You can tell who Trump is through the company he keeps

what the trial reveals is something very damning, in the ethical if not legal sense: namely, what kind of people Trump surrounds himself with.

There was no secret about Manafort’s record as an influence-peddler on behalf of corrupt dictators and oligarchs when he went to work for Trump. On April 13, 2016, Bloomberg columnist Eli Lake wrote a prescient article headlined: “Trump Just Hired His Next Scandal.” Trump couldn’t have cared less. His whole career, he has surrounded himself with sleazy characters such as the Russian-born mob associate Felix Sater, who served prison time for assault and later pleaded guilty to federal fraud charges, as well as lawyer-cum-fixer Michael Cohen, who is reportedly under investigation for a variety of possible crimes, including tax fraud.

.. These are the kind of people Trump feels comfortable around, because this is the kind of person Trump is. He is, after all, the guy who paid $25 million to settle fraud charges against him from students of Trump University. The guy who arranged for payoffs to a Playboy playmate and a porn star with whom he had affairs. The guy who lies an average of 7.6 times a day.

.. And because everyone knows what kind of person Trump is, he attracts kindred souls. Manafort and Gates are only Exhibits A and B. There is also Exhibit C: Rep. Chris Collins (R-N.Y.), the first member of Congress to endorse Trump, is facing federal charges of conspiracy, wire fraud and false statements as part of an alleged insider-trading scheme. Exhibit D is Commerce Secretary Wilbur Ross, who has been accused by Forbes magazine, hardly an anti-Trump rag, of bilking business associates out of $120 million.

.. In fairness, not all of Trump’s associates are grifters. Some are simply wealthy dilettantes like Trump himself

.. Among the affluent and unqualified appointees Trump has set loose on the world are his son-in-law Jared Kushner and his former lawyer, Jason Greenblatt, who are somehow supposed to solve an Israeli-Palestinian dispute that has frustrated seasoned diplomats for decades. No surprise: Their vaunted peace plan remains MIA.

.. ProPublica has a mind-boggling scoop about another group of dilettantes — a Palm Beach doctor, an entertainment mogul, and a lawyer — whom Trump tasked as an informal board of directors to oversee the Department of Veterans Affairs. None has any experience in the U.S. military or government; their chief qualification was that they are all members of Trump’s golf club, Mar-a-Lago. 

.. Beyond the swindlers and dilettantes, there is a third group of people who have no business working for Trump or any other president: the fanatics. The most prominent of the extremists was Stephen K. Bannon, the notorious “alt-right” leader who was chief executive of Trump’s campaign and a senior White House aide. He may be gone, but others remain. They include Peter Navarro, who may well be the only economist in the world who thinks trade wars are a good thing; Stephen Miller, the nativist who was behind plans to lock immigrant children in cages and bar Muslims from entering the United States, and who is now plotting to reduce legal immigration; and Fred Fleitz, the Islamophobic chief of staff of the National Security Council. They feel at home in the White House because, aside from being a grifter and a dilettante, Trump is also an extremist with a long history of racist, sexist, nativist, protectionist and isolationist utterances

Our socialist president

Protectionism, and the promiscuous and capricious government interventions that inevitably accompany it, is , always and everywhere, crony capitalism. But he is spot on about the incompatibility of America’s new darker system and the rule of law:

“Everyone depends on the whim of the administration. Who gets tariff protection? On whim. But then you can apply for a waiver. Who gets those, on what basis? Now you can get subsidies. Who gets the subsidies? There is no law, no rule, no basis for any of this. If you think you deserve a waiver, on what basis do you sue to get one? Well, it sure can’t hurt not to be an outspoken critic of the administration when the tariffs, waivers and subsidies are being handed out on whim. This is a bipartisan danger. I was critical of the ACA (Obamacare) since so many businesses were asking for and getting waivers. I was critical of the Dodd-Frank Act since so much regulation and enforcement is discretionary. Keep your mouth shut and support the administration is good advice in both cases.”

.. Protectionism — government coercion supplanting the voluntary transactions of markets in the allocation of wealth and opportunity — is socialism for the well connected. But, then, all socialism favors those adept at manipulating the state. As government expands its lawless power to reward and punish, the sphere of freedom contracts. People become wary and reticent lest they annoy those who wield the administrative state as a blunt instrument.

.. Tariffs are taxes, and presidents have the anti-constitutional power to unilaterally raise these taxes because Congress, in its last gasps as a legislature, gave away this power.

.. Noting that some Trump protectionism is rationalized as essential for “national security,” Cochrane, who clings to the quaint fiction that Congress still legislates, suggests a new law stipulating that such tariffs must be requested — and paid for — by the Defense Department: “Do we need steel mills so we can re-fight WWII? If so, put subsidized steel mills on the defense budget. If defense prefers to use the money for a new aircraft carrier rather than a steel mill, well, that’s their choice.”

Trump May Kill the Global Recovery

In a sharp departure from this time last year, the global economy is now being buffeted by growing concerns over US President Donald Trump’s trade war, fragile emerging markets, a slowdown in Europe, and other risks. It is safe to say that the period of low volatility and synchronized global growth is behind us.

.. In 2017, the world economy was undergoing a synchronized expansion, with growth accelerating in both advanced economies and emerging markets. Moreover, despite stronger growth, inflation was tame – if not falling – even in economies like the United States, where goods and labor markets were tightening.
.. Stronger growth with inflation still below target allowed unconventional monetary policies either to remain in full force, as in the eurozone and Japan, or to be rolled back very gradually
.. Markets gave US President Donald Trump the benefit of the doubt during his first year in office; and investors celebrated his tax cuts and deregulatory policies. Many commentators even argued that the decade of the “new mediocre” and “secular stagnation” was giving way to a new “goldilocks” phase of steady, stronger growth.
.. Though the world economy is still experiencing a lukewarm expansion, growth is no longer synchronized. Economic growth in the eurozone, the United Kingdom, Japan, and a number of fragile emerging markets is slowing.
.. while the US and Chinese economies are still expanding, the former is being driven by unsustainable fiscal stimulus.
..with the US economy near full employment, fiscal-stimulus policies, together with rising oil and commodity prices, are stoking domestic inflation.
.. the US Federal Reserve must raise interest rates faster than expected, while also unwinding its balance sheet.
.. the prospect of higher inflation has led even the European Central Bank to consider gradually ending unconventional monetary policies, implying less monetary accommodation at the global level. The combination of a stronger dollar, higher interest rates, and less liquidity does not bode well for emerging markets.
..  Despite strong corporate earnings – which have been goosed by the US tax cuts – US and global equity markets have drifted sideways in recent months.
.. The danger now is that a negative feedback loop between economies and markets will take hold. The slowdown in some economies could lead to even tighter financial conditions in equity, bond, and credit markets, which could further limit growth.
.. Since 2010, economic slowdowns, risk-off episodes, and market corrections have heightened the risks of stag-deflation (slow growth and low inflation); but major central banks came to the rescue with unconventional monetary policies as both growth and inflation were falling.
.. These risks include the negative supply shock that could come from a trade war; higher oil prices, owing to politically motivated supply constraints; and inflationary domestic policies in the US.
.. this time the Fed and other central banks are starting or continuing to tighten monetary policies, and, with inflation rising, cannot come to the markets’ rescue this time.
Another big difference in 2018 is that Trump’s policies are creating further uncertainty. In addition to
  • launching a trade war, Trump is also
  • actively undermining the global economic and geostrategic order that the US created after World War II.

.. the Trump administration’s modest growth-boosting policies are already behind us, the effects of policies that could hamper growth have yet to be fully felt. Trump’s favored fiscal and trade policies will crowd out private investment, reduce foreign direct investment in the US, and produce larger external deficits.

  • His draconian  will diminish the supply of labor needed to support an aging society.
  • His environmental policies will make it harder for the US to compete in the green economy of the future.
  • And his bullying of the private sector will make firms hesitant to hire or invest in the US.

.. Even if the US economy exceeds potential growth over the next year, the effects of fiscal stimulus will fade by the second half of 2019, and the Fed will overshoot its long-term equilibrium policy rate as it tries to control inflation; thus,

achieving a soft landing will become harder.

.. By then, and with protectionism rising, frothy global markets will probably have become even bumpier, owing to the serious risk of a growth stall – or even a downturn – in 2020.

.. With the era of low volatility now behind us, it would seem that the current risk-off era is here to stay.

Trade Wars, Stranded Assets, and the Stock Market (Wonkish)

Yet you go to trade war with the capital you have, not the capital you’re eventually going to want – and stocks are claims on the capital we have now, not the capital we’ll need if America goes all in on Trumponomics.

Or to put it another way, a trade war would produce a lot of stranded assets.

.. The costs of protectionism, according to conventional economic theory, are not that tariffs caused the Great Depression, or anything like that. They come, instead, from moving your economy away from things you’re relatively good at to things you aren’t.

American workers could sew clothes together, instead of importing apparel from Bangladesh; in fact, we’d surely produce more pajamas per person-hour than the Bangladeshis do. But our productivity advantage is much bigger in other things, so there’s an efficiency gain – for both economies – in having us concentrate on the things we do best.

.. So, what would a trade war do? Suppose the US were to impose a 30 percent tariff across the board, with other countries retaliating in kind so that there’s no improvement in the U.S. terms of trade (more technical stuff I don’t want to get into.) How much would this reduce trade? It depends on the elasticity of import demand; a reasonable number seems to be around 4. This would mean a fall in imports from 15 percent of GDP to around 5 percent – a 10-point reduction. And that in turn means a reduction in US real income of around 1.5 percent.

.. even a trade war that drastically rolled back globalization wouldn’t impose costs on the economy comparable to the kinds of movement we’ve seen in stock prices.

But the costs to the economy as a whole might not be a good indicator of the costs to existing corporate assets.

.. Meanwhile, the factories that do exist were built to serve globalized production – and many of them would be marginalized, maybe even made worthless, by tariffs that broke up those global value chains. That is, they would become stranded assets. Call it the anti-China shock.

.. Of course, it wouldn’t just be factories left stranded by a trade war. A lot of people would be stranded too. The point of the famous “China shock” paper by Autor et al wasn’t that rapid trade growth made America as a whole poorer, it was that rapid changes in the location of production displaced a significant number of workers, creating personal hardship and hurting their communities. The irony is that an anti-China shock would do exactly the same thing. And I, at least, care more about the impact on workers than the impact on capital.