Trade And Tariff Hysteresis

Hysteresis in the field of economics refers to an event in the economy that persists into the future, even after the factors that led to that event have been removed. – Investopedia

I first heard the term hysteresis applied to trade and explained by a young Paul Krugman at a World Bank luncheon years ago.  Though he was using the exchange rate as the exerting force on import and export markets, he explained it in simple terms,

If you put enough pressure on a spoon by bending it for a long enough period of time, it will never return to its original position. So to it is with export and import markets.  – Paul Krugman, paraphrased 

The simpletons think if tariffs are only just paused, or if some are even rolled backed, we are going back to the “good ol’ daze.”  Yeah, right.

Pity our poor farmers, who are caught up in this mess.

Running Out Of Free Lunches

We are almost out of free lunches, folks, and will be posting only sporadically unless your support increases.   Donate whatever you think is fair by clicking on the PayPal button just below the Twitter and search icons on the upper right-hand side of the blog.  You do not need a PayPal account and can use almost any credit card.

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3 Responses to Trade And Tariff Hysteresis

  1. Pingback: The Long-Term Damage Of The Trade War | Global Macro Monitor

  2. Pingback: The Secular Decline in U.S. Manufacturing Employment | Global Macro Monitor

  3. Pingback: Q3 GDP Growth Set For 30% But No V-Shaped Recovery | Global Macro Monitor

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