Trump himself has already undercut his national-security claim by exempting most major exporters of steel to the US. Canada, for example, is exempted on the condition of a successful renegotiation of the North American Free Trade Agreement,
.. effectively threatening the country unless it gives into US demands.
But there are a host of issues in contention, involving, for example, lumber, milk, and cars. Is Trump really suggesting that the US would sacrifice national security for a better agreement on these minor irritants in US-Canadian trade? Or perhaps the national-security claim is fundamentally bogus, as Trump’s secretary of defense has suggested, and Trump, as muddled as he is on most issues, realizes this.
.. As is often the case, Trump seems to be fixated on a bygone problem.
- .. Recall that, by the time Trump began talking about his border wall, immigration from Mexico had already dwindled to near zero.
- And by the time he started complaining about China depressing its currency’s exchange rate, the Chinese government was in fact propping up the renminbi.
- .. Likewise, Trump is introducing his steel tariffs after the price of steel has already increased by about 130% from its trough, owing partly to China’s own efforts to reduce its excess capacity.
.. But Trump is not just addressing a non-issue. He is also inflaming passions and taxing US relationships with key allies. Worst of all, his actions are motivated by pure politics. He is eager to seem strong and confrontational in the eyes of his electoral base.
.. what matters is the multilateral trade deficit, not bilateral trade deficits with any one country.
.. Reducing imports from China will not create jobs in the US. Rather, it will increase prices for ordinary Americans and create jobs in Bangladesh, Vietnam, or any other country that steps in to replace the imports that previously came from China.
.. In the few instances where manufacturing does return to the US, it will probably not create jobs in the old Rust Belt. Instead, the goods are likely to be produced by robots, which are as likely to be located in high-tech centers as elsewhere.
.. the Republican Party, standing in solidarity with Trump, seems suddenly to have forgotten its longstanding commitment to free trade, much like a few months ago, when it forgot its longstanding commitment to fiscal prudence.
.. while Trump claims to be looking out for US industrial workers, the real winner from “successful” negotiations – which would spur China to open its markets further to insurance and other financial activities – is likely to be Wall Street.
.. The EU, for its part, seems highly concerned with protecting data privacy, whereas China does not. Unfortunately, that could give China a large advantage in developing AI.
.. In the years ahead, we are going to have to figure out how to create a “fair” global trading regime among countries with fundamentally different economic systems, histories, cultures, and societal preferences.
The danger of the Trump era is that while the world watches the US president’s Twitter feed and tries not to be pushed off one cliff or another, such real and difficult challenges are going unaddressed.
The Art of the Flail
Whenever investors suspect that Donald Trump will really go through with his threats of big tariff increases, provoking retaliation abroad, stocks plunge. Every time they decide it’s just theater, stocks recover.
.. while trade is one of Trump’s two signature issues — animus toward dark-skinned people being the other — when it comes to making actual demands on other countries, the tweeter in chief and his aides either don’t know what they want or they want things that our trading partners can’t deliver. Not won’t — can’t.
.. In some ways, China really is a bad actor in the global economy. In particular, it has pretty much thumbed its nose at international rules on intellectual property rights, grabbing foreign technology without proper payment
But if getting China to pay what it owes for technology were the goal, you’d expect the U.S. both to make specific demands on that front and to adopt a strategy aimed at inducing China to meet those demands.
.. In fact, the U.S. has given little indication of what China should do about intellectual property. Meanwhile, if getting better protection of patent rights and so on were the goal, America should be trying to build a coalition with other advanced countries to pressure the Chinese; instead, we’ve been alienating everyone in sight.
.. Anyway, what seems to really bother Trump aren’t China’s genuine policy sins, but its trade surplus with the United States
.. Over all, the U.S. trade deficit is just the flip side of the fact that America attracts more inward investment from foreigners than the amount Americans invest abroad.
.. A decade ago, China’s current account surplus — a broad measure that includes trade in services and income from investments abroad — was more than 9 percent of G.D.P., a very big number. In 2017, however, its surplus was only 1.4 percent of G.D.P., which isn’t much.
.. But in that case, why is “bilateral” trade between the U.S. and China so unbalanced? The answer is that it’s largely a kind of statistical illusion. China is the Great Assembler: it’s where components from other countries, like Japan and South Korea, are put together into consumer products for the U.S. market. So a lot of what we import from China is really produced elsewhere.
.. It’s not clear why we should demand that China stop playing that role.
.. it’s not clear that China could even do much to reduce its bilateral surplus with the U.S.: To do so, it would basically have to have a completely different economy. And this just isn’t going to happen unless we have a full-blown trade war that shuts down much of the global economy as we know it.
.. Oh, and a trade war would also devastate much of pro-Trump rural America, since a large share of our agricultural production — including almost two-thirds of food grains — is exported.
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.
Will Trump Crash the Farm Economy?
Many people don’t even know these scandals exist — they generally don’t lead in Sean Hannity’s or Tucker Carlson’s world.
.. One smaller manufacturer — a Trump voter — told me that his costs to produce his product nearly doubled overnight, and that his business has already been hurt by the tariffs. Prices didn’t rise only after the tariffs were announced; they started rising when Mr. Trump floated the idea.
.. Senator Joni Ernst and Iowa’s agriculture secretary, Mike Naig, both say the tariffs will hurt Iowans, and Mr. Naig says we need to expand markets, not shrink them. Senator Chuck Grassley said something similar, on Fox News: “Tariffs do not put America first — low barriers and expanded access do.”
.. China has already responded with its own tariff on pork, which will have a dire impact on Iowa. Iowa is the nation’s largest pork producer, producing three times as much pork as the next-highest state.
.. with commodity prices down and the tariffs imposed, approximately 10 percent of our farmers probably won’t make it this year, and 10 percent more will likely fail next year. They also shared the news that in Iowa, larger agribusinesses are buying up smaller farms that are in financial trouble, and that people are starting to make comparisons to the farm crisis of the 1980s, when approximately 10,000 Iowa farmers lost their farms.
.. Even Representative Steve King, the avid Trump supporter and Iowan every liberal loves to hate, is worried about a new farm crisis.
.. Dairy farmers are particularly hard hit, suffering through four years of declining prices. It’s gotten so bad, dairy farming organizations are giving out suicide hotline numbers, as farmers are committing suicide in the hope that their insurance will save the family farm.
.. “It gives Democrats a generational opportunity to do the political work with farmers they haven’t done since the 1980s farm crisis,”
.. “Democrats do farm policy really well but are terrible at farm politics. Republicans do farm politics really well but have a history of doing terrible farm policy.”
.. With the multiple scandals, rampant corruption and the Mueller investigation, the only thing keeping him near 40 percent approval — and most important, approval among most Republicans — is a strong economy. That, and Fox cheerleading. But if he tanks the rural economy, he and his legacy are in deep trouble.
.. Furthermore, if the rural economy turns sour, much of rural America will abandon Mr. Trump, and Fox may have no choice but to follow.