There are now really serious consequences from the trade wars Trump has incited with virtually all our major trading partners. The madness began on June 1, 2018 when he levied steel and aluminum tariffs on all our allies, including Canada, from whom we were making a net $8 B/yr trade/services profit: ustr.gov/... Then on Friday, June 6, The U.S. and China began raising $50 B worth of tariffs both ways on each other’s products and produce (the final $16 B was confirmed in August). Trump was targeting Chinese manufactured goods like airplane parts and medical devices, and they’re responding by hitting our soybeans, pork, fuel and vehicles. China recently handed their long-term soybean contracts to Russia, and are sounding out South America and Europe for the other products (Brazil also produces lots of soybeans, pork and oil; as does Russia). And where will our farmers sell their surpluses? With Trump antagonizing the EU, that leaves a shrunken market of developing countries (not big consumers of our exports), or maybe to USAID for pennies-on-the-dollar charity shipments of foreign aid (which Bolton wants to cut to the bone anyway). In July, Trump announced China will be hit with $200 B more worth of tariffs, or possibly $500 B of their entire net trade with us. He’s going to end up putting our farmers on Federal welfare. We have the most productive per capita agribusiness in the world, and it’s going to be on handouts. Should be interesting in November.
What Trump did this summer: His utmost to blow up our current economic system (without replacing it with anything — creating a vast strategic vacuum others are racing to fill) and our military security networks. You’d think he was working for a foreign power or something.
Trump’s faux-economists say the crisis is ‘manageable’ due to our trade imbalance with China, in spite of many US companies now bleeding out: www.usatoday.com/… In this they betray their pathetic amateur status in ‘the dismal science'. Modern macroeconomics relies on supply chains, which means raising tariff barriers will hurt U.S. companies directly both ways, not just our competitors. The Chinese could respond with more targeted tariffs in kind, or they could get creative. In extremis, they could threaten to enact their goal of replacing the Dollar with the Yuan as a global currency, by dumping U.S. securities (of which they hold about $1.2 Trillion, more than any institutional investor). That would cause chaos in the currency markets, but they probably won’t. China profits by having a strong dollar, since that makes their exports cheaper than ours. They could also retaliate strategically, by embargoing the rare-earth metals market. Almost all of our high tech depends on it; in fact, most of our industry, and China controls 80% of the world’s supply. Next-biggest producer Malaysia only has 12% so, it could not take up the slack. There was a plan to develop rare earth mining in Afghanistan, but it has just a fraction of the remaining 8%, and road access plus security are serious problems: www.nytimes.com/... The sober facts are that, in the current political-economic disequilibrium precipitated by Trump, a trade war with China is virtually impossible to win. They’re still talking to us, which shows they have more brains than Team Trump but that’s a given. Skilled diplomats keep their frenemies closer.
U.S. ranchers and meat producers are also being hurt by Trump’s ongoing NAFTA imbroglio. It would have made sense to re-negotiate some aspects of our North American Free Trade Agreement, but not to blow the whole thing up. Together we were a major trade bloc, which others like the EU or ASEAN had to deal with, and this gave us global leverage. We were making a $2 B/yr steel profit with Canada and an $8 B/yr total profit, before Trump’s tariffs on a $200 B/yr each-way exchange employing millions. Mexico imports a lot of our meat, and his tariffs are really going to hurt our producers now with Chinese markets shrinking. Some will have to liquidate their herds and go out of business. Others are stockpiling frozen meat in warehouses, trying to find other markets, or rendering prime cuts into animal food: www.dailykos.com/… Adam Posen of the Peterson Institute for International Economics, writes: “[Trump’s] launching of a trade war could prove, however, to be his economic Afghanistan — costly, open-ended, and fruitless.”
The Europeans, Mexico and Canada have already retaliated against Trump’s metal tariffs (while Russian aluminum giant Rusal ‘somehow’ gets granted an exception: nymag.com/... ), but he is now threatening all our allies with a 20% tariff on imported cars and parts. An incensed EU has promised to reply in kind, threatening our vehicle exports; our major manufacturers warn we could lose up to 200K jobs by next year, and three times that if the trade war continues: time.com/... And, the metals in that John Deere combine in the caption are going to cost a lot more now, but so will all our vehicles and anything made out of steel or aluminum: Cans, buildings, aircraft, and hardware of any kind. Sec/Com. Wilbur Ross betrayed his ties to the steel industry and metal manufacturers as he claimed on CNBC the increases would only be ‘pennies on the dollar’. Yes, but our multilateral trade is worth trillions per year, so that’s a heck of a lot of dollars. Manufacturers are going to pass those costs on to consumers, who will buy less, or else they’ll build more robots so we will all work less and buy less, or both, in a negative feedback of the ‘virtuous cycle’: www.furnituretoday.com/...
Macroeconomics is not a zero-sum game like New York real estate, where space is at a premium and competition for it is win-lose. Strategic international negotiations are predicated on win-win scenarios for the participants; otherwise, why bother? In international trade, there’s a whole panoply of factors which make cooperation more efficient than competition: Diplomatic aims (often in parallel with economic goals), longstanding treaties and commercial agreements, arms control regimes, and interdependent security partners who share vital trade networks of inelastic commodities such as food and energy (goods we can’t do without). It’s much better to bolster those networks with long-term allies than with rivals, but Trump is doing his best to blow up our most dependable supply chains, which take years to organize, and to alienate our closest allies. His incompetence is staggering. Daniel Ikenson of the conservative Cato Institute says: “Trump is treating trade policy as if it were a real estate deal, where the goal is to beat your opponent, step on his throat and humiliate him….the cost of that will be future trust in the U.S., and it will encourage other governments to behave this way when their backs are against the wall.” In other words, a lose-lose for everybody.
The normally staid Federal Reserve issued a June policy statement that, despite a strong economy, “...uncertainty and risks associated with trade policy have intensified...” and there is a concern “such uncertainty and risk eventually could have negative effects on business sentiment and investment spending.” The outlook on The Street is we’re due for a downturn. Christine Lagarde of the IMF just predicted a global slowdown of GDP by half a percent; sounds small, but since the global GDP is about $75 Trillion, this entails hundreds of billions of dollars in losses and jobs.
Trump’s simplistic Protectionist philosophy, and its deplorably ignorant supporters like Bannon and Miller, would have us return to the age of Mercantilism and continental embargoes which were such a spectacular failure in the 19th century, and led to an economic disaster in the 20th: The Republican-backed Smoot-Hawley Tariffs of 1930 accelerated the Great Depression, drastically deepened North America's economic dysfunction, and piled on to its untold privation and human suffering. A Republican Congress and President (Hoover) proved that in the modern era, economic tribalism can ignite a global trade war. This led to commodity market collapse and rural unemployment, on top of the ongoing collapse of main street America after Wall Street imploded.
In a shocking re-run of a Depression-Era program, Trump has recently directed Treasury to transfer $12 Billion in direct aid to farmers and ranchers. It hasn’t gone down well in the ag. belt, to say the least: www.nytimes.com/… The National Farmer’s Union already estimates Trump’s trade wars have cost US agriculture $13 Billion and counting. Not that Trump is able to count or care, but that means our farmers are already losing this one before the end of round one: www.cnbc.com/...
Well-regulated international trade helps expand the world’s economy as a whole, if the markets are arbitrated by a globally recognized treaty mechanism like the WTO. We get goods and services we need in exchange for our production surpluses, which creates jobs and opportunities on all sides. The fact our workers make higher wages wouldn’t be uncompetitive, if billionaires like Trump didn’t outsource their profits as well: Instead of re-investing them in American jobs, hardware, or healthcare, they plow them into more overseas factories, real estate and tax shelters. And has Trump done anything about that? Has he taxed our giant corporations for the obscene amounts they net by manufacturing in India or China and selling to the First World consumer, as he said he would on the campaign trail? Not one little bit. Instead he handed them the biggest tax cuts in US history. And have those companies re-invested even a little of this windfall in our domestic markets? No way, José, they used it all for corporate perks and stock buybacks for their shareholders: www.dailykos.com/...
For years we’ve objected to China’s low wages and human rights abuses, and how our corporations profited from exploiting Asian labor. The Obama Administration had helped to formalize an instrument that would have given us great leverage on such issues with China, the Trans-Pacific Partnership (a consortium of major trading nations on the Pacific Rim). It may not have been perfect, but there were sound strategic reasons for it: In 2011 China, Japan and S. Korea were negotiating the CJK-FTA, which would have created a formidable trading bloc in East Asia we couldn’t compete with. The U.S. under Obama made a long-term strategic decision to join the TPP with Japan as our leading partner, to prevent them being dominated by China, and to encourage a more democratic and independent alternative for the Asian ‘Little Dragons' (SE Asia and Taiwan). Trump dumped the whole thing without understanding the rationale or providing another option, and with that went any chance of pressuring China to at least raise their wages to fair trade levels and slightly tone down their crushing of dissidents, in return for membership. That’s why both Clinton and Kerry spent so much time on it — the TPP was an instrument of state as well as an economic lever in Obama’s ‘pivot to Asia’. The Peterson Institute, the U.S. International Trade Commission, and the World Bank all ran long-term models which concluded the agreement would benefit all parties and strengthen the role of the U.S., by reducing the members’ dependence on China and linking them to a U.S.-led network. With us bailing out, Japan has emerged as the de facto leader of a new Comprehensive Pacific Agreement replacing the TPP, and China has increased its regional clout and is telling the U.S. to go pound sand on the Spratly Islands issue. On the chessboard of international diplomatic/economic/intellectual competition, Trump gave away our Queen in exchange for nothing. He created a vacuum which is being filled by China in the Pacific and Africa, and Russia in Europe and the Mediterranean.
The first fruits of that breathtaking failure have already ripened: China is delaying N. Korea’s cooperation with Trump, because of his stupid escalations of the trade war. And they are aggressively courting the EU, bidding fair to replace the U.S. as a long-term economic partner. Russia is also briskly proceeding with its pipelines to Germany through the Baltic and to Italy through the Med. via Turkey, after Trump snubbed the EU yet again this summer with a fresh round of tariffs. He then slapped punitive tariffs on NATO member Turkey for good measure, over a truly tiny diplomatic spat (they’re keeping one of our expat. pastors under house arrest — which is diplospeak for velvet gloves; you don't insult the host country over it, because it could get much worse. Any sane leader would have continued ‘talking Turkey’, soft-pedaling the issue. Instead Trump pushed another NATO ally into Russia’s arms). Germany and Austria in particular insisted that EU energy is Europe’s business and they would pointedly ignore Trump's sniping: Austria’s liberal Chancellor, Christian Kern said, “Europe's energy supply is a matter for Europe, not for the U.S. To threaten companies from Germany, Austria and other European states with penalties on the U.S. market if they participate in natural gas projects such as NordStream 2 with Russia, or finance them, introduces a completely new and very negative quality into European-American relations." Ouch.
Watching the unfolding disaster of the Trump Administration last year, Merkel and Abe promulgated a new strategy of self-sufficiency and have now completed a trade deal between the EU and Japan. That doesn’t hurt us per se; those are old strategic partners we could quickly mend fences with. Nor is the chest-thumping game of chicken with China irreparable, as the Chinese are trying to remind us. In any case, if a normal American President really wanted to leverage China, the way to do so would be to prepare the ground diplomatically with all our allies on the same page; we could then ask for more U.S. exports and more respect for intellectual property (Google is negotiating for a way back in). These are simple common-sense measures; no need for a Nobel in economics. But Trump and his chumps keep doubling down and browbeating the Chinese from behind a very weak hand (“the ball’s in their court” they keep saying. No, cretins, you ate the ball and are out of your league).
What the Trumpian isolationists fail to grasp is that international trade is a multilayered 4-dimensional interaction of politics and necessity. It requires a sophisticated set of policy functions whose domain is statecraft and whose range is best analyzed with nonlinear dynamics and network theory. Modern economics is no mere quiddity of commodities and currency; an enlightened policy should also value transparency and quality of life. Thoughtful economists are now including such factors as pollution, public health and climate change in their models. It's not an 'us or them' contest, but a constantly unfolding web of interlocking phenomena which require inspiration and vision to intuit in order to improve the human condition, both at home and abroad. The way to reform the global market is not with ‘America first’, it’s with America leading through cooperation, stupid. That’s what made us the preeminent postwar power; what truly made us great.
It was a greatness defined not by who we were, but what we did: With the Marshall Plan, The Berlin Airlift, the Peace Corps, and as a founding member of the United Nations and sponsor of the UN Charter in San Francisco. Since it’s a tenet of American culture that individuals matter, perhaps we should remember President Truman’s remarks when that Charter was signed by us, because words also matter, ideas matter: “If we fail to use it, we shall betray all those who have died so that we might meet here in freedom and safety to create it. If we seek to use it selfishly – for the advantage of any one nation or any small group of nations – we shall be equally guilty of that betrayal.”