Tag: trade

Unwind from China? Can It Be Done?

 

This is a subject that has come up first in the comments with the @jameslileks post “Watching the CCP Press,” and which @iWe explored further by asking “whether one would trade with Nazi Germany.” We need additional information, indeed hard data, to even begin to look at the practicalities. Some here have mandated that we somehow absolutely cease trade with China. Others (and indeed most, I should think) would argue that an absolute embargo is both undesirable, and indeed impossible in any situation short of open warfare, but that we should certainly reevaluate what we are trading with China, and how we are doing so.

But to even have that discussion we need to know something of the extent of what we buy from China (and really, from everywhere else too), and how that really affects us, otherwise, should the absolutists be granted their immediate wish and all trade cease, the results may be distinctly unpleasant. I own and run a company that manufactures electronics, and so, at least as far as electronics go, I do have rather a lot of insight into what exactly comes out of China, and whether alternatives exist. I have done a Country of Origin query on the bills of materials (BOMs) for a couple of my products, and will detail those below, and what the implications are.

Product 1:

Member Post

 

When Donald Trump came into office, he planned to change the trade agreements with China, who had taken advantage of the U.S. for years. We can argue whether tariffs were a good idea or not, and who would benefit or lose. But following the outrageous behavior of China regarding COVID-19, it’s clear that the game […]

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Senate Approves USMCA

 

On Wednesday, Trump signed “phase one” of a China trade deal that increases agricultural exports to Beijing. Thursday, the US Senate passed the US-Mexico-Canada Agreement by an 89-10 vote.

The House sat on the USMCA for months, distracted as it was by Russia, Trump’s tweets, World War III, Ukraine, Net Neutrality killing the internet, recognizing Jerusalem which destroyed the middle east, Jussie Smollett, the wholesale slaughter of the Kurds (well, those not already dead from Net Neutrality),  and Greta Thunberg’s sailboat. Despite being controlled by Democrats, the trade bill passed the House 385-41. Now it awaits the President’s signature.

The USMCA will replace NAFTA, including stricter rules on labor and car parts and loosens Canadian dairy markets. Canada still needs to approve the agreement once Jussie Trudeau takes off his makeup.

More year-end awards today!  Jim and Greg embark on the second half of their six-episode saga known as the 2019 Three Martini Lunch Awards. Today, they offer up their selections for the best political idea, worst political idea, and boldest political tactics for the year.

It’s finally Friday!  Yes, we are fully aware of the impeachment votes in the House Judiciary Committee but Jim sums up his analysis in roughly two seconds as we begin today’s podcast.  After that Jim and Greg celebrate the big win for the Conservative Party in the UK and are thrilled to report the political demise of Jeremy Corbyn.  They are also hoping that the substance matches the excitement as Congress prepares to pass the U.S.-Mexico-Canada trade agreement to replace NAFTA and President Trump announces agreement on “phase one” of trade negotiations with China.  And Jim details why Joe Biden’s campaign could face serious turbulence after reports that Hunter Biden had a 1988 drug arrest expunged at the same time Sen. Biden was advocating for very tough drug crime sentencing.

Member Post

 

http://www.bbc.com/future/story/20190905-how-localisation-can-solve-climate-change Wow, so while we were fearing that the globalists will push their way forward with use of climate change, the agenda just got turned inside out (although it may take politicians awhile to refocus their efforts). Of course only a world government could possibly enforce this. Bonus: it could even fit right in with […]

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Trump’s Trade Travesty

 

On Friday, August 30, Trump confidently tweeted that anyone who thinks that his aggressive trade war with China could lead to a recession is sadly misinformed. He offered his own two-part explanation for a possible economic downturn. First, unnamed but “badly run and weak companies” are being undone by their own incompetence. Second, their present plight has not been caused by the trade war, but rather by the Federal Reserve’s failure to rapidly cut interest rates.

Chairman Jerome Powell has become a frequent target of the President’s ire. To be sure, the Fed did trim rates by a quarter of a point, from 2.25% to 2.00%, in July 2019. But Trump wanted the Fed to cut rates, already low by historical standards, by a full point. Even more, he wanted the Fed to further jolt the economy through another round of bond repurchases. In an attempt to prod Powell into action, Trump accused Powell of having a “horrendous lack of vision.” When Powell did not blink, Trump doubled down. “As usual, the Fed did NOTHING! It is incredible that they can ‘speak’ without knowing or asking what I am doing,” he tweeted. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” So much for the traditional independence of the Fed. Trump then lashed out at the private sector by ordering corporations to find alternatives to China. So much for limited presidential powers.

We have three potential culprits for the anticipated economic slowdown: incompetent companies; a dumb Fed Chairman; or Trump’s interminable trade war with China. How would an economic detective assign blame? Let’s take the three in order.

Is China a ‘Strategic Partner’ or a Cold War 2.0 Foe?

 

President Trump may not be interested in cold war with China, but cold war is interested in him. Well, at least if his fellow Republicans have any say in the matter.

If there’s any clear takeaway from the G20 trade ceasefire, it’s that Trump views the fate of Chinese telecom giant Huawei as something to be negotiated. Just another pressure point. This Bloomberg headline pretty much nails it: “Huawei Lifeline Shows Trump Prefers Business Deals Over Cold War.

After all, you can’t very well conduct cold war against a nation that you refer to as a “strategic partner,” as Trump did over the weekend. (Wall Street Journal reporter Bob Davis tweets: “Who else used that term? Bill Clinton and Jiang Zemin — the same Bill Clinton who Trump lambastes for paving the way for China to join the WTO.”)

A Democratic Debate That Ignores China and Trade Isn’t Much of a Debate

 

The core of Trumponomics is a protectionist trade policy built on tariffs, both threatened and implemented. All of America’s largest trading partners, including allies, have been in President Trump sights. And as the president gets ready to meet with Chinese leader Xi Jinping, some analysts are wondering whether the entire US-China trading relationship will fall victim to a New Cold War.

But “trade” ⁠—⁠ in its economic context ⁠—⁠ was mentioned only once in last night’s Democratic presidential debate. And “China” was only mentioned a half dozen times, with four of those mentions in a rapid-fire round where candidates were asked to briefly mention the “greatest geopolitical threat” to America. Don’t blame the NBC moderators. Candidates had ample opportunity to explore the US-China trade conflict and more broadly China’s challenge to US superpower supremacy.

Maybe their failure to do so was political strategy. Or maybe it’s because they don’t know quite what to say. Progressives and socialists are no fans of free trade ⁠—⁠ since, you know, free trade is market capitalism is action ⁠—⁠ and the energy in the Democratic Party is on the left.

Jim Geraghty of National Review and Greg Corombos of Radio America discuss what readers can expect in Jim’s new book, Between Two Scorpions. Joe Biden flip-flops on trade and calls President Trump “an existential threat” to the United States. Meanwhile, Democrats in Iowa grow more uncertain as to who they will support from the busload of presidential candidates.

What’s Missing from Trump’s China Policy

 

The Dow plunged 450 points on the opening bell May 6 in response to this presidential tweet: “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No! The 10% will go up to 25% on Friday.” Economists eye this brinkmanship fearfully. Bank of America/Merrill Lynch’s global research team, among many others, has warned that a trade war could cause a global recession. Desmond Lachman of AEI notes that there are splash back effects of imposing harsh tariffs. They may succeed in weakening China, but “Any marked slowing in the Chinese economy is bound to have spillover effects on those economies with strong trade links to that country.”

Among those countries with “strong trade links” to China would be ours. Lachman is warning that Trump’s policies may be undermining the strong economy, and that this should worry him looking at 2020. But before we get there, spare a moment to savor the irony of what Trump’s policies have so far achieved on one of his favorite 2016 hobbyhorses — the trade deficit. In 2016, the goods and services trade deficit with China stood at $309 billion (which Trump frequently exaggerated to $500 billion). As of March, 2019, the trade deficit with China was $379 billion — a 23 percent increase.

As nearly every economist will attest, trade deficits are not important. Between 1980 and 2009, US employment rose when the trade deficit went up and fell when the trade deficit came down. Hmmm. Same thing seems to have happened in the first two years of the Trump administration. Employment and trade deficits are both up. Someone should tap Trump on the shoulder and mention this. Actually, don’t bother. Gary Cohn talked himself blue in the face on the subject to no avail. Trump is frequently the embodiment of the joke: “Don’t confuse me with the facts, my mind is made up.”

How Is This Tech Cold War with China Supposed to Work, Exactly?

 

Let’s assume the Trump White House blacklisting of Huawei in effect marks the beginning of a full-fledged Tech Cold War between America and China, complete with a Digital Iron Curtain. The full metaphor. How then does the conflict end in an American victory? And what does that even look like? Have the tech cold warriors, both within the White House and externally, given serious thought to any of this?

We know how the more comprehensive Cold War 1.0 concluded, with the dissolution of the Soviet Empire in 1991. It was a collapse that some predicted was inevitable. But at the time many others thought the scenario so unlikely as to be unworthy of speculation. The whole idea of 1970s detente was based on the perceived durability of the USSR. And this view held nearly to the very end. For example: The 1984 film “2010: The Year We Make Contact” was a sequel to the 1968 Stanley Kubrick-directed film “2001: A Space Odyssey” and concerns a joint US-USSR deep space mission.

As it turned out, of course, Hollywood was wildly optimistic about the sustainability of the Soviet enterprise, although hardly alone in that view. The Soviet Union didn’t have a decade left, much less a generation or more. The USSR’s centrally planned industrial economy, which benefited for decades as workers moved from field to factory, had hit a wall. It was an economy without a second act. The lack of competition removed the “invisible foot” of failure, so crucial to innovation. And the planners made plans that made no sense, choosing to double-down on heavy industry. While stagnation may not have been the prime cause of the collapse, it hardly conveyed a message that the Soviets were running the superior model.

China Has a Master Economic Plan. Is It Better Than America’s?

 

Former Trump White House adviser Steve Bannon told CNBC viewers today that China has “a master plan to become an economic hegemon.” I mean, yeah. Sure. A quarter millennium ago, China was the world’s largest economy and it is no doubt eager to regain that position if possible. And not just in terms of nominal GDP, but also as an economy on the technological frontier. Thus its efforts to leap forward in advanced manufacturing and AI.

The former, GDP, is easier to measure than relative tech prowess. Well, not that easy. My AEI colleague Derek Scissors has argued that “claims that China’s economy is already the world’s largest may be exaggerated by up to 30%.” And a comparison of national wealth shows “the American lead expanding.” But clearly the Chinese economy is pretty big and getting bigger and is technologically sophisticated in a way that the Soviet Union never was.

In those terms, America’s geopolitical rivals past and present are different. But they are the same in that both believed in the power of planning. But it’s tough for flawed models to execute even the smartest of plans. And as Bannon later said, “We have all the cards. The Chinese business model cannot continue. It won’t continue.” I think Bannon meant that the Trump trade war will cause the model’s demise rather than its own internal contradictions.

Is America Worrying Too Much About China’s Rise?

 

Recall the 2010 “Chinese Professor” television commercial from Citizens Against Government Waste. It depicted a futuristic Beijing classroom where students hear a triumphalist lecture on American decline. Despite (or maybe because of) its questionable economic substance, the ad really struck a nerve. (It currently has some 3 million YouTube views).

At the time, writer James Fallows called it the “first spot from this campaign season you can imagine people actually remembering a decade from now.” And I think he was right about that, probably because “Chinese Professor” tapped into both pre-Trumpian concerns America was no longer great and that fast-growing China was ready to surpass the United States as global hegemon just at the US surpassed Great Britain. Indeed, that angst probably gave added resonance to President Trump’s MAGA message, one that when he delivered it in the 1980s focused on Japan as the rising Asian threat.

It’s Still Unclear What the US-China Trade War Is Really All About

 

“Jaw, jaw is better than war, war” is one of those well known Winston Churchill quotes that Churchill apparently never said. (Or at least not exactly like that.) But it’s still a pretty catchy phrase and not a bad first instinct. So from that perspective, perhaps, the results from the US-China trade negotiations in Buenos Aires are to be welcomed. Talks resulting in an agreement for more talks over the next three months is a pretty good alternative to a severe intensification in the ongoing trade conflict between the nations.

So here we are: The American tariff rate on $200 billion in imports from China will stay at 10 percent rather than rising to 25 percent. And China, according to the Trump administration, will “purchase a very substantial amount of agricultural, industrial and energy, products.”

But remember that what emerged from Argentina was not the prevention of conflict. The “war, war” has already started and restraint from escalation is not the same as peace. What’s more, the prospects for peace are murky as best. Although Wall Street seemed to like what the two presidents cooked up, Goldman Sachs noted “no concrete progress on the other important issues of market access, IPR protection, cyber attacks, and forced technology transfer,” not all of which Beijing will even concede are problems.  How those issues are approached in the coming week will determine whether this entire conflict is about deals and deficits or about subsidies and strategy.

If the Old US-China Game Is Over, What Comes Next?

 

Phrase it whatever way you prefer. As my CNBC colleague said today on “Squawk on the Street,” “I think the president is saying, ‘Hey, listen guys, you are not going to make as much money in China as you used to. That game is over.’”

Or as my AEI colleague Derek Scissors writes in a new blog post, “…the Sino-American economic relationship is going to shrink, sooner or later.”

Or as I wrote yesterday that, basically, we are probably not one savvy Trumpian deal from ending this escalating conflict because there is no realistic deal to be had — at least not while global markets and American consumers/voters seem unconcerned. (The gradual implementation of the tariffs prevents market shock, especially given the broader strength of the economy. As for consumers, this from Barclays: “While the net economic cost may be modest, losses are likely to be disproportionately felt by US households, as they face higher prices for many goods.)

Jim Geraghty of National Review and Chad Benson of Radio America congratulate President Donald Trump for appointing more judges to regional circuit courts than any president has at this point in his term. They also criticize big businesses that are supporting Democrats in 2018 because of Trump’s trade and immigration policies. And they think the only major support for a Bill Kristol 2020 presidential campaign would come from the Kristol household.

Trade Wars Are Easy to Win

 

The President demonstrated his ignorance of the basics of trade once again this morning with a classic tweet:

Donald Trump’s Trade Travesty

 

The presidency of Donald Trump has been marked by a war between two totally inconsistent intellectual mindsets: his disastrous trade policy and his wise domestic policy. Let’s start with the good news first.

On the domestic front, Donald Trump has largely followed, to great positive effect, the classical liberal playbook, which spurs growth through a combination of low taxation and market deregulation. Under Trump’s leadership, removal of the government’s heavy foot from the throat of the economy has paid off. The key move was to junk the popular Keynesian paradigm with its flawed assumption that one or more low-interest economic stimulus programs could spend the United States back to prosperity. But these glorified transfer programs only take from Peter in order to pay Paul. Their net effect is virtually always negative. Making money cheap encourages borrowing, but it also discourages lending, creating at best a wash. The administrative costs of aggressive monetary policy, coupled with high levels of economic uncertainty it engenders, are a net drag on the overall economy, leading to the anemic growth levels and relative wage stagnation of the Obama years.

In contrast, neither Trump’s rollback in domestic regulation nor his implementation of lower corporate tax rates indulge in these legislative shenanigans. To the contrary, this one-two punch reduces barriers to voluntary exchange, increasing the volume of win-win transactions that spell growth for the transacting parties and for the third parties who receive additional opportunities for trade. Of course, successful markets always leave disappointed competitors, who fall into two camps. The first are those who go out of business, which yields the social benefit of letting assets be redeployed into more productive uses. The second are those parties who regroup existing businesses to find new niches in an ever-expanding economy. Systematically, competitive losers are part of a large process often described by the phrase “a rising tide lifts all boats.” The great forgotten Americans that Trump pledged to help during the 2016 campaign have already been helped, but not by his pointless bluster against American companies that take business overseas or import goods from foreign countries. No: The expanded economy creates new opportunities that make American workers more competitive than before—and better able to face foreign competition by profiting from doing business with foreign firms.