Earlier this month, the US Democrats, whom many had written off, swept the local and state elections. From Zohran Mandani becoming New York mayor and Abigail Spanberger becoming Virginia governor to two statewide wins in Georgia’s public service commissioner races, the Democrats had a good run. The winning message was, ironically, what lost them the last presidential election: affordability.
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President Donald Trump has since sounded the alarm that Republicans must reclaim the issue of affordability. He has proposed a 50-year mortgage and a cheque of at least US$2,000 for every American not on a high income.
The absurdity of a 50-year mortgage aside, the cheques, to be funded by his tariffs, would be counterproductive to a goal Trump has held since the 1980s: balancing the trade deficit.
Alongside affordability and balanced trade, Trump has long held a third economic goal: a booming stock market. But these three goals are structurally at odds with one another. At most, the United States can expect to have two in the short to medium term.
Trump has his impossible trinity for now because of imbalances in the international trading system and financial flows. Simple macroeconomic accounting shows us why.
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IDIOT’S GUIDE TO TRUMP’S TARIFFS
IDIOT’S GUIDE TO TRUMP’S TARIFFS
Gross domestic product is the sum of a country’s consumption (including that of households and the state) and total savings; this also represents a country’s domestic production. A country’s domestic demand, meanwhile, is the sum of total consumption and investment. The difference between a country’s domestic demand and domestic production – a difference also known as the trade balance – is simply the difference between a country’s total savings and investment.