Trump Is Running A Growing Global Trade War Pretty Much All By Himself
Forget About People Anonymously Trashing The President. On Trade They’re More Polite, But Completely Out In The Open…
And the President speaks of trade as if it’s a personal crusade. Saying things like: “ [there’s] another $267-billion ready to go on short notice if I want”.
Yes, Republicans in Congress could stop him, and they’re not. For now they’re sitting by and playing along with the President’s contention that his trade wars are in the interest of national security. But they’re also not embracing the President with the same enthusiasm as other White House priorities such as tax cuts, or confirming a Supreme Court Justice.
Trump this week announced he’s slapping China with an additional $200-billion in tariffs. Combined with earlier tariffs already in effect, that amounts to about 1/2 of all goods shipped to the U.S. (Interestingly, not including Apple products, at least not this time around.) The new tariffs are set to go into effect next Monday. 10% to start, 25% if nothing’s resolved by the end of the year. That also means China theoretically has a few more days to make an offer before the U.S. tariffs kick in, and Trump’s keeping up the pressure by threatening future tariffs on virtually all goods produced in China.
This time China’s had time to prepare, and in addition to announcing tariffs of its own that’ll kick in when Trump’s do, it’s already made a lot of counter-moves, like offering tax breaks and incentives to its exporters, as well as a remarkable change that’s received very little coverage in the U.S.: in at least one highly industrial area, it’s allowing foreign companies to have sole ownership of their China operations. Previously everything had to operate as a joint venture with Chinese companies.
Trump does have one of the most capable people in the White House negotiating on his behalf: U.S. Trade Representative Robert Lighthizer. He’s also got Commerce Secretary Wilbur Ross, who seems largely relegated to appearing on cable business shows to explain why Americans won’t really feel the pinch, as well as economic adviser Larry Kudlow, who was dead set against tariffs prior to joining the administration, and Trump’s de-facto China Tsar, Peter Navarro, whose middle name might as well be “Tariff”.
So who’s not going with the flow here?
•U.S. Corporations. Trump argues that if you’re going to do a trade war, this is the best possible time to do it: the U.S. economy is booming and so it should be able to absorb a few blows here and there. And he’s right. Where he’s wrong is in thinking big corporations and lobbying groups will go along with it because he gave them a massively huge corporate tax cut resulting in them paying the lowest rate of corporate tax in 75-years. But corporations are greedy. They want to have their cake and eat it too. They want tax cuts to be extended even more. And they don’t want to be swept up in trade disputes they can’t control and can easily completely screw up supply chains and roll back inroads they’ve made on their own in many countries without the federal government’s help.
“If you want a short term solution, there is no solution”, says Alibaba founder Jack Ma. And he’s right. If you listen to Trump’s version of how this’ll end, it’s with manufacturers flooding back to the U.S. because it’ll become too expensive to ship from China. Except first, corporations will try shifting production to other countries that have low labor costs and no tariffs, meaning Trump will have to start taxing imports from those countries. Meanwhile, Trump can try to protect existing domestic manufacturers, for instance by allowing U.S. cars to pollute more than others in the world, allowing U.S. automakers to sell cheaper, less technologically advanced cars as a result. But that type of protection would have to go on for years. Similarly, Trump keeps appealing to his “great patriots” a.k.a. American farmers, suggesting they may have to make big sacrifices (but he’s also been quick to subsidize their trade-war related losses so far.) Talk about Socialism!
•The Federal Reserve. Trump has expressed displeasure with Federal Reserve Chairman Jerome Powell, who Trump appointed. That’s because he’s been raising interest rates in order to prevent the U.S. economy from overheating. But that’s not the best policy if your main priority is a trade war. Because when you raise interest rates, you are literally making dollars more expensive. (Higher interest rates make it more costly to buy a dollar). That works against you in a trade war, because it makes U.S. goods more expensive overseas, and it makes foreign goods cheaper in the U.S., at least somewhat mitigating the effects of more tariffs. The Federal Reserve’s job, on the other hand, is to do its best to ensure the U.S. economy grows steadily with low inflation.
•Trump Himself. First of all, even though Trump keeps saying “China is paying us billions of dollars in tariffs”, it’s actually importers that pay the tariffs. Yes, China suffers because with higher tariffs it won’t be able to sell as much in the U.S. But the U.S. doesn’t have the power to levy taxes in China and so has no way to pry currency out of China’s exporters. So who actually pays the tariffs? It’s U.S. companies and U.S. consumers that pay.
And the President keeps urging patience. And he’s right. Trade wars are essentially sieges. They’re battles of attrition. They’re mostly about who ends up giving up first. Except the President in almost every other situation and on any other policy celebrates not being patient; and instead boasts about how fast and easy he can “win” everything. So he comes across like a preacher arguing against his own religion.