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Trump Trade Wars

Protectionism strikes back

The United States vs. China

Tariffs, quotas, trade agreements, trade deals, and trade negotiations are the technical lingo used by economist’s on TV, but they certainly are not “Left”, nor “Right” biased issues and polices. Trade policies have vast implications affecting people from all political affiliations and no doubt the Trump trade wars will be around for a while.

Trade policies can provide wealth and freedom for a nation or restrict that nation’s wealth and freedom depending on the actions taken by the government.  Preferably, trade policies are not seen as a zero sum game and a trade compromise can be achieved somewhere in the middle.

Understanding a nation’s trade polices relies on so many factors that a logical explanation to a nations trade actions is a monumental task even for the most gifted minds in economics.

However understanding a few points makes it a bit easier to step into the others shoes when evaluating fairness and trade reciprocity.

Apples and Oranges

The first and most important point if you take away anything from this post is that comparing two economies that economists describe as being in varying stages of development make analyzing trade deals and negotiations on the basis of fairness impossible.

What is considered fair for a highly developed economy such as most Nations in the West to what is fair in a high growth developing Nation such as China would be two very different conversations!

The West went through its Industrial Revolution and came out on the other side with a changed world view especially on human rights issues.

Very quickly after gaining dominance in the manufacturing sectors the West would begin to lose its competiveness as Western business began its great migration East in the 1970’s and 1980’s for which anti trade sentiment with the East has its foundation some 40 years later.

It was this great migration of labour and capital which formed part of the basis of Trumps campaign and helped to swing and win the election for him in key “Rust Belt” States and this issue would be front and center as Trump stumbled into his second year in the oval.

Trade concerns are a non-partisan issue which should and do affect both parties equally. Of course, like any issue, politics muddies the waters splitting those in favour of less protectionism and those in favour of more protectionism. Of course, both views are fully funded by lobbyist’s cash.

While these diverging views are not solely split along party lines, Trumpolitics has forced the Left to always take a stand against his policies, while GOP loyalists who are also opposed to government interference in commerce find themselves reluctantly pushing for protectionism and further government involvement.

The Left

Trump Will Tap Out

By: Lefty G

In the Trump era it often seems that feelings count for more than facts. The President's rhetoric around the issue of trade wars is a perfect example of this.

Trumps Trade War

Trump's pronouncements about trade on Twitter are full of confidence but largely devoid of substance. He has assured his followers that “trade wars are good, and easy to win.”

In regards to a trade war with China, President Trump tweeted that “when you're already $500 billion DOWN, you can't lose!”

Whether or not you agree with Trump's evaluation that trade wars are a “good” thing is a matter of opinion I suppose.

The second claim, that the USA can't lose in a trade war with China, can however be evaluated objectively – and upon sober evaluation, one must logically conclude that the United States losing in a trade war with China is not just a possibility, but a probability.

China's Trade Deficit and Position

The actual trade deficit with China is under $350 billion, which is less than Trump's exaggeration of $500 billion, but still a large deficit. There is no denying that China has a lot to lose in a trade war with the United States - but to think that the size of the trade imbalance is the only factor that will matter in this trade battle is both simplistic and just plain wrong.

That's because China is in a much better position to win a trade war at this moment than the United States, who are operating from a position of weakness.

Firstly, the Chinese economy is better able to absorb the damage a trade war would cause in both countries. At this early stage in the conflict tariffs have been targeted to only certain imports, which will hardly dent the Chinese economy. But even if President Trump were to level a staggering, and highly unlikely, tariff of 50% on all Chinese imports, it would still likely leave Chinese annual GDP growth above 5%.

In the United States however the retaliation from China would definitely be felt. The ever-precarious American manufacturing sector, which relies heavily on components imported from China, would certainly feel the pinch.

Beijing would also be able to provide stimulus to industries affected by a prolonged trade war, while the American government can ill afford such support at this time. The recent sweeping tax cuts have put the government deep(er) into a deficit position. Stimulus spending would require Congress to approve more borrowing, which would by no means be a slam dunk given the unpopularity of this trade war.

And that lack of political support is Trump's real problem.

Politics aside for Xi Jinping

Now that he has removed term limits, Xi Jinping can be president for life. Unlike Trump, he does not need to worry about re-election.  In the United States however, the GOP may lose control of the House and Senate as early as this November.

Xi Jinping is acutely aware of the political situation in the United States and China's tariff strategy thus far has been to target Trump-supporting states. The Chinese recently announced a tariff on sorghum (an agricultural product used to make a popular Chinese liquor) and have also threatened tariffs on soybeans. These tariffs will hurt the farmers who formed an important part of Trump's base in 2016.

China the likely winner

It seems clear that for both economic and political reasons China will be better able to withstand a prolonged trade dispute. The pressure will be on Trump to end the conflict soon with some kind of agreement that he can package as a win for his voters.

Perhaps the Chinese government will oblige Trump by giving him some token concession that will give him the chance to bow out of the conflict with his dignity mostly intact.

If not, I predict that Donald Trump will soon learn the hard way that the United States really can lose a trade war.

 

The Right

The Art of the Deal

By: Righty V

Like many issues Trump takes a stand on, the left and anti-Trump people are not surprisingly critical of his recent trade Tariffs aimed at trying to get America a better trade deal with China and other countries around the world.

The left and the anti-Trump fanatics and even Wall street act like they were blindsided by a best friend stealing their true love at a high school formal.

How could Trump ignite a trade war with a country that has a 300-500 billion dollar trade surplus with? He must be off his rocker, this is out of left field! WRONG! Trumps actions while can be erratic on a micro level are very predictable on a macro level.

Trade Agreements Eb and Flow like the Tide

Trade agreements are like the tide, they eb and flow, and are not stationary by design. Trade agreements and policies have similar traits, they eb and flow with the economic situation, and must be carefully crafted and reviewed often to ensure the intentions of such agreements are being met and are still applicable.

The Campaign Trail

One of Trump’s main campaign focuses and promises was to combat what he and many others believe are outdated and unfair trade agreements with nations around the globe.

Trump on many occasions during the campaign would call out China as the shining example of how trade agreements of the past had created King Kong sized trade deficits to a tune of some 300-500 billion, (500 billion if you were on the right and 300 billion if were on the left), per annum.  Trump also criticized NAFTA, and the TPP.

Diligence

Perhaps it can be said Trump is not always diligent, but on trade he was very diligent in acquiring large amounts of data on the topic of unfair trade deals. Trump commissioned a nine month long investigation into American trade agreements around the globe and that commission concluded that China in particular has not lived up to the spirit of such agreements, resulting in large deficits and gross misuse of American corporate intellectual property.

Trump eased the world into a Trade War

Once Trump took office he would put the world and the American Political establishment on notice that his campaign threats of rebalancing trade was a focus when he exited the TPP which was close to ratification in 2017.

In addition, Trump would trip a 90-day NAFTA review, which would force Mexico, Canada and the United States to begin the delicate process of renegotiating NAFTA terms.

So, with the TPP dead, NAFTA put in the crosshairs and a credible trade commission which found evidence of trade inequalities in hand, why is the world, the leftist, wall street and anti –Trump people surprised he has taken action to make trade fairer for Americans?

The answer is simple, Americans on both side of the aisle and American economics have become very short sighted.

Economic indicators and metrics used to gauge economic prosperity into the future rely more and more on shorter term economic measures, which I call isolationist economics.

What I mean by isolationist economics is when currency values and indices values and other economic predictions are based on one time short term indicators analysed in isolation of a macro understanding of the economic system.

The Real Question Trump is Answering

The real question Trump is trying to answer is where America will be in twenty, thirty or more years if trade agreements stay stagnant and America does not push for fairer trade.

The answer is an ever expanding trade deficit and more debt. America is at a tipping point with regards to their financial position, and ensuring their products and services can be exported and compete in the global market place is essential to any trade agreement negotiated.

America can win a Trade War if the context is right

There is plenty of empirical evidence that there is a trend of an erosion of American trade surplus’s and increasing trade deficits with trading partners around the world. While there are a multitude of reasons behind this, trade factors are surely a major aspect which can be defined and quantified.

Economic mechanisms such as tariffs and quotas are being used against the United States in a far more severe manner than the U.S uses reciprocally as is evident with Europe’s larger U.S tariff on automobiles; South Koreas limiting quota on U.S imported cars and Chinas treatment of U.S intellectual property.

Trump uses strong-arm tactics when negotiating and the threat of tariffs and quotas are example of a strong-arm tactic to force trading partners to honestly evaluate their own trade parameters with the United States and as a result there has been some success without sparking a trade war.

Some Success

South Korea has negotiated and increased U.S car quotas among other concessions while China has agreed to not escalate and respond to Trumps tariffs and to enter into negotiations which as of this writing have been progressing rapidly.

Trump has asked China to try and reduce the deficit by 100 billion dollars, an ambitious goal, yet probably a practical goal to try and achieve over the next decade or two.

This is a sign that perhaps other nations are not as angry as the media portrayed them to be and that they might have made a private determination that they are willing to renegotiate with the largest consumer market in the world.

America is getting its Groove Back

Similar to the notion that Trumps decision to declare Jerusalem the Capital would spark a massive Middle Eastern uprising, (which never materialized), people claimed Trump would spark a trade war if he moved forward with his aggressive trade stance. Well this notion has also been disproved with these countries actually coming to the negotiation table. Yet, Trump gets no recognition only further criticism.

It was China whom initially retaliated with some tough talk, then backed off agreeing to trade talks. Trump has proven that perhaps the big bad wolf China doesn’t blow as hard as everyone thought. China is going through its own economic difficulties with its own debt starting to accumulate. Can they afford to lose their number one market place? I think not.

China is just as reliant on the U.S as the U.S is on China, perhaps more so.

Regardless, this may be a sign of a re-emergence of the true power of America and proof America is still the world’s super power. People have been saying for a decade or more that America is in decline and their Empire is crumbling.

While perhaps there is some truth to that, contemporaries of the old Republic of Rome had been saying Rome was in decline for 300 years before the Western Empire actually fell.

While this notion of American decline has been held by the masses since 9-11, perhaps it is not as widely held by foreign governments who are much more in tune with the capabilities of America and whom are now being forced to either prove that theory correct and push back on trade or capitulate.

Capitulation seems to be the order of the day regardless of the scope of concessions given.  If Trumps trade policies were to spark a trade war why did South Korea give concessions, albeit minor, still the result was opposite of what MSM described as a coming trade disaster for America. Then China accepting to negotiate and not escalating the situation further adds fuel to the fact that perhaps MSM and others got it wrong and Trump may be on to something.

Trump deserves some Credit

Some credit must be given to Trump for pushing American interests, gaining some concessions while giving up nothing.

American politicians must start to realise that America was and still is highly respected and perhaps feared around the globe and that American Presidents still have immense economic sway when they choose to use it.

We may not all like Trumps tactics but they are bringing back a sense of respect for America which may have been lost during the final few years of Bush, and most certainly during the Obama years.

Maybe a Trade War can’t be won, but so far it seems as if it can be won in the favour of the U.S and is crucial, especially after years of neglect by past U.S Administrations. Something must be done to bring reciprocal trade fairness and Trump regardless of the political cost is again living up to another campaign promise.

Donald Trump has time and again been underestimated, and perhaps he will “Make America Great Again”, if not constantly obstructed.

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