I agree that’s a misplaced focus. It makes no sense to fight trade imbalances per se.

Not telling we should do that, though.

But a slow increase in tariffs could reduce the deficit (although it would be bad for the economy). We are poorer in the long run, so we consume a bit less today to smooth consumption.

So yes, an increase in tariffs would be bad either way. But a slow increase could reduce the deficit!

According to our framework, the dynamics of the shock matters. Once and for all tariffs will have no effect on imbalances because there is no dynamics of consumption to be smoothed.

The paper provides a framework to think about how economies adjust to shocks when we have trade imbalances. In principle, these imbalances can generate problems of labor adjustment as we highlight with a Krugman quote at the beginning.

I am not arguing that trade imbalances should be the focus of policy. On the contrary. I am just arguing that abstracting from trade imbalances from economic models is not innocuous.

Our point is that the adjustment process to global shocks can look very different if you allow for trade imbalances to respond to these shocks. Economic models typically shut down this mechanism—because they are hard to model.

Well, there could be important consequences and we take these possibilities seriously in the paper.

In practice, we showed that the China shock did contribute to the deterioration of the US trade deficit, but had no impact on unemployment as services absorbed workers displaced from manufacturing.

Ungated version: www.dropbox.com/scl/fi/7z4e0...

Hi, just wanted to point you to this relatively recent paper of mine with collaborators: academic.oup.com/qje/article-...

Maybe @scottlincicome.bsky.social will be interested as well.

There is actually very little academic research attempting to model trade imbalances and their consequences on the economy.

Hi, just wanted to point you to this relatively recent paper of mine with collaborators: academic.oup.com/qje/article-...