Trumps Trade War - Still Easy To Win? by Walrus.

I have stated before that free trade is a good idea that enriches all participants. I think I understand that President Trump does not agree.

His latest tweetstorm on the subject seems to me to contain an element of desperation. Each tariff  he imposes stimulates a new Chinese response.

But wait! You say, what about all those new American jobs? Surely that’s a good thing? Sadly it ain’t because you lose jobs in areas that can no longer compete because of higher local American input prices.

Then of course there is the job loss caused by China refusing to buy American agricultural products like soybeans. AhHa! you say “but the government can compensate the farmers out of tariff revenue” Of course this is true, but you have just allowed the Federal Government to set a proportion of farmers income. Guess how well that works?

The direct job losses are only a first order effect and the need for farm subsidies is a second order  effect. You will see more of those second order effects shortly - government subsidies to folks injured by our trade war. They cost lots of money and take oodles of public servants to administer. Then add in the lawyers and slime balls gaming the system and you can have some real fun.

The real problem your children will see are the third order effects -  loss of competitiveness, stagnation, poor exports. You will have jobs but they won’t pay very well. This happens for a simple reason; if you are the manager of a business protected behind a tariff wall and you want to raise profits you have two choices; invest in R&D, buy new plant and equipment to become more efficient or lobby Washington to raise tariffs 5%. Guess which option is cheaper and faster?

I lived in a protected economy. You get frustrated by seeing cheaper and better products available overseas while you are constrained to buy expensive shoddy local product, it takes about 20 years to reach that point.

Its rather like drug addiction; the initial high, then larger and larger doses to keep “up” then the gradual health decline as the drug use affects the body. Good luck with being a closed economy, you are going to need it.

P.S. All that stuff about stealing intellectual property is puffery. We all do it, any way we can, as much as we can. China steals from us. We steal from China. Who cares?

Comments

[Dom]

I agree, tariffs are bad for consumes.
However, what so good of having a free trade if locals have no money to bay the goods?
Sure, it serves well the chosen few.

[turcopolier]

Dom

The problem with Walrus' argument and yours is that they do not represent the reality of the US at ground level. In fact, the masses are doing well financially and the internal US marketplace is immense.

[Lars]

These tariffs already are having a negative impact on the US and even the world economy. Both are slowing and some segments, like farming, will lose market share for a long time, as others step in to replace them.

The biggest problem with China is the theft of intellectual property, but tariffs is the wrong remedy for the wrong problem and will end up a loss for both sides.

China is a challenge and it will take an intelligent effort to meet it. It appears that Trump does not have what it takes and may make things even worse for the US. UK is busy shooting themselves in the foot and the US is heading that way.

But if you are unable to understand the problem, you will not find the solution.

[turcopolier]

lars

What a shame to see a long term supporter of Trump like you finally turn against him. (irony)

[Ken Roberts]

Fair trade, rather than free trade, is the idea that I believe has a better political resonance with the man in the street, when considering global issues. There are arguments that existing trade practices are not fair, in particular cases, but overall trade is beneficial as a means of improving effectiveness. The art, it seems to me, is tuning the system by creating incentives to adopt better practices. Bashing and grandstanding are not useful, neither as tactic for negotiation, nor in terms of supporting future entrepenurial activities.

I took a tour of central Illinois a few months ago, and made a post Invest in Illinois, on a financial forum, in the face of a considerable headwind of down opinion. With only moderate success. Most people are downbeat, and man in street is also downbeat in economic outlook, though personally upbeat and full of talent and energy. A recent tour of southwest Michigan confirmed my opinion. And here in Ontario, I see a gradual decline of supply chain for spare parts and inventory of ordinary items. The cream-skimming of online supply chain is destroying physical supply without sufficient creation of a durable substitute.

My advice to Pres Trump would be to cultivate Tortoise behaviour despite his inclination to Hare outbursts of opinion. He managed Tortoisism for the past few years to outlast his political enemies, so he has the capability to distinguish among his words and deeds.

[Vegetius]

I care. Your argument is reductionist garbage.

A political-economy that puts the health and prosperity of its own people before allegiance to a bankrupt neoliberal economic theory does not automatically mean it begins operating under some equally bankrupt Soviet model. Similarly, it assumes that people are economic units and will respond as such, which ignores everything we have know about homo sapiens as such.

This is the theology of Davos Man, whose head the people of the West have begun to call for.

You know what is worse than seeing the same good cheaper elsewhere? Seeing your entire society shredded by market forces while a handful of gangsters who have been wrong about everything for 30+ years open you borders to invaders, commit fraud with impunity, buy off your politicians, rape your children, and laugh while they are dong so.

[Jack]

Walrus,

Free trade is a myth. Tariffs and non-tariff barriers including subsidies have always been part and parcel of the global system. Yes, we have had the rhetoric of free trade but the reality is that from Asia, to Europe and the US we haven’t had a system free of subsidies and barriers. Europe and Asia as well as the US have always subsidized their agriculture for example. China has always protected its market and subsidized everything from steel to solar panels.

Ross Perot and Sir James Goldsmith have proven correct and prescient. We have seen the results of “free trade” that our political duopoly have promoted over the past few decades. While Walmart is flush with cheap goods from China and Vietnam, entire communities have been devastated. Wall St who were the prime movers for this “free trade” did not care about the national security implications of dismantling our industrial base and shipping it overseas. They wanted the economy financialized with rampant growth of leverage where they clipped a coupon on every dollar of debt. We now the worst wealth inequality in history.

The US has run persistent trade deficits for decades. We import around $3.1 trillion and export around $2.5 trillion. Most imports are US and multinational brands bringing their stuff from overseas. A third of our exports are capital goods like aircraft, machinery and semiconductors. Another third is industrial supplies like chemicals and petroleum products. Just 9% of exports are food, feeds and beverages. Meat & poultry of $20 billion, Soybeans of $18 billion and corn of $14 billion. Ag exports are a rounding error for our economy. Even if the entirety of Ag exports were subsidized it wouldn’t dent our already bloated federal expenditures including the elephant in the room our extraordinary healthcare cost structure that consumes over a third of our federal expenditures and continuing to double every 8 years.

The global economy has been weakening for over 18 months now even before any of these trade wars began. Eurodollar liabilities have been shrinking since 2018. German industrial production has been declining for months. So have exports from South Korea and Taiwan. China have had stimulus after stimulus to keep their house of cards including a delinquent banking system afloat. The relatively self-sustaining US economy has been the standout but it too is showing early signs of a weakening in the manufacturing sector. The fact is that capex investment has been weak despite loose monetary conditions as at least in the US corporations borrow money to buyback stock rather than invest in new plant & machinery. The trade conflict’s biggest impact is on psychology. But it has the benefit that multinationals have to rethink their supply chain strategy if we’re beginning an era of de-globalization.

China has had a free ride for at least three decades. Bill Clinton gave them Most Favored Nation status and enabled their entry into WTO which was the culmination of the many rounds of GATT. With the promise of their 1.5 billion people the CCP seduced western companies to transfer their technology and invest their capital. The managements of these companies seeing massive increases in their personal wealth at the behest of Wall St did so. Now we’ve created a monster! The Chinese economy is a CCP controlled entity with no rule of law. It is arbitrary and capricious at the whim of top CCP officials. Xi Jinping and his coterie decide who can sell what and what your tribute is. As Japanese, South Korean and Western companies have recognized they are at the mercy of CCP.

China and it’s people are not an enemy of the US, IMO. The Chinese Communist Party and their totalitarian ideology is definitely an enemy however. Sooner or later we would inevitably have to fight them. Trump for all his flaws at least seems to have the courage to engage in this battle. It’s not only the CCP that he’s fighting but the fifth column agents of CCP right here at home. The advantage of fighting CCP now rather than later is that it doesn’t have to be a military war. We can destroy the CCP through economic and financial means today. The Chinese people deserve the ability to chart their own course without the jackboot of the CCP. I hope Trump and our political duopoly have the resolve to engage this war with CCP with the only objective of their defeat. Like any war the American people will have to pay a price. That price will be much less now than later.

[confusedponderer]

Walrus,
re: Then of course there is the job loss caused by China refusing to buy American agricultural products like soybeans. AhHa! you say “but the government can compensate the farmers out of tariff revenue” Of course this is true, but you have just allowed the Federal Government to set a proportion of farmers income. Guess how well that works?

Iiirc China has themselves put retaliation (since they themselves didn't start this after all) penal tax on US soybeans.

That was of course very predictable and is of course resulting in the US failing to sell these to China, and is likely over the time resulting in jobs lost - in iirc one of Trump's homelands (to the extrent he ever worked physically, golfing doesn't count) i.e. they thankfully pissed him into his re-election party.

US federal or state compensations for the penal tax game effectively kicked off by Trumps more arbitrarily clearly come at the price of US dollars - either printed (inviting in long term instability and inflation), taxed in the US (pissing off GOP donors) or lent (then being even more expensive).

Naturally the money so spent is not available for doing boring stuff like repairing roads, bridges, water lines, health care etc. pp. i.e. it is paid for by the US themselves, not China.

There is a funny story I read how China gets the US soybeans anyway, despite the penal taxery. How? Simple:

They don't buy the beans from the US. Canada does. China then imports from Canada, which is not under retributal penal taxes. The US penal tax China, China penal tax the US, and Canada earns and China, in free trade, avoids even their own penal taxery.

Does that concern Trump?

I daresay he isn't concerned because a more serious analysis of this may be longer than 4 pages, exceeding his attention span. He is only interested in not being criticised, looking good (to the extent that is possible), not to debate seriously and especially in his re-eletion.

And he iirc has last week told that he 'is the chosen one' (Chosen by whom? God? The electoral college?) or something to fight the trade war with China, which is - acording to Trump, Pence and Navarro - easy to win and perhaps wonderful to masturbate on.

https://foreignpolicy.com/2019/08/23/trumps-economic-iron-curtain-against-china-hawk-peter-navarro-american-factory-obama/

Was the US chosen trade war necessary? Of course not, but to some folks it seems to feel good. Big business damage likely - there is a zero tax game, only when we win and the other side loses it is a good deal.

And then some certain man may just eagerly run to his insecure old phones which are a nightmare of the whitehouse security folks and tweets off some more penal taxes, against ... anybody ... for ... whatever. And then, another 30.000 calories sumo diet and a litre or two of ice cream.

[Harlan Easley]

"I have stated before that free trade is a good idea that enriches all participants."

You lost me there. First sentence. I have a degree in Economics and tend to agree with John Maynard Keynes. That he learnt economics after University.

Ideology blinds most on this subject maybe including me. Though I believe I see it unfiltered.

It's common sense. We want from a Farming based economy to a Manufacturing Based economy and the elect have decided to bet it all that we will transition to a Service-Based economy.

My view is Manufacturing supports the Service economy. My community which is manufacturing floorcovering is a perfect example. We are still behind 7,000 jobs from the pre-2008 high.

In that time many service based businesses went out of business. We had a release valve in that many immigrants went back to Mexico.

Look at the Rust Belt and the evidence is clear that deindustrialization has been a disaster.

I agree the tariffs will not work. I have an online floorcovering store and the LVP sourced China products are being sourced to Vietnam, South Korea, and Taiwan now. And I plan to sell them. Adapt or die.

Which I am capable but the blue collar worker who relied on his hands has been decimated by deindustrialization and mass illegal immigration.

Many are 6 feet under the ground due to despair via opiates or in jail with the masses of blacks who have little job opportunity.

I find it amazing that financially well off people are blind to this because their 401 and house prices has appreciated so much. The tension in this country is economic. Racists elites use racism to distract from this issues. However, the clock is ticking and the good book does say the meek inherit the Earth.

[jonst]

The present arrangement, or, at least practice, with China puts our supply lines/logistics at their tender mercies. See GAO Report. https://www.gao.gov/highrisk/dod_supply_chain_management/why_did_study

As well, it makes us vulnerable if we lack in the basic capacity for the meat and potatoes of what moves an army. Steel, etc.

Further, a trade deficit of the size we have with China is unprecedented, and, I think, unsustainable. It has contributed to shrinkage of our middle class. It has been long overdue that we challenge this state of affairs. That challenge was ALWAYS going to come at a cost and perhaps a high cost. Trump's typical bluster and bravado not withstanding. The time to challenge them is most opportune at a time of chronic, low inflation. All things relative. And none of this address China's theft of our IP. And their spying on our entire business sector. (and yes, I am sure we are not angles in this kind of thing. But we are compared to them). If you think not try bring an IP infringement case in China v. trying to bring one in the US. Trump has the diagnoses down pat. However, as usual, he is much less effective or consistant in the treatment of the problem. Warren, and a good part of the Dem Party, claims, anyway, THEY are on board with the tariffs. So, it seems, are the farmers, at present. Did we think this kind confrontation was going to be pain free?

[Fred]

Lars,

Farming of what? Corn (ethanol, high fructose corn syrup, etc), soy beans, pork, arugula? How many jobs does that account for?

[ted richard]

actually walrus the entire 19 century of the rise of the united states into a major world power by the 1920's was the RESULT of tarifs which protected our nascent industrial base to build itself up into something better before being crushed by already devleoped europe.

our problem is too much of our industrial base was shipped overseas starting in the 1980's, the short term demands of wall street for good earnings each qaurter when sometime a company has plow its profits back into r and d for the longer term health of the company.....a perfect example of the DESTRUCTION of an american iconic corporation with great r and d and products was john welsh's tenure as head of GE. he and his ideas destroyed this incredible company in less than 15 years... all so he could show wall street a pennnies more in earnings each quarter.

[Seamus Padraig]

You took the words right out of my mouth!

[Seamus Padraig]

We don't have to fight anybody; all we have to do is stop importing everything. Tariffs are one thing. War with the PRC is another matter entirely.

[Norbert M Salamon]

While it is overdue in certain respects that the USA try to reverse her international balance of payment record of the last 30-40 years, methinks this came too late:

1., According to the energy department the oil production of USA is set to decline in a few years [3-5 depends on the government's analyst, while it is also a major money loosing business for over 10 years] thus depriving the economy of necessary surplus power to rebuild the industrial base[while rebuilding the national infrastructure to support the "new" industry].

2., The major corporations are neck deep in debt [financing all the share buybacks/ Private equity "investments"] thus having a shortage of available finance [short of the printing press].

3., As the analysis of "educational level" of the workforce available to "build and operate" the repatriated industry is insufficient, due to neglect of education for the last many years [reflected among others in international comparison of literacy, numeracy, stem]

4., The political/NGO/Think tank world has alienated the world's two largest economies [China and EU as per IMF, World Bank and CIA on PPP basis] thus foregoing any effort by these major economics to help the USA rebuild.

5., the Monster MIC and corrupt health care system takes too large a proportion of the national income to permit any constructive steps without large scale and immediate reorganization, which the corrupt Congress will never enact.

[walrus]

I understand your anger. I have not made my point very well. I was very angry too as a. young man.

I was angry at having to buy crappy Australian made cars that had half the performance of European and American iron that sold for impossible prices in Australia thanks to 100%+ local tariffs!

I was angry at watching U.S. movies and T.V. which displayed everyday people wearing clothes and using household appliances that were either stratospherically expensive or impossible to buy thanks to 100%+ tariffs.

I was angry like the mining industry and the agricultural industry who were hamstrung because they had to use expensive local inputs for everything.

I was angry at the egg marketing board, the potato marketing board, the sugar price stabilisation scheme, the dairy authority, in fact hundreds of authorities that existed to “stabilize “ the price and marketing of such goods.

Oh sure, we had jobs but your money didn’t go too far because we were constrained to buy local crap with it.

Now to get back on track. You blame Wall Street Vultures for this? Correct, but you aren’t thinking ahead. What do you think the vultures will do now? That’s right. They will game the tariff system and American manufacturing! That’s what I’m trying to tell you!

In gaming the manufacturing base, the vultures are going to do a lot more damage to America than free trade ever did and I speak from experience.

To spell that out, inefficient American manufacturers are going to be given lifelines they don’t deserve because they are providing “jobs”, managers and owners are going to get very fat and happy by screwing Americans just like Wall street financiers did. I grew up in a protected economy and I know what it’s like.

The tariff addiction only ends when it becomes obvious that your truly competitive industries are having trouble competing internationally because local costs are too high and then your currency suffers.

The implementation of free trade in the U.S. should have been accompanied by massive training and education programs to blunt the bad effects on workers, but that isn’t the American way.

As for stealing IP, we all do it, all the time, America included. However I suggest to the Committee that subject warrants a separate discussion.

[Eric Newhill]

Walrus,
It has become apparent that you're an unapologetic globalist.

Turning America around, including getting people educated for the right jobs, putting a check on the Wall St pirates and everything else you mention has to start somewhere. You may be ready and willing to consign the US to a fate of surrender and decline, but some of us are not. Maybe that's because we live here.

I think a good place to start is creating more demand for American products by balancing trade with China. Everything else should follow if we can get more Trump and not the democrats in 2020.

[TonyL]

Walrus,

"As for stealing IP, we all do it, all the time, America included. However I suggest to the Committee that subject warrants a separate discussion."

I would very much like to see this subject discussed here. I think a lot of people have been conditioned (ie. brainwashed) by the MSM or other interest groups to think China is the only country that actively stealing IPs.

[Petrel]

In addition to the outsourcing of basic manufacturing, our country lost internal free / cometitive trade in agricultural products such as flowers and foodstuffs, such as lemons, to Archer Daniels et al.

The stuff on our grocery store shelves arrives via "managed trade" cartels. The price of the same lemons is 25 cents in Mexico, $1.25 in Canada and $2 here. The price has nothing to do with yearly rainfall, transportation or production cost, merely what a controled lemon market will bear. Equally, competitive flower growers in California and Florida were frozen out of the US distribution chain in favor of obscenely large Columbian flower cartels.

We used to have a Department of Commerce alert to such "managed trade." A return to a legal regime circa 1940 would be very nice.

[walrus]

Yes Ted, your tariffs did protect nascent industries and every American consumer at the time paid for it. That was a political decision.

The American consumer is also going to pay for the current set of tariffs, but nobody seems to have worked that out yet. As Heinlein said “TANSTAAFL’.

[walrus]

Yes Eric I agree with you, except about being an unapologetic globalist. I’m a realist.

What I am trying to say is that trade nationalism of the Trump brand has huge pitfalls - which an overconfident President is ignoring.

[Babak Makkinejad]

Walrus

In my experience, many many domestically produced US products were superior to what replaced them. They were generally better constructed and lasted for decades. A Crown Vic could easily reach 200,000 miles. A Kelvinator, 25 years. The imported products have been generally inferior, specially those from China.

[jonst]

I will take any bet you want to make on oil production futures. I have been hearing the gloom and doom of declining production for years. In the face of increasing production for the last ten years.

[catherine]

'the evidence is clear that deindustrialization has been a disaster''

Yes it has. I was a college student in 1964 and went to the GATT conference in Geneva with my father who was testifying on behalf of American manufacturers.
Everything the manufacturers warned about came true right down the line and America lost its industrial and manufacturing base over the next 15 years. Half of my state is today a waste land, littered with boarded up textile and furniture plants, a hundred thousand or more jobs lost.
We needed some protectionism,tariffs or quotas in order to encourage investment in a manufacturing come back.

BUT...Trump is doing it wrong. I don't want to get into a long complicated discussion on what he should have done so just let me say Trump is a mental case idiot....trade is complicated, its not a RE monopoly game.

[walrus]

Yes Babak, I agree. But will new products built behind tariff walls, be of that quality again? Not if the Wall St. slicky boys have anything to do with it. You will get junk, just a dollar cheaper than the imported product.