EJ Antoni writes a letter to WaPo editors:
“that the Heritage Foundation has become a protectionist bivouac. Au contraire, Heritage has been, is, and will continue to be a bastion of free-market conservatism.”
I will note that as recently as February, Dr. Antoni wrote for FoxBusiness:
The market analysts and so-called economists panicking over President Donald Trump’s tariffs must be at least somewhat relieved that he’s agreed to pause the ones he wants to impose on Mexico.
But they shouldn’t have been worried in the first place, because their fears are misplaced. Trump understands the harsh reality of the situation: other nations have exploited the U.S. for decades, and it’s long past time America fought back. In fact, Trump’s actions will benefit Americans greatly.
In the first place, the idea that tariffs are always and everywhere passed on to consumers is a fallacy, by both economic theory and the record of history. Factors such as changes in exchange rates mean that foreign producers typically end up paying some (or most) of a tariff.
No reasonable trade economist ever said that tariffs were always passed on to consumers; they could be absorbed by domestic consumers (households or firms), by foreign producers (if the tariffying country was a “large” country in trade terms), or offset by exchange rate changes. Still, it’s foolhardy for him to write that foreign producers typically end paying some (or most) of a tariff, since the bulk of empirical evidence on the 2018 tariffs indicate pretty close to full pass-throught to US firms and/or households (i.e., “consumers” in the general sense).
Antoni continues:
…the trade deficit, which can’t go on forever. Economic textbooks sometimes explain away the deficit by pointing out that individuals often have steep trade deficits with retail stores, like Walmart or Amazon, and that doesn’t cause the individual to go bankrupt.
While that’s true, this singular trade deficit is only possible in the long run because the individual has a massive trade surplus somewhere else, like their place of employment.
America’s long-standing deficit has been funded by the Federal Reserve, which has effectively been printing money and sending it around the world to finance our elephantine trade deficits for decades. This process has devalued the dollar over the years, so that Americans’ money doesn’t go as far as it used to—a phenomenon we call inflation.
Well, this is all nonsense. To begin with, a trade deficit is not the appropriate metric; rather it’s the current account deficit. Second, with exorbitant privilege (which Dr. Miran has argued for eliminating), a current account deficit could go on forever. Second, it’s clear that Dr. Antoni has never taken an international finance/open economy macro course (or at least never assimilated the contents), as the Fed “printing money” does not make sense as an explanation for a trade deficit (standard Mundell-Fleming would imply a weaker currency with monetization, tending to reduce the trade deficit from what it otherwise would be.
As an aside, Dr. Antoni is identified as Chief Economist at Heritage Foundation. I am tempted to ask if he is chief economists of a staff of one, given recent departures (WSJ)? However, the Washington Times reports that Heritage has restocked staff:
The foundation said it has … welcomed back Peter St. Onge as senior economist.
As a reminder, Peter St. Onge coauthored Dr. Antoni’s one sole paper (non-peer reviewed), entitled “Recession Since 2022: US Economic Income and Output Have Fallen Overall for Four Years” which declared a recession, using correct deflators, since a peak in 2022. My critique (November 2024) is here.
