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Tuesday, Sep 23, 2025 - 17:45 SGT
Posted By: Gilbert

A Pigeonhole Theory for Nations

The r/singapore subreddit has serendipitously exploded with "money everywhere" posts, matching the theme from the previous blog entry - and possibly this one too. There also appears to be a cessation of professional courtesy with the Fox News website suddenly accessible here again, but TRUMP has if anything been doubling down on his Singapore/LKY impression, by suing the New York Times* for defamation to the tune of US$15 billion (currently pending summarization by ChatGPT or otherwise) towards exerting media control. Please forgive me in then finding their new US$100k Certificate of Entitlement equivalent on cars H-1B visas hilarious on first hearing, but yes, the U.S. should really sort out its immigration issues.

Back to the macroeconomics, the post-tariff trend has been for affected countries (i.e. basically all of them), to announce sundry tie-ups and trade deals between themselves; taking just Singapore as an example, we have announced a Future of Investment and Trade (FIT) Partnership together with thirteen other small-and-medium-sized WTO members just last week, which was cheekily (and not entirely unfoundedly) noted as sounding like "a gang of international money launderers", given the inclusion of Switzerland (recall, still on a 39% tariff rate), Panama, Liechtenstein and the UAE etc; bilateral partnerships are of course welcome (and par for the course nowadays, so our DPM says), with our President lately in Cairo to explore the feasibility of a free trade agreement with Egypt.

Other nations have hardly been idle either, it goes without saying, with Canada and Mexico notably agreeing to "deepen ties" for closer cooperation on trade and security, with a flurry of random-sounding collaborations popping up over the past month: European Union x Indonesia, India x United Kingdom, Vietnam x Brazil etc., ASEAN x China, and many more. However, it remains to be seen as to whether there is actually any synergy to be found amongst these strange bedfellows, with a first observation being that if these deals were so clearly beneficial, then why were they not concluded long before?

The natural response was that well, that was the ante-Trumpian era where Amerika didn't have prohibitive tariffs on most everybody else - but there's a pretty big catch:


But... don't all the economists say it doesn't matter?
[N.B. Sure gives new meaning to They Always Chicken Out.]
[Embiggen!]
(Source: xbato.com)


To set the stage for this explanation, let us begin with the celebrated pigeonhole (or in this case, chickencoop) principle from mathematics: if n chickens are to be put into m coops, with n > m, at least one coop must contain more than one chicken. It follows then that if n < m, then at least one coop must be empty - and possibly more, if some coops contain more than one chicken. This is conceptually related to conservation laws in science and engineering, where some property of interest within a system can only change by its aggregate inputs (or outputs), which is definitely useful for sanity checks.

But we're digressing a bit, so back to the main point: it has been estimated that the tariffs will cause U.S. annual goods imports to fall ~25% from about US$3.3 trillion to some US$2.55 trillion, or a decrease of US$750 billion. While specific numbers are harder to come by on the export end, it appears understood that the U.S. trade deficit is likely to be reduced, due to a large proportion of their trade partners having agreed to not impose retaliatory tariffs on U.S. exports in turn (i.e. "bent the knee", in everyday parlance). For the sake of argument, let's assume that U.S. annual exports fall by about 15%, or US$300 billion, from their current level of US$2.1 trillion. If so, this would represent a net halving in the U.S. annual trade deficit from some US$900 billion, to US$450 billion - still a decent chunk of change, mind!

And now, the direct implication: since the U.S. is buying (i.e. giving out) some US$450 billion less each year, all other nations will be selling, or earning, US$450 billion less too. It is not certain as to which countries, and in what combination, this loss will be taken, but happen it will; at least some of those chicken coops, will not have chicken for dinner.



Here we go again
(Source: xbato.com)


Which brings us back to all those hastily-arranged partnerships, expressions of goodwill and memoranda of understanding over the past months. It is true that there isn't really any harm in hosting international forums and gladhanding one's foreign counterparts; however, after all the posing and smiling for the cameras and glowing reports in the local papers, the Chickencoop Principle arises again, if with reduced scope: within each multilateral (like the proposed FIT) or bilateral grouping, the question of deficits and surpluses remains - who will be the ones to earn hard cash, and who picks up the tab?

Yes, yes, the mainstream media has been consistently singing the "deficits don't matter" tune, as discussed in the previous post - but harsh reality may be rather different than presented. If they truly don't matter, then why all the haggling over trade and tariffs, sometimes over literally decades, in the first place? Since all those "smart people**" are swearing blind that tariffs are dumb, then why haven't some of those more-enlightened countries resolved to drop all their own tariffs, and let others handicap themselves by keeping their own tariffs on them?

It gets worse, as a few articles have realized: with Amerika resolved to cut down on imports, their previous suppliers will have a ton of stock to export elsewhere just to make up for lost business, with the main alternatives being... each other. Using prospective future U.S. constituents Canada and Mexico as an example, Canada currently has an annual trade surplus of about US$63 billion with the U.S., to Mexico's US$172 billion surplus. A halving of the U.S. deficit would then shrink their surplus, or profit, by about US$32 billion and US$86 billion respectively. Now, Carney and Sheinbaum may be happy to pose with a football together, but is Mexico actually going to suddenly pony up US$10 billion for Canadian petroleum, or Canada import an extra 50,000 Nissan Altimas from Mexico?



My national budget! How to pay...
(Source: xbato.com)


And on to the domestic national budget deficits. Still using Canada and Mexico as representative examples, Canada is projected to run a federal deficit of over C$60 billion (US$43 billion), with Mexico looking a a deficit on the order of 1.66 trillion pesos (US$90 billion). While the conversion from a foreign trade deficit (or reduced trade surplus) to a domestic deficit can get complicated, it might be noted that Canada and Mexico are currently running overall international trade deficits of about US$10 billion and US$45 billion respectively. One then has to suspect that permanently doubling or tripling (plus US$32/86 billion) these annual figures, would most probably imply serious cuts to their domestic budget spending, and/or onerous increases in taxation (okay, or borrowing)

So to recollect what has been covered thus far: sure maybe a foreign trade deficit by itself might not seem to mean much, but it definitely looks like governments will come to painfully realise (or at least be forced to stop pretending) that a trade surplus (or lower deficit) helps a lot in balancing the domestic budget, i.e. spending on stuff (e.g. welfare, healthcare, education, other goods and services) to keep the citizenry happy (and stay in power). Perhaps they might point at Amerika and say, well why can't we be like them and just run huge persistent twin deficits, and to this the response is that they don't own the international reserve currency (and thus have the ability to print it), and they ain't the reigning God of War either!

At this point, the statement in May that "What's important about the (tariff) numbers, especially for would-be foes, is that they are large enough to topple governments", is hopefully slightly better understood. Offhand, financial prosperity is fairly highly correlated with political stability, in that with enough money, a government can usually find some way to pacify the populace whatever their actual political ideology (e.g. Norway and Brunei, with very different systems but both flush with petrogas wealth); contrast this with say Nepal, which the mainstream media has just reported to have had their finance minister chased into a river in his underpants due to not enough money (to the people), or Argentina, whom Amerika is currently throwing a lifeline to (because they like Milei's politics)

Given this, one expects many of the new agreements to go like this, after all the pleasantries:

Country A: Yes, this deal may see us export a net US$2 billion more to you each year, but trade deficits don't matter! Your current account deficit is automatically matched by a capital account surplus and inflow of foreign capital! It's not like you don't have a trade deficit with your barber either, right?

Country B: Save us this bullshit, this crap only works on the Yanks - and seeing as this conversation is off the record, you can shove your barber where the sun don't shine (fine, all this will probably be communicated slightly more politely, but with roughly the same sentiment behind it)



Nah, don't listen to my n00b alter-ego
(Akiyama has some way to go to match Amerika in strategy)
[N.B. He who controls the spice Amerikan consumer, controls the universe!]
(Source: xbato.com)


[To be continued...]


[*While the NYT has replied that they will not be deterred by intimidation tactics, it is notable that they bent the knee to LKY (and two other Singaporean prime ministers) back in 2010, for implying a local political dynasty. On this, a cursory search reveals that a host of international news outlets including The Diplomat, Deutsche Welle, the Japan Times, Thai PBS World and the sister (and daughter) of some of the involved Prime Ministers have all described Singaporean politics as dynastic, so one has to agree with the Financial Times in later implying that the New York Times should really grow a pair someday.]

[**Which kinda explains "smart people don't like me", other than the ugly but probably warranted envy.]



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