Commerce, Economy / Finance, Globalization, Populism

President Trump’s Fruitless Trade War

Aug 7 2019

By The Editorial Board (*) – The New York Times

The Trump administration continues to escalate its confrontation with China, but there is no clear goal — and no end in sight.

President Trump told the American people that confronting China would be quick and painless and would result in clear gains for the American economy, a philosophy summarized most famously in his Twitter boast: “Trade wars are good, and easy to win.”

Today, two years after the Trump administration imposed its first punitive measures on China, the United States is mired instead in an escalating trade conflict with no clear strategy, no discernible goals and no end in sight.

Mr. Trump announced last week that he would impose a 10 percent tariff on $300 billion of Chinese imports to the United States. He already had imposed a 25 percent tariff on about $250 billion of Chinese imports. China’s immediate response was to allow the exchange value of the yuan to fall against the dollar, which has the effect of offsetting the tariffs by reducing the price of Chinese goods in dollars. The Trump administration, in turn, issued a finding that China was engaged in currency manipulation.

The sparring briefly unsettled financial markets, but perhaps more worrisome than the fast-twitch response of stock market algorithms is the lack of a broader panic — the sense that this trade conflict is becoming the new normal.

Both the Trump administration and the Chinese government appear to be settling in for a protracted standoff, intent on demonstrating their willingness to let ordinary people suffer.

This is particularly troubling because Mr. Trump has yet to articulate a clear and coherent set of objectives. He often speaks about the revival of American manufacturing, but in talks with the Chinese, his administration has focused instead on making it easier for American companies to operate in China — something that seems unlikely to increase employment in Wisconsin.

Sadly, the one olive branch Mr. Trump has offered to China in recent days is his endorsement of the Chinese view that protesters in Hong Kong are engaged in “riots.” Past administrations have regarded the protection of human rights as one goal of engagement with China. That does not seem to be on Mr. Trump’s list.

The new focus on currency manipulation is particularly misguided. China is engaged in a wide range of unfair trade practices, including subsidizing domestic manufacturing, impeding the sale of foreign goods and stealing intellectual property. But experts generally agree that China is not manipulating its currency. The Trump administration has chosen to attack China for an offense it’s not committing.

China has a history of currency manipulation. The Chinese government supported the rise of export industries in the 1990s and 2000s by suppressing the exchange value of the yuan, which allowed people in other countries to buy Chinese goods with smaller sums of their own currencies. But over the past half-decade, China has sought to stabilize the value of its currency — in part by resisting depreciation.

On Monday, the Chinese government briefly suspended its resistance, allowing market forces to push down the value of the yuan. It briefly crossed a closely watched threshold of seven yuan to the dollar. This was certainly convenient for China. But the United States, which has long urged China and other nations to let markets set exchange rates, undermines its own long-term goals by censuring China for doing so.

Mr. Trump is frustrated that the dollar’s exchange value has climbed on his watch, making it harder for American companies to win foreign buyers.

The primary cause, however, is simply that the American economy has outperformed the rest of the developed world. Secondarily, Mr. Trump himself has pumped up the dollar by backing a combination of tax cuts and spending increases that have expanded government borrowing, increasing demand for dollars to buy federal debt.

Michael Klein, a Tufts University economist, notes that the dollar’s movements against the yuan have tracked its movements against the currencies of other major trading partners. China, in other words, is not to blame for the trend.

Mr. Trump’s efforts to pressure China into making concessions also are faring poorly.

Tariffs are a tax ultimately paid by American businesses and consumers, and Mr. Trump’s existing tariffs on Chinese goods already have cost Americans more than $20 billion.

There is no sign the tariffs are shifting manufacturing from China to the United States. The latest data shows the manufacturing sector is expanding at the slowest pace since 2009. JSW Steel, which said last year that Mr. Trump’s tariffs on steel had made it possible to begin a $1 billion expansion in the United States, is now suing the Trump administration for imposing tariffs on the company’s imports of raw materials.

China’s retaliatory measures also are hitting the American economy, particularly the farm belt. Mr. Trump has substituted handouts for lost sales, and he promised Tuesday, “I’ll do it again next year if necessary!” But many farmers are unhappy about the standoff. They say they would rather sell soybeans than collect federal aid. The taxpayers funding the handouts have reason to grimace, too.

China has suffered a loss of sales in the American market, but the Chinese government has taken an increasingly hard line, and it is not obvious that ratcheting up the tariffs would produce better results. The Chinese already are establishing new patterns of trade — buying soybeans from Brazil, opening export factories in Southeast Asia, investing in European infrastructure.

Mr. Trump has shown that he has the power to disrupt the relationship between the United States and China, but he has shown no ability to dictate new terms. The most likely outcome appears to be at least another 18 months of pain.

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(*) The editorial board represents the opinions of the board, its editor and the publisher. It is separate from the newsroom and the Op-Ed section. The editorial board is composed of journalists with wide-ranging areas of expertise. Their primary responsibility is to write The Times’s editorials.

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Annex:

Is Trump Losing The Trade War?

ZeroHedge

 Authored by Mac Slavo via SHTFplan.com

As the trade deficit continues to widen and President Donald Trump ramps up his rhetoric on China, one thing is for certain: the data points show that the United States is the loser in this trade war.

There is no coming out on top when the tariffs, which are paid in whole by American consumers and businesses, are a financial burden and additional tax on your own. According to a report by Reason, investment in American businesses has fallen sharply since the start of the trade war, and American exports are way down too.

The gap between how much America exports to China and how much it imports from the Asian nation grew to $30.2 billion in July, up from $30.1 billion the previous month, according to Commerce Department figures. But there are three more data points of importance that prove the United States is losing the trade war.

The widening gap was due to a decrease in the value of American exports, Bloomberg reported. The trade deficit has been a problem for Trump and one of the main reasons he started the trade war. Trump has used America’s trade deficit as a key justification for his trade policies, and he has repeatedly promised that tariffs on China would reduce that deficit. But as predicted, when one uses central planning and government intervention to mess with the free market, things get worse. Economists generally agree that trade deficits don’t matter, as free trade is more important for a stable economy. This is the same reason that you wouldn’t worry about running a “deficit” with a grocery store, Reason stated.

Trump’s tariffs are having an impact, but not in positive ways for the United States. During the first six months of 2018, U.S. exports to China fell by 18 percent relative to the same period last year. Imports from China slipped by 12 percent. Both sides are doing less trading, but the trade deficit persists.

Three other data points are showing the trade war as an abject failure too:

Business Investments Plummeted

According to the Commerce Department, investment in American businesses has fallen off sharply since the start of Trump’s trade war in mid-2018.

This is a sign that businesses are holding off on hiring and expanding in the face of uncertainty and higher costs.

Loss of Goods-Producing Jobs

Trump has also tried to justify his bellicose trade policies by citing the importance of American manufacturing jobs. Not only is the manufacturing sector officially in a recession, but the job losses will have a ripple effect across the landscape of the American economy.

Loser for The Treasury

The trade war has been a net loss for the treasury. Sure, there are the billions of tariff dollars paid by American consumers and businesses, but the amount paid to farmers to offset the damage done to them is higher.

It’s time to remove the partisan political blinders that keep people supporting the horrible trade war policies and open our eyes to what’s really happening.  The U.S. is losing this trade war and the American consumer is the biggest loser of all.

More government intervention will not fix the problem. Central planning has only made things worse, and it’s past time we realize exactly what’s happening.

Brace yourself; the future economy’s outlook is bleak.

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As Brandon Smith, Founder of Alt-Market.com, explains:

It’s important to mention that some tariffs on foreign made goods can help to alleviate the “need” for government taxes on the populace of a particular country.  This has been done in the past in America with some success.  However, certain conditions have to be met first:  Domestic manufacturing must be bolstered by incentives and factories must be built within the US BEFORE tariffs are initiated. 

The US CANNOT have vast amounts of national debt that it is paying interest on and cannot be reliant on foreign central banks (or any central bank) in order to keep its economy afloat.  And, the overall economy must be balanced and stable; a trade war during times of economic weakness only hastens a crash, or provides cover for central banks as they cause a crash. 

None of these conditions exist in the US today.  None. 

That said, Trump’s trade war has accomplished nothing tangible because that is the point.  The goal of the trade war is to act as a distraction and scapegoat for the implosion of the Everything Bubble.  As I have said for the past year, the trade war is not meant to be won, it is meant to be lost.

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