Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Trump Is Winning the Trade War
Make no mistake about it; Trump is winning the trade war with China. First of all, with the chaos that Trump has wrought in the trans-Pacific relationship, investment capital is exiting China and entering the US. The Chinese stock market is way down, while ours is approaching the pre-correction high. The dollar is appreciating, while the Chinese yuan is dropping like a rock. US growth is brisk, whereas Chinese growth is slowing. All of this means that China is hurting right now far more than the US, and financial markets are betting on the US winning this trade war. Seeking Alpha notes:
Along with a slowing economy, China has also had to deal with a weakening of its yuan currency. After an impressive rise in the yuan in 2017 and the early part of 2018, the yuan has been in decline since April. China’s loss has been America’s gain, however, as the U.S. dollar index (DXY) has strengthened since April. The graph below shows the inverse correlation between the two currencies.
And the Chinese government is keenly aware of the political problems posed by being perceived to be losing a trade war with the US. That’s why they’re doing what they do best: censoring the press. From the South China Morning Post:
Four separate sources working for Chinese media, who were briefed on these internal instructions, told the South China Morning Post that they were told not to “over-report” the trade war with US and be extremely careful about linking the trade war to stock market falls, the depreciation of the yuan or economic weakness to avoid spreading panic.
Furthermore, as annoying financial show host Jim Cramer pointed out recently, since Trump announced a 10 percent tariff on another $200B of Chinese imports, Beijing has not yet announced retaliatory tariffs. Of course, Beijing seems to have run out of tariff ammunition, as one cannot impose tariffs on imports that do not exist. New York magazine admitted such:
To this point, Xi Jinping’s government has been able to respond to Trump’s tariffs tit-for-tat by slapping tariffs on $50 billion worth of U.S. exports. But China can’t put duties on $250 billion worth of U.S. products — because it only imports about $130 billion of such goods each year.
NY Magazine also reported that the Chinese Commerce Secretary was “shocked by Trump’s escalation.” I, for one, am shocked that the Chinese Commerce Secretary is shocked. He must have done some background research on Trump. Trump’s been talking about doing something about unfair Chinese trade and business practices for decades. He’s serious about winning this trade war, and he’s doing what it takes to win.
So what does “winning” look like? It’s not that complicated. Trump, first and foremost, wants China to stop stealing our intellectual property and pirating our movies, music, and software. He wants lower Chinese tariffs on American exports to China. He wants the same market access that we give to Chinese goods. America should settle for nothing less.
Published in General
One of the things about a weak Yuan and strong dollar, though, is that it makes their labor even cheaper relatively. The Chinese government is certainly not beyond manipulating currencies, either.
Congrats to the president and his fans on his uncontested victory. The reason I forfeited is I knew I didn’t have a chance.
You’re Xi Jinping?
Every economist has two hands. Of course, as the yuan depreciates, the price of Chinese imports to the US go down, offsetting at least some of the US tariff-induced price increases.
You can still join the winners. We will welcome you with open arms.
If only we got such clarity from the press. Even NR has gone to the dogs over the Mueller probe.
Unmentioned by most is the imperative that we must get back to making things. Too much manufacturing has left the country. In the past, tariffs would raise prices for the US consumer and that would be too much disincentive for professional politicians. It’s a bit like Social Security and Medicare, They will run out of money but that will be after the politician has left office and moved on to a lobby firm.
Trump seems to be in it for the long term. He is not worried about his post official job or income. Now, with the economy booming and wages rising, the pain of raising prices on consumption may be less. We’ll see if this logic works in the election.
Or expand the United States to incorporate the places where things now are made.
Also a good idea. Finally, someone agrees with me.
I had the same thought upon reading the post. However, all should also take note of this:
In short, the US is principally the customer and China the vendor. Little of what they sell us is essential. In the marketplace of non-essential goods, the buyer has the power.
Some refreshing concessions from…WaPo (?):
So let’s review:
…says the national paper that probably hates Trump the most. Got it.
Wherever are we going to find a ready supply of t shirts?
I’ve thought it was possible, and I even like his strategy of drafting Canada and Mexico as foot soldiers in the conflict by making them pay for looking the other way as dumped Chinese steel was imported and fabricated and then exported via NAFTA to the US. But I don’t think nearly all the blows have landed yet, so I’ll withhold judgment. As a friend of mine (economist, Vietnamese immigrant, and perhaps the biggest critic of China I know) said, “The problem is that China can withstand more pain than American politicians. We’ll see. I hope you’re right, and so far, so good.
We will win the trade war, certainly, provided US policy persists for the next 6 years. But that does not mean China will bend on corporate theft or market access.
China might respond by trying to shift its exports to Europe and other markets. Or they will steal wealth the old-fashioned way: war on weaker nations.
There are no winners in trade wars.
With a trade war imported goods become more expensive for Americans.
Fortunately, Donald Trump and the Republican Congress have cut taxes and cut regulations, which has boosted the economy. This boost in the economy is of a larger impact than the negative impact of Trump’s trade war.
So, on balance, our economy is doing okay.
Herbert Hoover engaged in a trade protectionism and raised taxes. The result was a recession, which FDR turned into a Great Depression.
Republicans should be against government micro-management, against state planning.
Agreed. But tariffs have been a part of American government since the country was founded. So it seems a little silly to be suddenly up in arms now.
I’m agnostic on trade policy. But tariffs seem to me a normal aspect of government worldwide for centuries.
Raising tariffs is the equivalent of raising taxes.
Do governments have the power to tax? Sure.
But does that mean that conservatives should applaud tax increases? Absolutely not.
Donald Trump’s trade war is a tax increase dressed up as patriotism and we shouldn’t fall for it.
That said, Trump signed into law the Paul Ryan-Mitch McConnell tax cut, which is good. Trump and the GOP congress have cut regulations, which is good.
Fortunately, the positive impact of the tax cut and the regulations reductions will likely outweigh the negative impact of Trump’s tax increases (tariffs).
If China agrees to stop stealing our IP and lower their tariffs, would that be a win long term? Would you be in favor of such a policy?
So let’s make a deal: our tariffs go lower than they were before, and Chinese policies match ours in terms of tariff level and IP protection. Good deal or bad deal? Note that I’m not asking you if you think such a deal is possible, just whether you would be in favor of such a deal.
Yes, we should all at least thank our President for implementing the part of his economic policy that we all agree on first. Now, he’s entitled to implement the other parts of his economic policies, which he also ran on.
Sure. That would be great.
But Trump hasn’t just increased tariffs (taxes) in goods made in China.
Trump has increased tariffs on imported goods from Canada and European nations.
Trump ran on some good ideas and some bad ideas.
I will support Trump when he does good things and will oppose him when he does bad things.
I don’t think any conservative Republican (or anyone else for that matter) should just become the equivalent of Donald Trump’s press secretary.
Trump has been wrong about trade going back to the 1980s, when he talked on the Phil Donahue show about how Japan was killing our economy.
Would it be nice if Wisconsin dairy products faced an even playing field in Canada? Is it okay with you if Michigan-made cars faced the same low tariff levels in the EU as EU-made cars face here? This is not a trick question.
I’m a free trader just like you. Why don’t you think our trading partners are capable of implementing free trade policies in exchange for us doing the same? Do you have an alternative way to convince them to do so? I’m all ears.
Our trading partners are capable of implementing free trade policies, but they are also capable of doing the bidding of domestic special interest groups who don’t want to face foreign competition.
So there are tomato farmers in Italy who don’t want to compete against tomato farmers outside of Europe. There are people in other industries who don’t want to compete against people/businesses in other nations.
And some politicians are willing to give their consumers a tax increase in order to give these businesses and unions what they want.
Just because Italy and France and Spain are run by people who don’t care about impoverishing the people of Italy, France and Spain does not mean that Trump should say,
It’s too bad that Trump has this mentality. But we’re stuck because the Democrats are no better on trade issues.
Bernie Sanders and Donald Trump generally agree on trade.
Sad. #NotWinning.
I’ll ask again. Do you have a better way to convince our trading partners to allow our exporters more favorable market access?
No. I don’t. We have no control over what other countries do.
Other countries determine their policies. We determine ours.
Trump should not implement bad economic policies just because the politicians in Europe have decided to implement bad economic policies.
We should reduce our import tariffs to as close to zero as possible. This would be a tax cut for the American people.
But some people, including Trump, have become convinced that tax increases (tariff increases) are patriotic. Trump is wrong on this issue.
Sure we do. The US has the largest economy in the world (22% of world GDP). A widget company that controlled that much of the widget market could have some influence over the price of widgets. We’ve just never had a president who tried to assert that power.
No politician in Europe or Canada wants to be seen as Trump’s lap dog. This is why every time Trump has increased import tariffs on Canada or the EU, Canada and the EU have gleefully responded with tariffs against the US.
The politicians of Canada and Europe want to see Trump fail. And if Trump continues to adopt Herbert Hoover’s trade policy, Trump very well might fail.
Fortunately for Trump, he signed the Paul Ryan tax cut and he has cut regulations. These moves might more than cancel out the damage Trump’s trade idiocy is doing to the US economy.
The socialists of Canada and Europe are not smart enough to implement Trumpian tax and regulatory policies. They will keep doing what they’ve always done on taxes and regulation, and they will keep getting what they’ve always gotten: stagnation. They will cave, because they want access to our large, growing market.
Until the Paul Ryan tax cut reduced the US corporate tax rate, the United States had higher corporate tax rate than the nations of Europe. Why? Because the nations of Europe, despite their Left of Center leanings, have cut their corporate tax rates.
So, it is simply not true that they will just cave. Doing so and appearing to be Trump’s poodle would be political death.
The problem is that Trump is just wrong to obsess about the Trade Deficit. He has been wrong since the 1980s when he thought Japan was our enemy for selling us Toyotas.
Sure, they cut their corporate tax rates, but most of them still have VAT’s, which are levied on imports but not on exports. That’s not fair. Let’s do something about it.
We should simply cut taxes as low as possible, including import tariffs.