Thinking About a Trade War (Very Wonkish)

With Gary Cohn gone, it’s not clear that big business has any real pipeline into the White House (OK, polluters have an open line to Scott Pruitt, and predatory lenders a line to Mick Mulvaney, but these aren’t the groups who will stand up against trade war.)

.. Congressional Republicans, terrified of the Trump base, have proved unwilling to take a stand on anything, even if big money is at stake.

.. trade decisions are being made at Trump’s whim, without input from anyone who knows anything about trade economics (Peter Navarro thinks he understands the economics, which is even worse.)

.. Trump’s version of diplomacy – not just trade actions, but the systematic praise of brutal dictators and disdain for democratic leaders – has created a very angry world out there. Nobody out there wants to give Trump even the appearance of a win, and elected leaders would be punished by their voters if they did.
.. I think, three main questions:

1. How high might tariffs go?

2. How much would this reduce world trade?

3. How costly would the trade war be?

.. an all-out trade war could mean tariffs in the 30-60 percent range; that this would lead to a very large reduction in trade, maybe 70 percent; but that the overall cost to the world economy would be smaller than I think many people imagine, maybe a 2-3% reduction in world GDP... some people would actually gain, but a lot of people, very much including large groups and many communities in the U.S., would take big hits, especially in the short-to-medium run.

.. world’s economies, taking their lead from the U.S., abandon the rules and agreements that currently constrain their tariffs and start setting tariffs unilaterally in their perceived self-interest.

.. The problem is that if everyone does this, you get the costs of reduced trade without the benefit of improved terms of trade, because other countries are doing unto you the same thing you’re trying to do unto them.
.. “optimal tariff warfare”, which is actually more like an arms race than a shooting war, in the sense that there’s (usually) no victor and no resolution, just a lot of wasted resources.
.. Then you have to find an equilibrium (a Nash equilibrium, for readers of “A Beautiful Mind”) in which each country is charging its optimal tariff given what everyone else is doing.
.. If foreigners can easily substitute away from your goods, the optimal tariff is fairly low; if they can’t, it’s high.
.. if that’s right, we’re talking about a really big rollback of world trade.
..  a 70 percent reduction would bring us roughly back to 1950s levels. If Trump is really taking us into a trade war, the global economy is going to get a lot less global.
.. they do say that trade wars are bad, don’t say that they’re catastrophic.
.. the U.S. currently spends 15 percent of GDP on imports.
.. at the bottom of the Great Recession, CBO estimates that we were operating 6 percent below potential GDP. Of course that loss was temporary, while a trade war might be forever.
.. The U.S. currently exports about 12 percent of GDP.
.. if we have the kind of trade war I’ve been envisaging, something like 70 percent of that part of the economy – say, 9 or 10 million workers – will have to start doing something else.
.. the rapid growth of Chinese exports didn’t cost the U.S. jobs on net, it changed the composition and location of employment, producing a lot of losers along the way. And the “Trump shock” that would come from a trade war would be an order of magnitude bigger.
.. the effects don’t seem trivial to soybean farmers already facing sharp price cuts and steel users already facing much higher costs.

Trump is betting American families are willing to pay for his trade war

The result is that Americans will almost certainly face higher costs as companies pay more for parts they need to build cars, dishwashers and tractors, and then firms turn around and pass those higher prices onto consumers.

.. All of Trumps tariffs so far — on China, on steel and aluminum, on washing machines and on solar panels — will end up costing the average U.S. family $80 a year

.. If Trump continues to pile tariffs on China (he has threatened to do another $100 billion) and China retaliates, then the cost to the average family would rise to $210

.. 45,000 jobs will be lost because of the tariffs Trump has issued so far.

.. They also forecast a small hit to the economy and wages.

.. tariffs will hurt the economy because prices will rise, reducing profits for companies and costing consumers more.

Alternatively, tariffs could cause the U.S. dollar to rise, which usually makes it more difficult for American companies to sell their products abroad, another potential hit to jobs and the economy.

.. “When we lose $500 billion a year … in a trade deficit. When we lose hundreds of billions of dollars in intellectual property theft, not only China but others, we have to stop it. We can’t allow this to happen. So in a certain way, I call people patriots because … short-term you may have to take some problems. Long-term, you’re going to be so happy. You’re going to be so happy.”

.. Trump is calling on Americans to pay higher prices for a while because he thinks it will be worth it if he gets concessions from China and the E.U. It’s what economists and business leaders call a cost-benefit analysis, and Trump is arguing it will be worth it in the end.

.. higher costs don’t hit everyone equally.

The reality is every family isn’t going to pay $80. Some families are likely to pay hundreds or thousands or be the ones losing jobs and livelihoods, while most others probably won’t notice the price increases.

.. Gary Cohn, Trump’s former top economic adviser, went as far as to say Trump’s tariffs could wipe out the entire economic gains of the tax cuts

.. Trump and (most of) his top advisers say this is about winning the big economic war of the 21st century.

China and the United States are fighting for dominance in technology and biotechnology. Trump and his team say the United States won’t win if China keeps stealing American intellectual property and technology secrets.

.. But for the farmer or the small auto parts manufacturer that may have a terrible year or go out of business during the tariff battle, it probably won’t feel worth it.

Trump Seethes, and the Rest of Us Should Tremble

“An attack on our country.”

.. But a lawful raid on his attorney’s office and hotel room is what prompted the president to use those immensely weighted words. They’re a signal — make that a siren — of how cornered he feels, how monstrously large his belief in his own persecution has grown and what a perilous situation America is in.

.. Some unrelated swipe at perceived enemies or random assertion of potency by a man who cannot bear any image of impotence and is always ginning up distractions, as both a matter of strategy and a function of temperament?

.. He was telling us, yet again, not to trust our own government. And he was reminding us, in shocking fashion, about his readiness to sell (and buy) fictions if they serve his self-interest, which he reliably puts before all else.

.. Even though Cohen is the apparent focus of their interest, Trump, too, must feel hideously exposed. This is a man who refused, despite intense pressure, to release his tax returns

.. Now information that may be much more private, and much more damning, is in strangers’ hands.

.. Trump, during a meeting that was supposed to be about Syria, went on and on about the “disgrace” (he used that word seven times) of Mueller’s investigation

.. It was the full martyr complex and all the greatest hits in one meltdown. Mike Pence sat stone-faced on one side of him, John Bolton without much expression on the other. It’s hard to imagine either of them having the rapport with Trump to calm him down.

.. There is no Hope Hicks anymore, no Rob Porter, no Gary Cohn, no H. R. McMaster: The ranks of people who either gave Trump a sense of comfort and stability or sought to steer him away from his most destructive impulses have thinned. He’s more alone than ever. He must be more frightened, too.

But not half as scared as the rest of us should be.

Tom Bossert Is Out as White House Homeland Security Adviser

Tom Bossert is leaving as homeland security and counterterrorism adviser, an abrupt departure that comes as President Donald Trump’s new national security adviser moves to establish power.

.. Mr. Bossert’s position was on the same level as that of John Bolton, who just began as national security adviser on Monday. His departure also came days after Michael Anton, a spokesman for the National Security Council, resigned

.. Mr. Bossert came into the job with high praise from lawmakers from both parties. But after he took the job, current and former staffers at the National Security Council said he repeatedly clashed with former national security adviser Lt. Gen. H.R. McMaster, and they said Mr. Bossert failed to develop a cyberstrategy or a counterterrorism policy as planned.

Mr. Bossert is the most recent in a series of staff or administration departures in recent weeks, including

 

.. Mr. Bossert’s departure is likely to empower Mr. Bolton

..  Mr. Bossert’s departure was a sign that Mr. Bolton was quickly moving to consolidate power.

.. “This is an assertion of the primacy of the national security adviser,” the person said.