Nail on the head
Re: "Backing Trump on tariffs, not on tone", (Opinion, April 17). The article by economist Chartchai Parasuk shows a rare practitioner of the dismal science who writes eloquently. However, I do get the impression the good economist risks missing the forest for the trees because he put too much focus solely on the trade balance.
The balance of payments, as the name suggests, must balance. If, as is in America's case, the merchandise trade deficit leads to a current account deficit, this will be offset by a surplus in its capital account.
In other words, countries that have trade surpluses with the US are holding large amounts of its currency, much of which is parked in foreign exchange reserves through the purchase of US government-issued debt, resulting in a capital account surplus for the US.
This willingness to hold the greenback by its trading partners is what gives the US dollar its exorbitant privilege as the world's reserve currency.
Not only does this allow its government to access practically limitless cheap borrowing, it provides a benchmark for its corporations, businesses and home-buyers to access credit at relatively low rates.
This, in turn, has a positive snowball effect on its overall economy, as well as its equity markets, where the risk-free rate being lower gives rise to higher valuations, as laid out in the Capital Asset Pricing Model.
In the latter part of his article, Dr Chartchai wagers that forthcoming US-Thai tariff talks are doomed to fail due to the latter's reluctance to restrict China's re-exports via Thailand.
This is indeed the crux of the entire tariff argument. From the US perspective, China has restricted access to its own markets while at the same time taking advantage of the free world's open trading system to capture global market share by engaging in currency manipulation (as pointed out by Dr Chartchai), as well as industrial-scale subsidies.
The resulting wealth it has generated has been used to finance the largest re-militarisation since WWII. The first Trump administration's trade tariffs on China have led it to re-export through countries considered friendly to the US, such as Mexico, Vietnam and Thailand. In this regard, Dr Parasuk has hit the nail on the head.
