If we expect tariffs to improve our economy then we are praying for a miracle plot intervention. It only happens in SciFi (so practically every Far Right economic policy set?🤣).

Received this question session from Roger on substack, for critical comment. I cannot run an exhaustive academic analysis, no one’s paying me enough for that, but I did offer some first-go-around opinions.

Just bear in mind, I tend to always these days write from the more idealistic “what MMT could do” perspective, not from a Realpolitik perspective. We can always overcome realpolitik with massive education efforts, and part of the latter is simply telling people what could be done not necessarily what will be done. I’m Anti-Obama. For me Hope is based on practical means and methods, not “let’s be woke enough and things will sort themselves out via the ‘unregulated’FN-1 market.”

Knowing MMT gives you the base case minimum means & methods … if you get sufficient votes in Parliaments.

My responses might be overly simplistic and naïve, but just take them as, “what if MMT was known,” responses, and I think they’ll be sound.

Let’s then dive into the LLM spew Roger generated …

Questions - Feb 2026

Query 1

2026-02-24
why are some countries making deals with us after threats of higher tariffs by Trump? Seems like they would just export to other countries that don’t threaten them

LLM Response:
Countries are making deals with the U.S. after tariff threats primarily because the U.S. remains the world’s largest consumer market, making it difficult to fully replace. Deals with Japan, Indonesia, and others involved concessions on critical sectors, investments, or accepting lower export volumes to avoid far higher, punishing tariffs that could destroy their economies.

Key reasons for this strategy include:

• Economic Dependency: Many nations rely heavily on the U.S. consumer, making it hard to immediately pivot to other markets.
• Avoiding Worse Outcomes: Negotiated deals, while costly, are often seen as better than the alternative of massive, blanket tariffs.
• Strategic Concessions: Nations like Japan have committed to massive investments, such as $36 billion, in the U.S. to secure better terms.
• The “Deal” Aspect:* Some countries may believe that a negotiated, albeit restrictive, agreement is more stable than the unpredictability of a full trade war.

Despite these deals, some nations like the EU are struggling with the uncertainty caused by new 15% global tariff threats.

If they are eager to export to U.S. why the need for deals. Is the US trying to have a positive balance of payments? That’s just having more financial assets. A trade deficit means you have a goods and services surplus. Which seems a good thing in its own right

My reply (bijou)

On dependency: you should always imagine the USA did not exist. We have path-dependent dependencies (institutional inertia, etc.) But in fact we never depend on the USA to exist at all for our domestic full employment.

I would say there is still an inefficiency here in clearing markets due to government misunderstandings. If they increase the minimum wage, or better: provide job guarantee support and higher pensions, then this creates the net currency needed to sustain higher domestic consumption without bank debts and hence without inflation pressures via wage bargaining &c. So there is untapped consumer absorption that governments are blind to, and the foreign exporters do not need to rely so heavily on sales to the USA as I think they perceive and calculate, their calculations being based upon flawed presumptions.

However, I do not actively research this untapped domestic capacity, I just have a way-more-than-a-gut-instinct about it, it’s so palpable! As in I would be thoroughly shocked if I was wrong. (Which would not be a bad thing, since I have a scientific mindset first, and desire to be correct about things is residual vanity and unscientific.)

[You can probably “get” the LLM to agree with me, if you “prompt it hard enough” hahaha.]

Are the strategic investments in the USA necessary? Not for the Japanese government. For the Japanese private firm, perhaps yes, if they lack domestic capacity so they will need protections from their government should the government consider the investments strategic. But these considerations are case-by-case. I doubt many investments are strategic enough to warrant protections, since why not just let the USA firms produce what you want. But the whole point is the Japanese do not need to get USD to make the investments. The Japanese governments and the G7 bankers run the swaplines, so the Japan firm can invest in the USA with yen. The fx transaction fees (in Yen) could be absorbed by the JCB, should they desire to be so generous to the private firm.

New Zealands Superannuation Funds (a pointless endeavour) do this all the time, our Super managers invest overseas in all sorts of things. What with? With NZD of course. We Kiwis are very generous!

Trade Deals are fine, a source of price stability. They have nothing to do with our need to get USD’s. We just never need to get USD’s to pay our NZ taxes. But a Kiwi might desire to save in USD. Fine for them. Rich ℭ𝔘𝔑𝔗𝔰. Wish I had at least the option to be a rich ℭ𝔘𝔑𝔗!

In the next bit I will intersperse my comments between hlines.

Query 2 

2026-02-24
If they are eager to export to U.S. why the need for deals. Is the US trying to have a positive balance of payments? That’s just having more financial assets. A trade deficit means you have a goods and services surplus. Which seems a good thing in its own right

LLM Response:
That is a very sharp observation. You’ve hit on a fundamental tension between standard economic theory (which often views a trade deficit as “winning” because you get more stuff for less work) and political economy (which views a trade deficit as a loss of power and industry).

To understand why countries are scrambling to make deals and why the U.S. is pushing for them, we have to look at how different groups define “value.”

1. The Theory: Consumption is King

You are correct from a purely consumer-centric viewpoint. A trade deficit means a country is consuming more than it produces.

• The Surplus of Goods: Americans get TVs, cars, and clothes (real wealth) in exchange for dollars (paper/digital promises).
• The Capital Account: Those dollars eventually flow back into the U.S. as foreign investment in Treasury bonds, real estate, or tech companies.

In this view, the U.S. is “trading pieces of paper for actual physical goods,” which seems like a great deal.

My reply (bijou)

Yes.

2. The Counter-Argument: The “Producer” Perspective

The push for deals and tariffs comes from a different philosophy: Productivism. The argument is that while a trade deficit is good for consumers, it can be devastating for producers and long-term national stability.

• Hollowing Out: If the U.S. constantly imports goods, domestic factories close. This leads to a loss of skilled labor, innovation “know-how,” and a shrinking middle class in manufacturing hubs.
• National Security: If a country cannot make its own steel, chips, or medicine because it’s cheaper to import them, it becomes strategically vulnerable during a conflict or pandemic.
• Debt Accumulation: A trade deficit must be financed. To keep buying more than it sells, a country must either sell off its assets (land, companies) or take on more debt to foreigners.

My reply (bijou)

Bollocks. Shifts to production off-shore and importing instead are still good. No one should care at all about those domestic producers. No “hollowing-out” need occur, and instead the government can always absorb all the freed-up workers, and over time create new industries, likely care & service.

If imports (for critical goods) ever drop-off a proverbial cliff then what you cannot now import opens up reindustrialization. Those investments can always be made. But why expect an instant reindustrialization overnight? You have to be sanguine about it and cope with the lags. But the point is, throughout all such transitional eras, no single worker ever needs top go unemployed and starving.

One major critical good is energy. So in this light it is thoroughly remarkable few governments are seriously enough investing in sustainable domestic renewable energy and promoting energy conservation and a greener economy. It’s not only be nicer, less polluting, but a slower pace of life, so more peaceful. Will we be deprived of race cars, McMansions, jet transportation, and Moon rockets? Maybe. So what? We will probably still have coffee beans, so I’m happy.

The national security considerations are recognized in MMT circles. But you should also consider the Peace Dividend. It is truly massive! It cuts down security supply issues dramatically.

Always think to the Pacific Islands. Do you think they hoard weapons stockpiles and uranium? And is not a huge chunk of reserve supply used in the USA countering domestic crime and terrorism? One starts to be sympathetic to Jordan-the-Kermit Peterson: “Clean your own room up first! Then worry about getting a girlfriend.” (Trade partner).

3. Why Nations “Make Deals” Instead of Leaving

If the U.S. is making it harder to trade, why don’t these countries just go elsewhere?

• The “Exorbitant Privilege” of the Dollar: The U.S. dollar is the world’s reserve currency. To participate in global trade, most countries need to earn dollars. The easiest way to get them is to sell things to the U.S.
• Lack of Alternatives: There is no other “Consumer of Last Resort.” While China is a massive producer, its domestic population doesn’t consume nearly as much as Americans do. Europe’s economy is often slower-growing. If a country loses the U.S. market, there isn’t another market large enough to absorb their excess goods.
• Supply Chain Gravity: Global supply chains are built around U.S. demand. Moving a factory from Vietnam to serve a different market takes years and billions of dollars. Making a “deal” to keep the U.S. market open — even with restrictions — is much cheaper than rebuilding an entire national economy.

Counter I. from Bijou

The “Exorbitant Privilege of the Dollar” is a myth. It is a reality in that it is all in people’s heads. It’s important to know myths can be a powerful force, for good or bad, in this case entirely for “The Bad”, and totally destructive of decent civil internationalism and cooperation. If you honestly think one nation’s IOU is better for you than another’s you need your head examined.

The only thing the USD has an advantage over say the CND, NZD,AUD, is if the latter depreciate faster. But the USD has never been (as far as I am aware, I could be wrong) the most stable currency. It’s merely one of the most stable, so has no exhorbitant privilege except for what rich people invent for their own benefit. But the fairy stories of the rich, once they become believed as true, exert powerful baleful influences on general politics (the arts of government).

This is why I utterly loath speech from people like Michael Hudson and Richard Wolff when they reinforce the myth. You can point out the myth is a reality in terms of realpolitik, but then the moral onus is on you to immediately dispel the myth as a fraud. Because people die from fraud.

Machiavellians must not ignore the Myth:

Another important point is that if you are a trader in the private sector then you do need to consider the reapolitik. You’d be a fool to say," look, these are myths, so let’s ignore them…". Only in certain special circumstances is that good strategy, such as the Yen Widowmaker Trade(go against the market!). I would bet in most such cases where being contrarian is the best strategy is precisely in macroeconomics when a powerful government over-rides the desires of the market actors. Such as the Japanese government.

In other cases it’d be a long term strategy where reversion to the mean is the bet.

The best anecdote for this is given by Warren Mosler in his two books, in his account of the Lira Trade. He did not trust the Italian central bank — they could have caved-in to the bond markets expectations — so he went to see them to be sure he could trust them.

The main point is that government do not ever need to be Machiavellian, because they are the currency monopolist. They create the market (for trade in tax credits). They monopoly supply the market exogeneously. (Not endogenously.) The problem,always, is the people running the governments do not know this!

Counter II. (lack of alternatives) from Bijou

This is bollocks. There are always alternatives. If a nation is over-producing prices will come down and producers will stop selling. Causing freed up labour. This is good, good for workers, good for the planet. No one should care about the firm that went bankrupt, it is a natural process,and should happen more often.

The issue is always the workers. Not the firm. By definition here in this scenario the firms are producing more than enough for our wants and needs! By scenario definition!!!

The government can always absorb the entire labour supply, in perpetuity and without question. There are no end of good decent meaningful jobs to be done, we wake up everyday to severe labour shortgaes in care and service work, it is a chronic catastrophe. We desperately need more private firms to go bust, so that we can increase the public sector. These can always be clean energy “green” jobs. With low levels of commuting and electricity usage.

Counter III. (supply chain) from Bijou

The currency cost (in any currency) to a government is not a concern. If the investment is desired in Vietnam for our domestic security concerns, our government can always make the investment. If it is truly massive and the real resources are unavailable then it’s just dumb policy — it will bid up prices, &c. If not, then it can go ahead, however long it takes. Who cares? In retrospect, did we truly ever need the investment in Vietnam or wherever? I’d bet probably not. If they have T-shirts to sell, we can contract them to stick Silver Ferns on them, and if they refuse, boohoo, too bad.

Supply Chains really collapsed in a significant way during COVID-19, and no one died from that. It was a net win for the environment. This tells me the supply chain argument is bogus. It’s really about export firms trying to make bank. Which is not about national interest.

If the investment company is private that’s a whole different story. Why are they in our domestic security business in the first place? They have no business being in national security space. tell them to ꘝꖾꖹꖀꗣ off!

And again: what if the USA did not exist? Would we be worse off? (Probably not, all things considered.) It has no bearing whatsoever on NZ domestic full employment. The LLM cannot “see” this, since it’s not conscious.

The LLM continues …

4. Is the Goal a Positive Balance of Payments?

It’s less about “stockpiling money” and more about rebalancing the domestic economy. The goal of these deals is usually to force:

• Onshoring: Getting foreign companies to build factories inside the U.S. (creating jobs).
• Reciprocity: Opening up foreign markets to U.S. goods (like beef or tech) that were previously blocked by local regulations.

In short, the U.S. is using its massive market as leverage. Other countries “make deals” because a 10% or 20% slice of a smaller pie (due to tariffs) is still more valuable than 100% of a market that doesn’t exist elsewhere.

My reply (bijou)

The point noted is correct, the issue is rebalancing the economy, not hoarding currency. Economies run on spending, not saving.

What the LLM has missed is that this is a proper responsibility, an active responsibilty of government policy response. No “laissez faire” ꕗꖹꝆꝆꕷꖾꕯꖡ please!

The government response has to be to employ anyone unemployed by the trade regime shifts.

Tariffs are just messing things up, creating a need for government policy active response which would not have otherwise been needed. A disaster, because who is going to claim the government policy response is not totally backwards and regressive!

It is best to not have government make any response.

However, that is a fantasy world. There is no role for laissez faire when the government is a monopolist. It’s “not a thing” and when it is considered “a thing” it produces nothing of any good except for the benefit of rentiers and the Top Ten Percent. (Ok, that’s a bit polemical, but I think has to be noted!)

Hence I think no tariffs ever is good, since it eliminates the need for governments to make drastic policy responses, the policy responses can then be far more mild, and less likely to be a total disaster.

This is one argument for concerted Climate Warming mitigation action today. Even if our governments are a little but dumb. Because while there is not yet a total catastrophe the government responses can be rather mild and slow and careful. (Rather then later degenerating into Green Fascism.)

On the USA leverage — this is because people are greedy. It is not because of any macroeconomic essentialism. You (merchant) want to sell to China and the USA, because you just want to sell!:— M-C-M${}^\prime$. It’s madness. We desperately need to escape from the raw capitalistic (qua. Marx) mindset of M-C-M${}^\prime$.

Query 3

Why does a country need to sell off its assets or take on more debt to foreigners if had a trade deficit? As a sovereign country with a free floating fiat currency it can just create reserves whenever it wants to.

LLM Response:
That is a sophisticated take that aligns closely with Modern Monetary Theory (MMT). You are absolutely right that a sovereign issuer of a floating fiat currency (like the U.S.) cannot “run out” of its own money and can technically fund any domestic spending it chooses by creating reserves. However, the “selling assets/taking on debt” part isn’t about the U.S. government running out of money—it’s about the mechanics of how international trade balances out.

Here is why the trade deficit translates into foreign-owned assets and debt:

1. The Balance of Payments Identity

In global accounting, the Current Account (trade in goods/services) and the Capital Account (investment/assets) must balance to zero. If the U.S. has a $1 trillion trade deficit, it means Americans gave foreigners 1 trillion more dollars than they received. Those foreigners now hold 1 trillion “claims” on the U.S. economy. They generally only do three things with those dollars:

1. Buy U.S. Treasuries: This is the “taking on debt” part. Foreigners lend the dollars back to the U.S. government.
2. Buy U.S. Assets: They buy stocks (Apple/Microsoft), real estate (NY penthouses), or entire companies.
3. Hold Cash/Reserves: This is essentially an interest-free loan to the U.S.

My reply (bijou)

Fourth, they can swap their USD for any other currency with an fx rate. Typically this is what exporters to the USA do, so they can extinguish domestic tax liabilities (in the macro).

2. Why can’t we just “Print the Difference”?

While the Fed can create reserves to pay for internal domestic programs, it cannot “create” the trade balance away without consequences in the international market:

• Currency Depreciation: If the U.S. simply printed money to “pay” for the deficit rather than allowing foreigners to invest in our assets, the global supply of dollars would vastly outstrip demand. The dollar’s value would plummet. While this would eventually fix the trade deficit (by making imports too expensive for Americans), it would cause massive imported inflation.
• The Need for “Recycling”: For the global trade system to stay stable, those dollars must flow back into the U.S. financial system. If foreign nations stop wanting to hold U.S. debt or assets, they will sell their dollars for Euros or Gold. This would end the “Exorbitant Privilege” of the U.S. dollar, as we would no longer be able to buy foreign goods using a currency we alone control.

My reply (bijou)

These are ok responses from the LLM. Also, every other nation can do the same, so it’s a pointless race to the bottom to have such heavily unjustified import biased foreign dependency policy. But it’s hardly a danger, no government seems to be aware this sort of extreme policy is possible.

Your “exports pay for your imports in real terms” — means you really just want stable fx rates to avoid a lot of volatility.

Ironically/sadly, countries heavily sanctioned who either (i) cannot make the payments clear (SWIFT restrictions) or (ii) cannot get the goods shipped even in the payments clear, are exemplars of why imports are good if you can get them.

On the need for recycling. — the USD is peculiar in this way in that it does not need much recycling, since the eurodollar system permits foreigners to accumulate more nominal US dollars than they would otherwise not in US banks (not exchange settlement balances at the FED), say for AUD or CND or Yen equivalent trading. It is a crazy system. The rich Europeans benefit from the dollar hoarding in terms of social influence, and the US importers benefit form getting the real goods. No decent European should want it, but plenty of indecent Europeans do.

It’s highly regressive, not at all towards European public benefit. In this regard,always think the economy runs on spending, not saving. And what are eurodollar accounts? (Massive savings.)

3. The “Wealth Transfer” Argument

This is where the political friction lies. Critics of the trade deficit (including the Trump administration) argue that even if we can “print” the money:

• Ownership shifts: Over decades, a trade deficit means foreigners own an increasing percentage of U.S. farmland, corporations, and government debt.
• Rent/Interest extraction: Eventually, the U.S. has to pay interest on those Treasuries and dividends on those stocks. This creates a permanent “leakage” where U.S. wealth flows outward to service the people who funded our past consumption.

My reply (bijou)

I disagree.

(a) What allows foreigners to purchase USA assets? Not the currency supply!

(b) The Tsy/FED can offer permanent Zero Interest Rate. There is no “Debt burden” that is not voluntarily self-imposed.

4. The Geopolitical “Hook”

The reason countries like China or Japan make deals to keep selling to the U.S. — despite these complexities — is because they want those assets.

Exporting to the U.S. is how they build up their “nest egg” of dollar-denominated wealth. It’s their national savings account. If they stop exporting to the U.S., they stop accumulating the world’s primary reserve currency, which reduces their own global financial power.

Summary: The U.S. doesn’t “need” to borrow to survive (because it’s a currency issuer), but the Trade Deficit effectively forces a choice: either we let foreigners buy our assets/debt to balance the books, or we watch the dollar’s value drop until our standard of living falls enough that we stop buying imports. Does this distinction between “government solvency” and “international asset ownership” change how you view the “win” of a trade deficit?

My reply (bijou)

Yes. But the USA is voluntarily offering Its assets for sale. It does not need to. Instead of pathetic tariffs the US Administration could simply enforce capital shipment constraints, not sell off things in the US national interest, and the same goes for every other nation.

And yes, many “want the assets.” I am not one of them. No one needs to own US assets. It does not produce happiness or babies (I think not). “They” just want, want, want, more, more, more. It’s a rich ℭ𝔘𝔑𝔗𝔰 game and mindset. Government trade policy should not be catering to their wants.

I’d delete their nest eggs with a keystroke.

What permissive selling to foreigners does is it strengthens and enhances the parasitic global oligarchy, the only people who effectively “have no borders.”

On the summary: not a good summary, it is too half-arsed. Trade is highly dynamics, and a long prolonged currency devaluation like that has never occurred, because when the balance between importers and exporters shifts it is highly dynamics, it never does so catastrophically, except for extreme Black Swan type events (which are usually transitory).

No government needs to borrow. Private sector importers who desire more than they can afford need to borrow. A government that does not understand the purpose of a floating exchange rate might borrow a foreign currency, but I think in all circumstances that is an unwise policy. Instead they should take what critical imports they can get shipped, take the pass-through inflation hit and adjust domestic policy accordingly.

Under such sane conditions trade agreements are incredibly useful, so the respective importers and exporters have contracts they can “bank on.” In all cases I would say, a firm trade agreement is always better than a tariff or the like. Instead of a tariff consider renegotiating trade agreements to rebalance the flow of real goods if it gets out-of-whack, and use “security” minded capital controls rather than current account considerations (do not ever sell your land to foreigners, do not have any tourism industry, except sports visitors? At least do not ever actively support tourism since it is a great way to cook the planet). Just ignore the current account if you are not an fx trader, it is not a number worth worrying about, it is only of academic interest.

If your exports cannot pay for the imports your nation desires you risk fx depreciation if you still get the goods shipped, but that is perfectly fine, you are saying that is exactly what you wish for, and again it is normally transitory, say during rebuilding after a war in the event the international community of nations is not very helpful.

If your nation is a real pariah, or way too greedy, the foreigners will more likely just stop shipping if they cannot get a rapid enough fx swap to avoid a loss on the payment.

Footnotes:

(1)    That is, markets unregulated for the Top Ten Percent, and highly regulated for the rest of us. There is no greater severe regulation than unnecessarily depriving workers of the government scorepoints by policy design.