingly. www.piie.com/blogs/trade-...
It is something I have focused on a lot but often felt I was the only economist who did. Trying to increase net exports makes more sense when below potential at the zero bound than when at full employment.
January 22, 2025 at 4:39 PM
It is something I have focused on a lot but often felt I was the only economist who did. Trying to increase net exports makes more sense when below potential at the zero bound than when at full employment.
I described how and why to do this back in 2020. The fiscal deficit and the trade deficit are much larger now, making this advice all the more important. A weaker dollar can offset the drag on growth from budget cuts. n/n www.piie.com/publications...
Taming the US trade deficit: A dollar policy for balanced growth
President Donald Trump launched a trade war to eliminate the longstanding US trade deficit. But the trade deficit has only grown on his watch because tariffs were the wrong policy choice. Trade deficits are not always a bad thing, but a wealthy country like the United States should not run a perpetual deficit. Decades of US trade deficits have piled up debt that makes future generations of Americans less well off, as they must pay interest and dividends to foreigners.
www.piie.com
January 21, 2025 at 3:13 PM
I described how and why to do this back in 2020. The fiscal deficit and the trade deficit are much larger now, making this advice all the more important. A weaker dollar can offset the drag on growth from budget cuts. n/n www.piie.com/publications...
In 2021, Madi Sarsenbayev and I updated my earlier work showing that there are 2 main policies to shrink the trade deficit. They work well together. Reduce the fiscal deficit and push down the dollar. 3/n www.piie.com/publications...
Fiscal and exchange rate policies drive trade imbalances: New estimates
A 2017 PIIE analysis found that fiscal balances and foreign exchange intervention—more broadly, government purchases of foreign assets to influence exchange rates—are the most important factors behind differences in current account balances across countries and over time. The current account is the broadest measure of a country's balance of trade. It records all income received from foreigners and payments made to foreigners.
www.piie.com
January 21, 2025 at 3:12 PM
In 2021, Madi Sarsenbayev and I updated my earlier work showing that there are 2 main policies to shrink the trade deficit. They work well together. Reduce the fiscal deficit and push down the dollar. 3/n www.piie.com/publications...