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Trade Wars Are Easy to Win
The President demonstrated his ignorance of the basics of trade once again this morning with a classic tweet:
Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking! Remember, we are the “piggy bank” that’s being robbed. All will be Great!
— Donald J. Trump (@realDonaldTrump) July 24, 2018
Someone should tell that to Harley Davidson and Whirlpool who just cut forecasts due primarily to the impact of tariffs. At least their workers benefit as their jobs will remain in America. Oops.
At least the American farmer, the bedrock of our nation, remains unaffected. Damn. Don’t worry about the great American farmer, however, President Trump has just the plan to fix this.
Once again we find out that it is the politically connected who are protected from the destruction wrought by trade wars:
The Trump administration plans to offer billions of dollars in aid to farmers hit by tariffs on their goods, an emergency bailout intended to ease the pain caused by Trump’s escalating trade war in key electoral states, people briefed on the plan told CNBC.
The total aid amount is reportedly about $12 billion. A senior administration official told NBC News that the aid would be temporary.
The announcement could come as soon as Tuesday afternoon, hours after the president proclaimed on Twitter that “Tariffs are the greatest!” An industry source briefed on the plan said the package could use existing programs designed to mitigate price and coverage risks, and could target dairy, pork and soy products.
So, to combat the predictable effects of an ill-considered trade war, the President is going to mortgage the future to pay off those in the present. Well, at least Trump is starting to act like a typical Washington politician.
I hate to say I told you so, but…
Published in General
Yes, as I just mentioned, our democratic republic is designed in such a way that we will never win a game of chicken. That is so amazingly foolish, I have a hard time believing that it is Trump’s intent, because I don’t think he’s dumb. The alternative might be that he’s seeking the short-term gain of blue-collar votes, and that might be true, but it is very bad for the country. I’m not sure what the most charitable option is, but I suspect that it involves a simple ignorance of how the economy works, and I hope that Kudlow may be able to have some influence in that regard.
I actually don’t recall. Are you suggesting that some sort of loyalty is necessary to be a good citizen? The premise that this requires to be even plausible, is that we’re looking at some sort of policy that involves temporary “pain” and a long-term “gain.” I can think of a few policies like that (welfare reform is one). Of course, this seems to be the exact opposite, and maybe that’s what you’re actually saying? I honestly don’t know- that’s the problem with one-liners, they are only good if I immediately get it.
I think that this is what the economists, and Jamie, are saying about how trade works:
PHCheese, the economics of trade have nothing to do with “supposed to”. I am not in any way insulting you when I say that you need to study basic economics, and you will understand. The Chinese can’t change these basic laws, the Russians can’t change them, and Trump can’t change them.
The Russians and Chinese can manipulate appearances, of course, due to the fact that they operate under effective dictatorships. They can hide the ball, so to speak. The US cannot do this, and will greatly hurt itself if it attempts to play that game.
I’m not a fan of tariffs as a rule.
That said, I suspect the negative impact will be mitigated by Trump’s other policies, with positive results overall.
Allow me to contrast it with what is generally considered to be a part of a government “program”. There is no department or budget. This is a short term monetary solution to a negative current effect of the ‘trade war’. China chose our agricultural products as ones to target in their retaliation. This their strategy to inflict internal ‘pain’ on the U.S. I think that China’s people will be the ones who receive the “pain”. This, up to $12 billion, in aid will provide temporary relief to those harmed by the trade war. Reduced internal U.S. pain during the negotiations.
There is no new government bureaucracy or additional budget funding. The aid will be administered by the USDA’s Commodity Credit Corporation and will be in effect only as long as the President needs to work out a better long-term trade policy.
China will blink first. As soon as they do, no more need for the aid. No program.
If this is not crony capitalism, then please explain “why not?” Here are the first two descriptive sentences from the Wikipedia page on “Crony Capitalism:”
“Crony capitalism is an economy in which businesses thrive not as a result of risk, but rather as a return on money amassed through a nexus between a business class and the political class. This is done using state power to crush genuine competition in handing out permits, government grants, special tax breaks, or other forms of state intervention.”
Trumps bailing out of farmers is a textbook example of this.
What does this have to do with anything? All workers are Americans (except for the illegals). Are farmers more American than me?
Did anyone read sundance’s take on this and how CTH believes it’s the US trying to pry itself away from “Big Ag” which he equates to globalism?
Would be interested in hearing some opinions (sans the Trump bashing, s’il vous plait).
Exactly right….. the Russians and Chinese can prop-up industries through back channel support, or just tell em to suck it up. In the long term ( ie many years) there might be repercussions to the leaders. In the U.S. 100 soybean farmers can raise enough political racket to start to get some relief in a couple of months. Our trade foes see the president caving in to ask for 12 billion, they will be encouraged to continue….
I’m skeptical about it working, but not dismissive of the idea. I do have patience, largely because I frankly think the likely economic damage from tariffs is an acceptable trade-off for what I consider the positive aspects of the Trump administration (including, but not limited to, his overall economic policies). I hope you’re right, especially regarding the ‘temporary’ part (its not like I haven’t been wrong about Trump before).
China selected the farmers, not Trump …
“Are farmers more American than me?”
Well, Steve … I didn’t say this. Make your case to the President. Clearly the agriculture industry did. If your industry was targeted by China, you would have a similar claim. Nothing crony about it. Have some cheese.
I know you are trying to justify this somehow, but I don’t get your point about who administers the money. It looks to me like the same old story of a government welfare program.
I’m sorry, but as @ryanm has pointed out, China is a communist dictatorship. Their leaders are not at all accountable to their masses. They can dictate anything they want to them, including making them suffer through trade barriers. This is a losing battle for us.
Well, as a man born from a farming family, I’ll answer that with one word: yes.
And I say that mostly jokingly, but I think I have more respect for the profession (yes, profession) of farming than any other.
The oligarchs don’t like what has happened to their stock investments. [link]
Just out of curiosity, what do you mean by this?
Are you suggesting that Trump has more nuanced views on trade than can be deduced from that tweet?
If so, I agree that it would be relevant to the discussion- though ultimately, it is a discussion about the wisdom of tariffs, is it not?
An interesting sidelight, but the oligarchs are not the ones in charge of the Chinese Government. It is still run by Communist ideologues whose main concern is holding onto political power. Note that they have killed more than 50 million of their own citizens. Perhaps private sector oligarchs can have an influence on the government, but I have yet to see a communist government toppled by their own wealthy citizens.
You would admit that farming in general is high on the list of those sucking on the government teet?
I actually have a degree in economics. I don’t dispute basic laws of economics but do dispute the maze of trade laws in place to regulate how trade is conducted. I tried to explain this in as in a simple short sports analogy. Trump can change the framework of trade rules often written by American hating bureaucrats wanting to tilt the playing field against us. As you may or not know I ran a Cheese manufacturing company for thirty years. Even though my company had a huge comparative advantage against the EU, Cananda, Mexico there wasn’t a snowball in hell of exporting my product to them. Why, artificial trade barriers? Free trade for the most part is a bad joke. Supposed to be free it isn’t. Just for the record I also have a degree in History and Political Science. Learned more in first year of business than five years of college.
Sometimes you have to threaten to get a better deal and threats don’t work if no one believes you’ll follow through.
So far, our history of “free” trade has been horrific agreements such as NAFTA and extremely high taxes that benefit China. I’m not seeing that a few tariffs are worse. When I worked at Dell, no country in the world could compete with us for cost of manufacturing a computer. It was the corporate tax rate that drove the business to move its executives and manufacturing to China. We have decimated the manufacturing capability of our nation.
If a tariff knocks some sense into trading partners, all the better. Free trade doesn’t work with unfree countries. All China has to do is force it’s people to submit and starve. Our government can’t do that. We need to get better agreements and that might mean more credible threats. Trump is playing chicken and he’s not going to blink.
I hope. Time will tell.
Cheese, I think it would be very interesting to read about your experiences with the Chinese economy, and it could very well give us all a somewhat better perspective. Would you consider writing a post about the subject? Not about Trump’s policies with respect to China, but just about the Chinese economy and how that might relate to us. I’d be very interested in reading.
If I understand what you’re saying correctly, you’re talking about foreign trade barriers (like what we see with the EU). I agree that these policies are bad. I think the point of discussion is that eternal question of whether two wrongs make a right. I’m not being flippant; obviously, there are cases where bad is necessary to counter bad – defensive war is a good example. I tend to think that the more free our trade, the better we are, even with foreign governments attempting to manipulate it on their ends. This is reinforced by the observation that our intervention has negative side-effects that both harm our economy and set up potential irreversible entitlements. I can certainly see the justification for “hitting back,” so to speak, but I do not believe that our counter-punch will be effective, or that it would be worth the negative consequences. I suspect that we could find alternate bargaining chips that would motivate the Chinese better than a trade war.
Not a defense of tariffs, but…
…tariffs are not the source of Harley-Davidson’s problems. People who put their money where their mouth is foresaw the company’s weakness in Q1 of 2018. Harley’s recognition of poorer than expected European sales was most certainly the impetus for its decision to move some of its production to Europe in the first place.
The decision to cut American jobs at Harley-Davidson was theirs alone, destined long before the announcement of tariffs.
NAFTA has been enormously beneficial to all parties involved.
Can you expound more on this?
I constantly hear from people that NAFTA was this big horrible deal, but I never hear anybody explain specifically why. The U.S. economy has generally been great ever since the deal. And what are the “high taxes that benefit China?” Fill me in if I am missing something.
I think this is a huge misconception that gets repeated over and over, even by conservatives. Since the 1980’s the United States manufacturing output has more than doubled. This info gets drowned out by the fact that we use less and less people to do more and more manufacturing, thereby giving the false impression that we are losing ground. If you compare the increasing output of all the leading manufacturing countries in the World, the U.S. has pretty much left everybody else in the dust with the exception of China, and that is only because they have more than four times the number of people that we have.
In my Cheese company I had zero trade experience trading with China for a couple of reasons. First the Chinese don’t have a history of eating dairy products. It is estimated that 90% of them are lactose intolerant. Also I sold my company in 1996 before China was rich.
Continuation from above .
I do have some experience dealing in yachts with China. In 2000 I commissioned to have a yacht built in Taiwan by an American designer. This company had built many boats in Taiwan but realized it could no longer compete with yachts being built in mainland China. I was offered a tremendous deal to have my boat built in China. My designer moved his molds and jigs to China along with his blue prints. He was used to dealing with the taiwanese with a hand shake. Suddenly in China he was presented with a contract that gave the Chinese a 51% interest in his company. Remember they already had all they needed to build the yachts. The long and short of it is I got my boat ,a great boat by the way. They built one more for the American designer and literally stole the company from him by exporting the same yacht under a different but similar name. Of course this all ended in some bizarre law suit which the designer didn’t survive. He died fighting . This is just my experience and my designer but it has been duplicated thousands of times in China. Other than that I like General Tso chicken.
This lends credence to the view expressed by some analysts that China is far more financially vulnerable to the effects of a trade war than is the US.
Tariffs might be terrible economic policy in the vacuum of a text book, but the deployment of our strongest weapon against a glaring weakness of the greatest long-term threat to the future of the West just might be worth testing.
Sure. What specifically would you like me to address?
Another of my simple analogies . Trump is playing strip poker with the Chinese. He is dressed in a three piece suit wearing a hat and gloves and maybe a topcoat. The Chinese Madame is wearing bra and panties and high heels. With our trade deficit with China Trump believes the Madame will be naked before he takes off his suit jacket. ( Maybe naked ladies and Trump is a bad example)