In an article in Maclean’s that some will find impenetrably counter-intuitive, Raoul Leering explains why Trump’s tariffs may be his making an offer to our trading partners that they cannot refuse:
Trade partners such as Canada, Mexico, but also China, depend much more on American demand for their products than the other way around. U.S. demand for Mexican and Chinese products contributes respectively twenty and five times as much to their GDP as their demand for U.S. products adds to U.S. GDP. Also, Canada has much more to lose in a bilateral trade war with the U.S. than the Americans.
China seems to blow up Trump’s strategy to blackmail U.S. trade partners into granting the U.S. more favourable conditions of trade so he can avoid a real trade war but get something done at the same time. The Chinese have drawn up their own list of products to incur tariffs in retaliation to the US$50bn tax that Trump will levy on Chinese goods as punishment for alleged theft of intellectual property and limits on foreign investments.
But, it is no coincidence that the Chinese have not yet set the date when these new tariffs will become effective. This means they still see room for extending the current negotiations. Given the relatively large dependency of the Chinese economy on American demand, it is likely that China will, in the end, cut its losses and be willing to give Trump something.
That Trump might be canny enough to pull off such a ploy would, presumably, shatter the worldview of some. That this article has been published in a Canadian periodical is probably not an accident. I honestly don’t care whether the tariffs are outrageous, dangerous, a blunder, wily, what you’d expect with a dollar that’s the global reserve currency, or whatever. I want to know what the U. S. economy and society will look like if we run a permanent trade deficit of a half trillion dollars that rises with GDP, whether that’s somewhere we want to go, and, if not, what we should do about it.
Good question. There are enough credible economists questioning whether we actually measure the trade deficit correctly, and questioning whether it is necessarily harmful, that I am not so certain about this. Still haven’t made up my mind. That said, there are issues that we should definitely address. A lot of that intellectual property they steal, as I understand it, comes from US companies working over there must pair with Chinese companies, who steal those companies intellectual property. If that is our concern then don’t let US companies go work over there in conditions where that will happen.
As to Trump’s methods, i suspect it is just what he heard from someone on Fox and/or it is the most simplistic approach. It is also the kind of gamble he probably understands best. It might accomplish something, I don’t know. If we end up in a true trade war, I think both sides lose. The author wants to make the case that China suffers more. That might be true but I don’t think that is the question. It should be framed as which political leaders will most be able to survive the turmoil and slow growth. I just don’t se our political leaders faring well in that kind of battle.
Steve
The big question, which isn’t discussed by economists in the media or the media generally, is how do we get from here to there? Sure, they don’t like what Trump is doing even as they admit that the trade relationship with China isn’t good for the US.
So, how do we get to a better trade relationship? Economists don’t know and neither does the mainstream media.
I have no idea if Trump has a strategy or if what he’s doing will ultimately work or not. But it’s the only alternative I’ve seen discussed apart from the status quo or more of the same thing that got us here.
And it seems pretty logical that China does not want to upset the apple-cart. Therefore China will have to be compelled to change which means something they value must be put at credible risk. Is this something that can be gamed out ahead of time? I have m doubts. Trump’s intuitive seat-of-the-pants approach might (and I hate to admit this) be the better way to go.
But it would really be nice if these economists and “experts” on trade would come up with an alternative which would address China’s long-standing actions.
I think I’d phrase it a little differently. The way they want to phrase the question is “how should the Chinese change their behavior” whereas I think it’s “how can we go about changing ours?”
The Chinese have said often enough that they’re not about to change their behavior to suit us and we don’t have the ability to compel them.
To answer your question Dave, Brazil is one possible future.
Dave, you get to the heart of it. The Chinese cannot compel the US to acquisense to its behavior either (China can subsidize all they want, but US has a choice in buying the subsidized goods)
I recommend reading the Lighthizer profile in the WSJ. The most insightful points was tariffs did not come in a tweet; there’s been debate and an interagency process on what to do with Chinese trade practices since at least last summer. Nothing except perhaps the threatened 100 billion tariff in response to threatened Chinese retaliation was done seat on the pants.
Here is an interesting article that dovetails with the point of this post.
http://www.baldingsworld.com/2018/04/08/how-should-we-frame-the-us-china-trade-conflict-lets-use-some-game-theory/
One thing that keeps popping out is the surprising agreement with Trump by people who otherwise think Trump is evil / stupid / or a boor.
I generally agree with the author of the post’s conclusion, namely that China is opposed to any rules-based international order.
However, there’s an odd resemblance between Trump’s announcement of tariffs and Bush’s actions after 9/11. The Europeans widely characterized what the U. S. did as an overreaction when the reality was that it was an enormous underreaction, which is how I believe both the Chinese and Russians interpreted them.
Consider: more Americans were killed and more physical damage done on 9/11 than was done in Japan’s attacks on Pearl Harbor. Following the attack on Pearl Harbor the United States mobilized for total war, then proceeded to kill between a half million and a million Japanese, dropped two nuclear weapons on Japanese cities, and redrew the map of Asia. After 9/11 we removed the governments of Afghanistan and Iraq. From a geopolitical standpoint a flyspeck.
My point here is that the world is so accustomed to U. S. inaction that any reaction is deemed an overreaction.
What the US economy will look like? Much the same on the surface, though there’ll be changed as foreigners take their piles of dollars and convert them into real estate and other holdings. Mitsubishi owned Rockefeller Center for a while, but the Rockettes kept dancing. Columbia Pictures is still a thing although now it’s a branch of Sony Entertainment. People still drink Budweiser and Millers and Coors even though those beers are products of an international consortium Anheuser-Busch InBev SA/NV. One of these days you’ll drive through Iowa in the summer time and your kids will wave at the authentically American farmers in their fields of wheat and corn and barley and no one in the car will remember — or care — that just about all the farm land in Iowa belongs to three Chinese corporations, and those folks sitting high up on their tractors are just hired hands.
And in the background, you’ll hear a distant chorus of American economists, liberal and conservative both, singing about how wonderful it is that free trade is making us all so wealthy and constantly increasing our freedom. You’ll love it.
You’ll not be so stupid as to say you don’t!