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If you’re trying to understand why we may be on the brink of a full-scale trade war, with a huge expansion of U.S. tariffs on Chinese goods and, inevitably, Chinese retaliation, it may help to remember what happened a few weeks ago, while Notre Dame was burning.
As you may recall, Donald Trump decided to tell French firefighters how to do their job, tweeting that they should use “flying water tankers” to douse the flames. The French civil defense department responded with a tweet — in slightly fractured English — that didn’t mention Trump, but pointed out that water-bombing could cause the entire cathedral to collapse.
What does this have to do with trade? What the water-bombing incident shows us is that Trump has strong opinions on everything, even when he is completely ignorant of the subject. Fortunately, when it came to French firefighting, he couldn’t turn those opinions into action. Unfortunately, when it comes to trade policy, he can: U.S. trade law gives the president enormous discretionary authority to impose tariffs.
Trump’s tweets over the past few days may well be featured in future economics textbooks as perfect illustrations of how people misunderstand the basics of international trade and trade policy. In fact, I can pretty much guarantee it, since I’m the co-author of two textbooks.
First, Trump is still saying that because we run a $500 billion trade deficit with China — it’s actually $379 billion, but who’s counting? — that means we lose $500 billion. As some economists quickly pointed out, by this logic we all lose when we go shopping at our local supermarkets. After all, do the supermarkets buy anything from us in return? No!
Second, Trump keeps asserting that China is paying the tariffs he has already imposed. This could be true, if tariffs were driving Chinese prices down; in fact, the threat of more Chinese tariffs on U.S. agricultural exports is one reason grain prices have just plunged to a record low.But enough time has passed for economists to look at the actual results of Trump’s trade policy so far, and the Chinese are not, in fact, paying the tariffs. As I wrote a couple of months ago, “to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it.”
So if you’re trying to make sense of what’s happening on trade, you should start with the basic point that Trump has no idea what he’s doing, that there isn’t any coherent U.S. policy goal.That still leaves the question of why what seemed to be a deal in the making may have fallen apart (or maybe not: this could all be theater.) Last week it looked as if China would mollify Trump by offering some “tweetable deliveries” — promises to buy U.S. products that would let him claim victory without leading to any substantive change in Chinese policy. Did the Chinese actually, as the administration claims, start to walk back some of their promises? Did a trade hard-liner get Trump’s ear? Did Trump hear that the likely deal would probably be panned by the news media? Nobody knows.
One thing is certain, however: If we do get into a full-scale trade war, for whatever reason, it will be very hard to end it, and the world economy will never be the same.
Take a look at some of these charts today 05-07-2019
Market is up! from the low of the day.
Playing the market, is a complicated game which requires an understanding of all possible factors which change the numbers.
While in law, Trump´s tweets have no status, just self promotion for the eyes and ears of his base.
At the same time, even given Trump´s unpredictability, and lack of follow through a clever investor, can often anticipate negative results.
hanging in there, trying to decide which way to go ...