The usual suspects are racing to debunk Donald Trump's foray into the most serious protectionism -- a 25% tariff on China -- proposed by a major presidential candidate since Patrick Buchanan ran in 1992.
They know this is serious stuff. Our long-delayed national trade debate has begun in earnest.
I have expressed reservations about getting obsessed with just China before. But broadly speaking, Trump is right on the money here. Nothing less than an actual tariff or the equivalent is ever going to get Beijing to stop gaming the international trading system to America's disadvantage.
This matters, big-time. Because until we sort out America's trade mess -- which must start by zeroing out, or close to it, our $600 billion-a-year trade deficit -- our economy will never truly be healthy again.
Jobs are the aspect of this everyone understands. But what a lot of people miss is that the current budget fight, and the angst over our mounting national debt, are also intimately connected to trade.
So Trump is onto something even bigger than people realize.
The budget fight ultimately comes down to the fact that we don't have an economy large enough to generate tax revenue commensurate with the spending we have voted for. But why isn't our economy big enough? Start with the fact that, as economist William Bahr has estimated, America's accumulated trade deficits since 1991 alone have caused our economy to be 13 percent smaller than it otherwise would be. The trade deficit costs us about one percent in GDP growth every year, and that compounds over time.
As for our national debt, or, more properly, our bloating public and private indebtedness? As I explained at length in another article, borrowing money (and selling off existing wealth, which has the same net effect) is a mathematically inevitable result of running trade deficits. The only way this can not happen is if a) the aforementioned $600 billion isn't real money, or b) America is trading with Santa's elves.
So, Mr. Trump... How do we rebalance America's trade, starting with China?
Forget about doing it by playing nice. China will only give up one-way free trade (free for America, protectionist for them) when they are coerced into doing so. They are making far too much money to ever give up this sweet racket voluntarily.
We are constantly warned that imposing a tariff on China would trigger a trade war. But the curious thing about the concept of trade war is that, unlike actual shooting war, it has no actual historical precedent. In fact, the reality is that there has never been a significant trade war.
Anyone who knows otherwise, please name one.
The usual example free traders give is America's Smoot-Hawley tariff of 1930, which supposedly either caused the Great Depression or caused it to spread around the world. But this canard does not survive serious examination, and has actually been denied by almost every economist who has actually researched the question in depth -- including many free traders and ranging from Paul Krugman on the left to Milton Friedman on the right. (I debunked this myth at length in this article.)
There is, in fact, a basic unresolved paradox at the bottom of the very concept of trade war. If, as free traders insist, free trade is beneficial whether or not one's trading partners reciprocate, then why would any rational nation start one, no matter how provoked? Wouldn't they just keep lapping up the benefits of one-way free trade, if it's so good for them?
Furthermore, if the moneymen in Beijing, Tokyo, Berlin, and the other nations currently running trade surpluses against the U.S. start to ponder exaggerated retaliation against the U.S., they will soon discover the advantage is with us, not them. Because they are the ones with the trade surpluses to lose, not us. What exactly does the U.S. have to lose in a trade war? The only way a deficit nation can "lose" a trade war is by having its trade balance get even worse. Given that the U.S. trade balance is already outlandish, it is hard to see how this could happen.
Supposedly, China could suddenly stop buying our Treasury Debt.
Indeed they could, but this would immediately reduce the value of the $1.15 trillion or so they already hold. Furthermore, this would depress the value of the dollar -- exactly the opposite of their currency manipulation strategy.
Then there is the awkward problem of what China would do with all the money it would get by selling off its dollars. There just aren't that many good alternatives for parking that much money. Japan doesn't want its currency used as an international reserve currency, and the Euro has huge problems. Assets like gold and minor currencies are volatile or in limited supply. Others, like real estate or corporate stocks, are still denominated in those pesky dollars and euros.
We are still a nuclear power, so at the end of the day, China cannot force us to do anything that we don't want to. We could -- a grossly irresponsible but not impossible hypothetical -- repudiate our debt to them (or stop paying the interest) as the ultimate counter-move.
More plausibly, we might simply restore the tax on the interest on foreign-held bonds that was repealed in 1984 thanks to Treasury Secretary Donald Regan. We have lots of little cards like that up our sleeve.
So an understanding will, most likely, be reached. A deal (one of Mr. Trump's favorite words!) will be struck. I think Mr. Trump understands this better than anyone else. That's one of the things I like about him.
The reality is that the United States is already in a trade war with China. Kowtowing to China today is economic appeasement, with the same result as political appeasement in the 1930s: a few more years of relative quiet with a bigger explosion at the end.
At some point, America's ability to run gigantic deficits must end, due to a prolonged slide or sudden crash in the value of the dollar. The longer we wait, the greater the likelihood that it will come as a sudden and destabilizing shock, rather than a managed, more gradual adjustment.
This issue is bigger than China alone. How America deals with China will set the precedent, and establish or destroy America's credibility, for dealing with a long list of other nations.
Believe me, they're watching Trump now in Tokyo, Berlin, and Brussels.
Follow Ian Fletcher on Twitter: www.twitter.com/IanFletcher
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 |
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| Obama | Romney | |
|---|---|---|
| Electoral Votes (270 to win) |
332 | 206 |
| Obama | Romney | |
|---|---|---|
| Total | 65,899,660 | 60,932,152 |
| Percent | 51.1% | 47.2% |
| Democrats* | Republicans | |
|---|---|---|
| Current Senate | 53 | 47 |
| Seats gained or lost | +2 | -2 |
| New Total | 55 | 45 |
| Democrats | Republicans | |
|---|---|---|
| Seats won | 201 | 234 |
However the more we buy stuff in stores that is made overseas, the more the demand for those overseas products become.
However we do not make anything over here so there is nothing to trade to overseas to balance our demand for overseas products. Granted we do have grain and livestock and a few others but nothing like our demand for cheaply produced goods that we use everyday.
We can hardly find a tag made in USA (that is really made here) on products.
AT least this is my understanding and if correct. We are lost!
I won't consider him
"When a true genius appears in this world, you may know him by this sign, that the dunces are all in confederacy against him."
OPEC cartel countries are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, Venezuela and OPEC headquarters are in Vienna.
First you start with Venezuela, pass a 10% Tariff on Venezuela imports (except the oil) until Venezuela leaves OPEC raise it 10% every month. In 10 months it will be at 100% if Venezuela doesn't leave OPEC. This could help wreck any industry in Venezuela other then OIL.
Then move to Ecuador, 10% Tariff on all Ecuador imports (except oil) until Ecuador leaves OPEC. 10% increase every month.
Divide and conquer.
Don't think those other OPEC members exports much of anything other then OIL to the US, other then terrorists, so we can't really do anything.
Then move onto Austria; OPEC HQ is in Vienna. Pass a 5% Tariff on Austria, 5% increase every month until Austria removes OPEC HQ from their borders.
Pull out of Kuwait, Saudi Arabia, and Iraq if they don't leave OPEC. If someone invades, we invade then annex oil fields, just like Trump says. Most oil fields are in the middle of nowhere, not many people live on oil fields, it would be easy to annex and expel natives.
Time to look up "Imperialism", Bush started that whole mess with the synonomous "Pre-emptive War" and we all bought into it.
How about we put the full force of Government, Capitalism, Education and Labor into improving the means of manufacture and deployment of alternative energy?
I'm thinking we could do that for far less than the cost of the "War and Drugs" and just one of the idiotic occupations we are allowing the GOP and MIC to pretend and promote as wars.
-AJB
An Empire is a collection of autonomous nations, with their own cultures and languages money and armies, under 1 emporer.
A Republic is a collection of semi-autonomous states that is one culture, one language, and 1 army.
When the US invades and turns governments into puppets, then that is an empire. If the US were to invade and ANNEX territory, either force the natives to adapt or expel the natives, like the US did up to 100 years ago, then it's a Republic.
"How about we put the full force of Government, Capitalism, Education and Labor into improving the means of manufacture and deployment of alternative energy?" No.
Now autocrats and dictators have nothing to fear if they lose a war with the US, they will always get their lands back. If they win then they gain everything; if they lose then they lose nothing but lives and since when do autocrats and dictators care about the lives of their own subjects? Ever since WW1 the US has been involved in nothing but war after war after war after war.
Trump is using reverse psychology. If there is nothing to gain in a war, not even land, or even fear of the US (or respect as Trump puts it), then why go to war in the first place?
US citizens cannot continue to export title to assets title to (corporations that own) privately owned businesses, factories, casinos, hotels, farms, land, ports, refineries, forests, ports, breweries, distilleries, and other privately owned wealth and assets located in the USA that were created by previous US generations prior to de-industrialization to pay these foreigners to manufacture our imported products that we consume, rather than have US citizens work to produce the things that we consume, and also to pay for growing US government expenses that are in excess of our federal tax collections.
All US citizens need to realize that there is no free ride.
Why would or should any individual, business, partnership, or corporation ever do anything (like hiring another employee) that did not profit that business entity?
If the labor and environmental compliance costs cannot be economically justified, then profit is not possible. Does any worker work without compensation?
Some workers believe that businesses should hire people and create jobs to be good citizens without a profit.
Will any laborer or other worker work without compensation or pay?