China may give Donald Trump some face-saving way out from the trade war he has started, but it won’t offer any substantive concessions. In other words, Trump’s tariffs will do nothing to improve America’s external balance, output, employment, or real wages. .. some defend Trump’s actions as a shrewd negotiating tactic to impel China to adjust its trade policies, such as the requirement that foreign companies share their intellectual property (IP) to gain access to the Chinese market.
.. Trump does not understand the basics of such a negotiation: he thinks that a country with a trade deficit necessarily has the stronger negotiating position. In reality, the surplus country is often in the stronger position, because it has accumulated financial claims against its “opponent.”
.. China does not necessarily even have to sell to wield influence. With US debt expanding and interest rates on the rise, even rumors that the Chinese might stop buying Treasury securities could be enough to drive down US bond prices and accelerate the increase in US interest rates.
.. While industries and consumers in China would also be hurt by a trade war, that country’s leaders can overrule interest groups and stifle protests.
In any case, public opinion will largely back retaliation against the US.
.. The Chinese remember well the Opium Wars of the nineteenth century, when the Middle Kingdom tried and failed to resist the British campaign to force it to open its economy to opium and other imports.
.. Add to that Trump’s reputation for flip-flopping, and the odds that Chinese leaders would bother making a deal with Trump to change their country’s trade policies seem small.
.. Even if China did decide to concede something to Trump, it would not be meaningful.
.. China could export less merchandise to the US directly, instead routing products through Taiwan and other countries, where some final assembly could take place.
.. The result would be economically meaningless; but so is the concept of the bilateral deficit itself, as Chinese exports to the US contain a high proportion of intermediate inputs produced in South Korea, the US, and elsewhere.
.. What really matters is that China’s current-account surplushas been falling since 2008, and now stands at a relatively small 1% of GDP.
.. America’s external deficit is growing, but that is the result not of trade policy; it stems from Republicans’ fiscal policy, which is blowing up the budget deficit and reducing national saving.
.. As for Trump’s complaints about China’s IP “theft,” there are some valid grievances on this front. But addressing this issue requires technical expertise and negotiating skill, not blunt threats based on inadequate knowledge.
Crucially, it would also require cooperation with other partners who have similar grievances with China, ideally including pressure applied through rules-based institutions like the World Trade Organization.
Trump is pursuing the opposite strategy, arguing that neither multilateralism nor bilateral negotiations work with China. Yet such tactics have helped to compel China to allow a 37% appreciation of the renminbi in 2004-2014 and to crack down on counterfeiting of US merchandise and theft of US software.
.. Trump may also want to avoid the WTO because the US doesn’t win all of the cases it brings there. But it does have a 90% success rate. And it is not as if the US has never violated international rules
The Meaning of Ryan’s Departure
Paul Ryan’s fate over the past several years is as good an indication as any of how far our politics have fallen.
.. Though the anti-Ryan vitriol faded after Steve Bannon’s defenestration, he continued to be viewed with suspicion by the talk-radio crowd and other arms of Trump Inc.
This was his reward for attempting to drag his party, and the country, toward a grown-up reckoning with our debt. Nearly singlehandedly, Paul Ryan had managed to put tackling entitlements on the national agenda.
.. making incremental reforms now—with no changes for current beneficiaries or those in their 50s—can prevent drastic shortfalls and extreme benefit cuts that will be necessary in just 16 years when Social Security is depleted. The outlook is even worse for Medicare and Medicaid.
But Donald Trump arrived on scene with the supposedly blinding insight that changes to entitlements are unpopular. Well, no kidding. He promised never to touch Medicare and Social Security—not even to ensure their future solvency. And so, the responsible, future-oriented Paul Ryan found himself governing with a backward-looking, whistling past the graveyard president.
.. Ryan and the party he helped to lead also lost its compass on Ryan’s own signature issue—fiscal responsibility.
.. it would have been nice if the party that fulminated about the dangers of deficits in the Obama years had found anything at all to cut—particularly when the economy is growing and unemployment is low.
.. Under Republican guidance, the federal deficit will be roughly double what it was in the final year of the Obama administration.
.. What has Trump taught? That trade wars are the way to improve the lives of the working class? They are popular, at least with Republicans.
.. 65 percent of Republicans favored Trump’s steel and aluminum tariffs.
.. We are not behaving as responsible adults. Our greatest political challenge is out of control debt. Our greatest social challenges are declining families, increasing dependency, and eroding social cohesion. The debt could have been addressed by government.
The debt crisis is on our doorstep
If, for example, interest rates were to rise to 5 percent, instead of the Trump administration’s prediction of just under 3.5 percent, the interest cost alone on the projected $20 trillion of public debt would total $1 trillion per year. More than half of all personal income taxes would be needed to pay bondholders.
.. Some may think that such concerns are overblown, as there is no current evidence in financial futures markets that a crisis is on the horizon. But a debt crisis does not come slowly and visibly like a rising tide. It comes without warning, like an earthquake, as short-term bondholders attempt to escape fiscal carnage. Only in hindsight are we able to see the stresses building and bemoan that we did not act.
.. As is well-known, our deficit and debt problems stem from sharply rising entitlement spending. Without congressional action, the combination of the automatic spending increase per beneficiary provisions of these programs and the growth in entitlement program recipients as the population ages will cause entitlement spending to continue to rise far faster than U.S. national income and tax revenue.
.. The revenue loss, which amounts to about 0.4 percent of gross-domestic product in 2025, is not by itself a budget buster, considering both the offsetting revenue reflow from higher incomes and the far larger long-run entitlement explosion.
.. If Congress waits for a crisis — which may come when the United States needs suddenly to borrow significantly to address a financial meltdown, recession or war — the result will be fiscal and economic chaos, as well as painfully sharp cuts to programs that people rely on.
The (probably) last major act of an anti-spending Congress: A $1.3 trillion budget-busting bill
The more than 2,200-page spending bill — and signed by President Trump — gave the Pentagon its biggest spending increase in 15 years, a top GOP priority. But it also included full funding for the Corporation for Public Broadcasting, despite Trump’s initial proposal to cut its funding from $465 million to $15 million.
.. More than 60 percent of Republicans in the House and the Senate voted for the legislation, a sign that the GOP might be returning to its big-spending ways of early last decade.
Back then, amid a major ramp-up in defense spending at the beginning of the wars in Iraq and Afghanistan, Republicans accepted big increases in domestic spending as well and created a new entitlement within Medicare. GOP leaders at the time exploded the earmark system, allowing even the lowliest rank-and-file lawmakers to direct millions of dollars to pet projects in their districts. Republicans believed the big spending helped shore up their incumbents’ standing back home.
.. Now, the Republican-led decision to bust those caps for the next two years raises the specter that the tough talk on deficits applied only when Democrats held the White House.
“Had the 2016 election gone a different way and we had a Democratic president, and we controlled the House and Senate, I can’t imagine us being in a situation where we would vote tonight or tomorrow for a bill that’s going to add $2 trillion in debt,” Corker said.