May 14, 2019

"China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing."

"If the Federal Reserve ever did a 'match,' it would be game over, we win! In any event, China wants a deal!"

Trump tweets.

Other Trump tweeting on the China deal earlier this morning:

When the time is right we will make a deal with China. My respect and friendship with President Xi is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense. We have to be allowed to make up some.....

....of the tremendous ground we have lost to China on Trade since the ridiculous one sided formation of the WTO. It will all happen, and much faster than people think!

We can make a deal with China tomorrow, before their companies start leaving so as not to lose USA business, but the last time we were close they wanted to renegotiate the deal. No way! We are in a much better position now than any deal we could have made. Will be taking in.....

Billions of Dollars, and moving jobs back to the USA where they belong. Other countries are already negotiating with us because they don’t want this to happen to them. They must be a part of USA action. This should have been done by our leaders many years ago. Enjoy!

114 comments:

MikeR said...

Pres. Trump keeps a campaign promise. Economists are unhappy, of course; tariffs are bad for the economy. They amount to a wealth transfer from the rest of us (who buy stuff) to the ones who manufacture the tariffed goods.
It would be better for the economy to just tax the rest of us and give it to them, but that isn't happening. So politics trumps economics and maybe it should. Anyhow, it does.

rhhardin said...

It sounds good to me. Friends with the leaders and honest about what bargaining is about.

I'm not absolutely confident that Trump understands central banking but then who does.

rhhardin said...

The point of international tariffs is to reduce the traffic not to raise money.

CJinPA said...

This is one of those areas where I have little confidence in my level of knowledge and therefore won't express a strong opinion. I wonder if the rest of the internet is taking the same approach. Let me check...

...Seems I'm alone in this approach.

Chuck said...

Haha. Trump has no clue.

https://www.washingtonpost.com/politics/kudlow-acknowledges-us-consumers-not-china-pay-for-tariffs-on-imports/2019/05/12/3cbe100e-74b9-11e9-b3f5-5673edf2d127_story.html?utm_term=.064095446d10

buwaya said...

No other President ever put his policy case like this, to the people, in such volume and detail, and on short-medium term matters.

A lot of this is propaganda, but so also is much of what you get in a State of the Union address.

Other administrations have made such statements through indirect means, departmental briefings, press conferences by functionaries, etc., taking elements of Byzantine imperial custom, where the Emperor was to a great degree deliberately isolated by ceremony.

Trump is the opposite of Byzantine. He is the old sort of Roman, daily orating before the people at the forum.

Dave Begley said...

Apple's Tim Cook is a key player here. Note how Trump hasn't imposed any tariffs on all the stuff Apple makes in China. If Apple moves factories out of China, that's a big problem for China.

Hillary would never deal with China because China bribed her. It is right in the deleted emails. Biden has been bribed too.

rehajm said...

American business is sick and tired of turning over IP as the toll to work with China. Foppy economists whinge about tariffs devastating but they conveniently fail to recall the rest of the lesson. Fortunately the Chinese kids that sat next to the fops when they were together at HBS will recall that part of the lesson, which is there will be second and third order reactions to tariffs. Most importantly, China needs US consumers and Chinese enterprise will be willing to accept lower prices and lower margins in order to keep selling.

rehajm said...

Trump has no clue.

You two have that in common.

Nobody said...

What does Mayor Pete think? Somebody shoudl get him on the phone!

buwaya said...

A tarriff war is, as all conflicts are, a contest of pain.
Both sides suffer.
The questions are about who suffers more, and who can stand more pain.

In general the side with the market has the advantage. Long term, for manufactured goods, substitute suppliers are found. Substitute markets are not so easy to atrange.

M Jordan said...

Intuition is a true form of cognitive shorthand and it always should be held with skeptical tongs, but I’ve found mine to be a more reliable indicator of reality than the laborious and also often-wrong deductive process. And my intuition, backed on part by this morning’s Dow futures market, is feeling upbeat about Trump and China. I expect China to offer a quiet deal now that they’ve given us a face-saving bluff.

EDH said...

The idea here is that China will lower interest rates to devalue the Chinese currency, and the lower currency valuation will blunt the effect of tariffs on goods sold to the US and hurt US exports to China. Trump is saying go ahead, make my day.

Trump seems to be using the economic and political power of the moment (even if it's temporary) to wage this battle now that previous administrations avoided.

That this could reverse trends and increase US influence and reduce China's hegemony in the region would be a brilliant stroke.

And notice how Trump blows smoke up his tyrannical opponent's ass the whole time.

Nobody said...

The point of international tariffs is to reduce the traffic not to raise money

Yeah, and the knock on effect is to create jobs making the stuff, like steel, etc, and bring home the jobs we have ceded to China. If those jobs don’t matter, why is China fighting so hard to keep them?

There is always pain during withdrawal from a deleterious but addictive drug like cheap Chinese goods. That they give us our former money back on the cheap is not really adequate recompense, and we all know that we will never get access to that huge market of theirs. They use it like a good goalie uses the five hole, flash it at an attacker, then when he shoots for it, you shut it down and cover the puck.

Nobody said...

Free trade was one more line of bullshit fed to us by the LLR/Koch Bros/Chamber of Cucks wing of the party? How many of them are there really? 90% of the super wealthy have already defected to the Democrats.

EDH said...

Chuck said...
Haha. Trump has no clue.

In case you didn't notice, Sen. Chuck Schumer backs Trump on this.

And Michael K linked an interesting study yesterday...

Who is Paying for the Trade War with China?

We calibrate a simple economic model and find that a 25 percentage point increase in tariffs raises US consumer prices on all affected Chinese products by only 4.5% on average, while the producer price of Chinese firms declines by 20.5%.

The US government has strategically levied import duties on goods with high import elasticities, which transfers a great share of the tariff burden on to Chinese exporters. Chinese firms pay approximately 75% of the tariff burden and the tariffs decrease Chinese exports of affected goods to the United States by around 37%. This implies that the bilateral trade deficit between the US and China drops by 17%.

The additional tariffs generate revenues of around USD 22.5 billion, which could subsequently be redistributed in the US. Although the tariffs introduce a distortion to US consumption decisions, the economic costs are shifted to Chinese exporting firms and the US government is able to extract a net welfare gain of USD 18.4 billion.


http://www.econpol.eu/publications/policy_brief_11

Ray - SoCal said...

From Chicagoboyz - mike K’s post in the comments and from associated links:

China has a $324 billion Surplus with the US
China exports to US - $505 Billion
China imports from US - $130.37 billion dollars, out of a total of 1.547 trillion dollars of US exports.
Total China Worldwide Surplus: $35 Billion
Us GDP: $20 trillion

US has a lot of leverage with China, and Trump is the first US President to use it.

Seeing Red said...

The Chicoms still need to feed their people.

I recently read an article that Xi needs to save face. This will get interesting.

iowan2 said...

Thanks, that's what we need. WAPO propaganda.

President Trump is an idiot. Has no idea how things work. Wrecking the US economy.
Except he has spent 2 years positioning the US economy to be the strongest most vibrant economy since post WWII. That accomplished, he move on to China. Because President Trump is not the characture of idiocy you insist on using. Bipartisan agreement that China's trade violations need to be addressed. Prior administrations have left that job to the experts at State, who's only tactic is, talk, sign worthless agreements, and send strong worded cables voicing their disappointment. Yes there is going to be some "pain". Pain as in higher prices on discretionary spending. Accepting something like a Washer is is going to go up $300. Amortized over the life of the appliance, 15 years= $.05 per day.
Repeating. The pain of higher prices is on discretionary spending.

BTW I live with soybean farmers. More than 3/4 of them are voting for President Trump. Despite the price being below cost of production. (It's been below the cost of production since the 2015 crop)

Nobody said...

The money changer types make money whatever the manufacturing arrangements, and “free trade” leads to cheaper stuff for them to buy with their piles and piles of money. It’s the working class that pays the freight for free trade. Free trade and open borders lead to income inequality. Any analysis of whether free trade is good or bad should carefully examine who benefits from it and who pays for it, by economic class, because the people losing steel mill jobs to flip burgers and now driving used cars don’t really show up, but the people now buying BMWs and Audis because they seem dirt cheap? They show up in the numbers.

I think that intuition is probably useless for short term analysis, but long term, these things play out based on driving forces that are well understood.

EDH said...

There's a difference between who "pays" a tax and who bears the burden of the tax "incidence". According to the tax (tariff) incidence analysis above, Chinese firms take 80% of the hit on these tariffs.

FoxNewsSunday
‏Chris talks to @larry_kudlow about who actually pays the tariffs with China if they were to be imposed #FNS

“It’s not China that pays tariffs,” Wallace said. “It’s the American importers, the American companies that pay what, in effect, is a tax increase and oftentimes passes it on to U.S. consumers.”

“Fair enough,” Kudlow replied. “In fact, both sides will pay. Both sides will pay in these things.”

Pressed again by Wallace, Kudlow acknowledged that China does not actually “pay” the tariffs.

“No, but the Chinese will suffer GDP losses and so forth with respect to a diminishing export market,” he said.

Kudlow added that “both sides will suffer on this.”

CJinPA said...

Trump seems to be using the economic and political power of the moment (even if it's temporary) to wage this battle now that previous administrations avoided.

The one advantage China has is it can play the looooooooonnnng game. They think in terms of decades, if not centuries. Washington is thinking no further than 2020. China can wait this out unless Trump is re-elected.

rightguy said...

I bought a Lenovo (former IBM) laptop a few years ago : cheap as dirt and it had a pre-loaded -and unlicensed- version of Windows 7 on it. Our President has his eyes on the ball, here- intellectual property.

CJinPA said...

BTW I live with soybean farmers. More than 3/4 of them are voting for President Trump. Despite the price being below cost of production. (It's been below the cost of production since the 2015 crop)

It's almost as if they've concluded Trump has their long term interests at heart and cap-toothed D.C. pols do not.

Bob Boyd said...

Trump: "China is fucking us in the ass."

Opposition: Yeah, but...

Ray - SoCal said...

Why did China go back on the deal they agreed to with Trump?

What China wants now is a deal that is words only.

Trump is looking for a deal with teeth to deal with the structural unfairness if China US trade;
- stealing of IP
- forcing us companies to transfer technology / joint deals
- discriminating against foreign companies domestically
- other unfair trade practices

Biden is pro China, the billion dollar bribe, I meant investment, was through his son. And Biden per the news media, appears to be the next President. Plus Senate majority leader McConnell's wife family has a net worth of $7.2 Billion, and much of it due to business dealings with China. And the history of US Presidents is some bark with China, but no bite. And the US elite is very anti Tariffs. Per the news media coverage this is a horrible idea. Plus Trump is going to be impeached any day per the media.

buwaya said...

Some countries, historically, drew a significant part of government revenues from tarriffs. Its not always been just a protective measure. The US for instance, until WWI, depended on customs duties for 30-70% of Federal revenues.

The Philippines was in the same case until sometime in the 1970s IIRC.

tim maguire said...

CJinPA said...The one advantage China has is it can play the looooooooonnnng game. They think in terms of decades, if not centuries. Washington is thinking no further than 2020. China can wait this out unless Trump is re-elected.

I disagree. China is sitting on a demographic time-bomb. It is already too late for them to get rich before they get old. Economically, they have peaked. The only thing keeping them afloat is their unfair trade practices and a large cash surplus that they are already dipping into to make up for shortfalls and "investment."

Time is not on China's side.

iowan2 said...

Where does the majority of your paycheck go? Housing. Energy(gasoline, heating/cooling, electricity). Taxes. Groceries (about 1/3 of your grocery bill is food, the rest household stuff).
Then it goes down from there. Loans on things like autos, education, furniture.

That stuff from China. Not a big player in your monthly spending on needs. Just discretionary stuff we can all live without, or have enough money we don't care

PuertoRicoSpaceport.com said...

Blogger rhhardin said...

I'm not absolutely confident that Trump understands central banking but then who does.

I suspect that PDJT understands banking, regular and central, far better than even many bankers. He has spent his entire career working with them.

The US does not have a central bank, BTW. We have a network of 12 private banks, "Federal Reserve Banks" that kinda, sorta, function like a central bank but not really.

They are supervised by a govt regulatory agency "Federal Reserve Board". Which also, kinda, sorta, serves as a central bank in conjunction with the 12 FR Banks.

John Henry

daskol said...

That's true, Buwaya, but that was before direct taxation like income tax. This is clearly not a revenue program, but rather negotiation by other means. Trump used to advocate the same approach when Japan was eating our lunch in the 80s. It makes a lot of sense, but the increased revenue, with which he can compensate farmers hit by the trade negotiations, is the propaganda part.

Ray - SoCal said...

China’s leadership needs continued economic growth to keep the Mandate of Heaven.

China’s leadership has centralized power to an extent not seen since Mao.

Trumps economic team understands the weakness of the Chinese position, and Trump has been saying this stuff for 20+ years. Trump is allowing the Chinese to save face by “blowing smoke up their ass”, while increasing the economic pressure.

What if foreign investors in China decide to move production to other countries?

Or back to the US?

Chinese labor’s cost keeps on going up...

GoPro just announced they are moving production.

PuertoRicoSpaceport.com said...

There's probably few people more absolutist and anti-tariff on trade than me. I've said this many times here and elsewhere.

The idea of a trade imbalance is horshit. Trade ALWAYS balances unless the other country is putting the dollars under the mattress. (Which China may be doing with their ghost cities)

If they put the money under the mattress, it is like an uncashed check. We have the goods AND the money. Though we do have a liability.

The problem is that much of the money we send to China comes back to us not as purchases or investment but in the form of financing the swamp. The Chinese and others buy govt debt.

So I support PDJT's tariffs. Not because tariffs are a good thing but because they are starving the swamp creatures.

It is not there now but earlier the top Drudge scare headline was that the Chinese were going to stop buying US debt.

Drudge had it in red like it was a bad thing.

I looked at it and thought "Yaaaaay!!! The tariffs are working!"

Starve that beast!

John Henry

mandrewa said...

MikeR said, "Economists are unhappy, of course; tariffs are bad for the economy. They amount to a wealth transfer from the rest of us (who buy stuff) to the ones who manufacture the tariffed goods."

Yes and no, it's the government that gets the money; tariffs are a tax. And yes, since the tariffs increase the cost of what the overseas competitor is selling, and thus make it more likely (it's still a choice) that domestic consumers will buy the domestic version and then that directs money to our manufacturers.

But I question the assertion that tariffs are in all cases bad for us. I'm very puzzled by this in fact. It's been awhile but I've read some of the original arguments for free trade and comparative advantage and it's all great stuff except that there are assumptions implicit in those arguments that I'm not sure are present in this context.

For example with Adam Smith, and also with some other early economists whose names are eluding me at the moment, I think there's an assumption that trade is occurring in the context of a rough overall balance. And that in fact trade itself, except in some unusual environment is going to push towards balance.

And in these texts, or the ones that I've read, I've never seen the situation examined of what happens or what makes sense when you have a large and persistent imbalance.

I know that there are economists that believe this doesn't matter. And that tariff-free trade always benefits us regardless of what trade barriers are imposed upon us. Thus even though it should be apparent that China has always been in a trade war with the United States and has always been imposing huge barriers and restrictions on goods and services sold by American companies to people in China, still despite that it is supposedly not in the interest of the people of the United States to reciprocate.

I can easily come up with counterarguments. That doesn't mean I'm right, but still it's striking to me that people that argue for free trade in all contexts never to seem feel the need to explain why. I get that they believe it. But why do they believe it? Where's the evidence? Where's the reasoned argument?

Boxty said...

Tariffs are great for the environment. It prevents consumers from evading U.S. environmental and labor protections on goods manufactured abroad. Tariffs are the real green new deal.

PuertoRicoSpaceport.com said...

Just to clarify, I am not totally against tariffs. I think a uniform tariff, say 5-10%, on ALL goods and services coming into the country would be fine. It is how the govt used to be financed before the 16th Amendment.

Sort of like a sales tax on all foreign goods and services.

Not in addition to the income tax but in place of the income tax. In whole or part.

John Henry

iowan2 said...

What if foreign investors in China decide to move production to other countries?

Or back to the US?


What? Businesses responding to incentives?? That's CRAZY talk!

PuertoRicoSpaceport.com said...

Blogger Ray - SoCal said...

From Chicagoboyz - mike K’s post in the comments and from associated links:

China has a $324 billion Surplus with the US


Not really. That would only be true if they had the 324bn stuffed under mattresses. In reality, the dollars come back to the US. Just not in the way you and I might like it.

The U.S. debt to China is $1.13 trillion as of February 2019. That's 28% of the $4.02 trillion in Treasury bills, notes, and bonds held by foreign countries.

https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355

Trade, in the money flow sense, always balances. China trades microwaves for T-Bills.

I am not saying that this is not a problem. It is a huge problem. But to talk of a trade imbalance is horseshit.

It is done to hide the fact that China is financing the swamp.

John Henry

Angle-Dyne, Samurai Buzzard said...

MikeR: Economists are unhappy, of course; tariffs are bad for the economy. They amount to a wealth transfer from the rest of us (who buy stuff) to the ones who manufacture the tariffed goods.

That is where Econ 101 leaves off.

rehajm: American business is sick and tired of turning over IP as the toll to work with China. Foppy economists whinge about tariffs devastating but they conveniently fail to recall the rest of the lesson. Fortunately the Chinese kids that sat next to the fops when they were together at HBS will recall that part of the lesson, which is there will be second and third order reactions to tariffs.

I'm never sure who among the foppy economists (and the rest of the experts out there) really forgot (or never learned) the rest of the lesson, and which one are just pretending because they're benefiting from the "free" trade status quo. (For now, anyway.)

Roy Lofquist said...

Blogger Chuck said...
Haha. Trump has no clue.

GDP ++
Unemployment --
Bunch of other things ++

And it was Colonel Mustard in the library with the wrench.

CJinPA said...

tim maguire said...

Time is not on China's side.

No matter how dire you think their situation is, Trump and tariffs could be gone 19 months. They seem to have no reason to make concessions unless he is re-elected.

mandrewa said...

PuertoRicoSpaceport.com said,

"China has a $324 billion Surplus with the US

Not really. That would only be true if they had the 324bn stuffed under mattresses. In reality, the dollars come back to the US. Just not in the way you and I might like it."

Sort of. But what this trade imbalance actually means is that ownership goes to China.

Things balance by China increasing its ownership of the US economy.

Last year, 2018, the trade imbalance was $419 billion. The only way to make that balance is that $419 billion in US assets gets transferred to China.

They sell us goods. We sell them our land, our companies, and our debt (a promise to send more money in the future).

Is this a good trade? Is this really in our collective best interest?

Ray - SoCal said...

Much of China’s Surplus to the US was sent back to the US, to prevent China’s economy from over heating.

The problem was this created a bubble in some assets in the US, real estate was a favorite investment area. And if you don’t trust your own country, China, to be a safe, stable place to keep your wealth, buying a house and other real estate overseas makes sense. See Vancouver bubble for an example in Canada.

The ignored problem is this moves jobs / production for the US to China. Globalization helps the elites, but it’s not good for blue collar workers. Under Trump, blue collar workers are improving economically.

The US has a lot of advantages economically, and Trump is removing some of the roadblocks / impediments that slowed the US economic growth. Trump is really focusing on growing the us economy, and it seems to be working. I wish Trump would do more, legal and educational reforms would be huge, but he can only do so much so fast.

PuertoRicoSpaceport.com said...

Mandrewa,

Here's how to think of it. Or at least one way to think of it:

You buy a microwave from China and send $100 to China.

What does China do with that $100? There are 5 possibilities:

1) Puts it under a mattress which makes it like an uncashed check. This does cause an imbalance. But not a problem, IMHO, since we have the microwave AND the money.

2) Buy something from the US and ship it to China. Say, $100 worth of Bayer aspirin (Meyerstown PA) Trade balances.

3) Buy land, stock or other investment in the US. The dollars come back here but are not counted in trade balances.

4) Buy govt or other debt. Again, the dollars come back but are not counted in trade balance.

5) Buy oil from Saudi Arabia or such. This causes a trade imbalance with China but now SA has to do 1-4.

Another way to think of it is:

If China sells $1mm in microwave ovens to the US and buys $1mm worth of structural steel to ship to China trade balances.

If China spends the same $1mm on the same steel but uses it in the US, they have a $1mm trade surplus.

Tell me in what world that makes any sense.

John Henry

Tom T. said...

Blue-collar income has been up in the Trump years, in the manufacturing sector most of all. To the extent that tariffs are partly responsible for that increase, they're shoring up those voters against a Biden campaign. Any costs to consumers at large are lost in the noise of the media's unrelenting opposition to all things Trump. It's a little reminder of the value of picking one's battles.

mockturtle said...

Rhhardin observes: The point of international tariffs is to reduce the traffic not to raise money.

Exactly so. And reducing traffic will hurt China more. Of course there will be pain on both sides but this really is about standing up to the bully.

My theory about Schumer's enthusiastic support of Trump's policy is that he assumes it will collapse the economy, putting Trump in a vulnerable position next year. I can just hear his gleeful merriment over the recent market plunge.

Angle-Dyne, Samurai Buzzard said...

John Henry: In reality, the dollars come back to the US. Just not in the way you and I might like it.

[...]

Trade, in the money flow sense, always balances. China trades microwaves for T-Bills.

I am not saying that this is not a problem. It is a huge problem. But to talk of a trade imbalance is horseshit.


People (including, from what I can see, a lot of formerly oblivious "free"-traders) are beginning to understand the longer-term "not in the way you and I might like it" and "huge problem" bit. I don't think the technically inaccurate use of "trade imbalances" is any indicator of some huge lack of understanding here.

"Trade is always balanced" is any easy concept to grasp. That "huge problems" can develop from the process of balanced trade, not so easy for some to grasp.

daskol said...

The "market plunge" gave back recent gains, but the market is still way up over the last year. Our markets are not signalling that they believe the tariff escalation is going to be bad enough or last long enough to depress global output.

PuertoRicoSpaceport.com said...

Blogger mandrewa said...

Things balance by China increasing its ownership of the US economy.

Yes. Key point being that "Things balance" Trade always balances. Just not always in the way we want.

Is this a good trade? Is this really in our collective best interest?

To the extent that they are financing govt deficits NO, NO, and NO!!! It is a terrible thing.

OTOH, say they build a plant to make microwaves in Witchita. Why is that any different, from the standpoint of being good or bad for out economy, than if Black & Decker built the same plant?

Are they taking assets from the US or creating assets for the US?

And when the Chinese build the microwave plant instead of B&D, B&D now has the money to build an Osterizer plant in Oshkosh.

When they buy farmland in ND (and probably overpay) the farmer can now retire and build a dreamhouse in Daytona Beach.

John Henry

Craig Howard said...

there are assumptions implicit in those arguments that I'm not sure are present in this context

Another one of those assumptions in favor of free trade is that exchange rates are fixed. At the time that the theory of comparative advantage was advanced, the developed world operated on the gold standard. Each nation's currency was defined as a specific weight in gold.

If the US had suffered a trade deficit of $350 billion with China, it would have had to settle that deficit by transferring $350 billion in gold to China thus lowering our gold reserves significantly.

With less gold in reserve, banks would have tightened the American money supply resulting in lower American prices, an increase in our exports, and a reduction in the following year's deficit.

There is no self-correction mechanism now.

PuertoRicoSpaceport.com said...

Angle-Dyne,

I am still a pretty rabid free trader, if I am who you had in mind.

I really don't care how the Chinese money comes back to the US except to the extent that it comes back to finance govt debt. I don't even care if it finances private debt.

I remember back in the 80's there were a lot of complaints that the US was buying a lot of Toyotas etc and the Japanese were not buying Fords etc in exchange.

Hell, we didn't want Fords, Why should we expect the Japanses to want them? Lee Iaccoa refused to even build cars with right side steering but expected Japanese to buy American cars anyway. Between the steering wheel and the size of the cars, American cars were grossly impractical.

But it was unfair, somehow.

During the cellphone revolution of the 90s Motorola complained that the Japanese sold cellphones in the US but would not "permit" Motorola to sell in the Japan.

When you looked closely, it turned out that the Japanese cellphone system was incompatible (Wavelength? Protocols? Something) with Motorola phones. Motorola's position was that the Japanese should change their system to accomodate Motorola.

If we are trading like for like, cars for cars, cellphones for cellphones, microwaves for microwaves, what is the point of trading at all?

The whole point of trading, on any level, personal or international, is to trade what we do best for what the other party does best. In that way both sides gain.

What we seem to do best these days, in the Chinese opinion, is issue govt debt.

John Henry

EDH said...

All taxes and tariffs come with a true welfare cost that economists call "dead weight loss".

Yet, many economists advocate "Pigouvian" externality carbon taxes that come with their own deadweight losses (even if you refund the revenue in some kind of demo-grant), while at the same time they decry tariffs.

Obviously that's because they think global warming is a bigger priority than Chinese hegemony. And Trump simply advocates tariffs as part of a negotiation strategy not a trade policy (a means to an end), whereas carbon tax advocates want that as an energy policy (albeit to accelerate a technological transition).

Ronald Coase in his seminal article "The Problem of Social Cost" (1960) observed, quoting another, that these welfare policy decisions ultimately come down to "aesthetics and morals"

Formalities aside, this debate boils down to the Trump having different "aesthetics and morals" than the establishment.

KheSanh 0802 said...

I posted this yesterday at the end of a thread. "Who is paying for the trade war from China" It is worth reposting primarily because it is an analysis by European economists and it still shows that Trump knows what he is doing.

daskol said...

The gains of trade may be felt broadly, but some gain more than others. And the losses from trade and specialization are extremely unevenly felt. Looking at things in the aggregate, and using total economic output as your lode star, you may miss these facts. This realization, and observing the damaging effects of specialization driven by trade, together with the fact that we have made very bad deals, has given me a new perspective on the relative benefits and costs of "free trade."

Gospace said...

As said before, prior to income tax, tariffs were how we paid for government.And the economy seemed to be just fine. The income tax allowed for the vast expansion of the federal government into funding things it shouldn't. Maybe we should go back to the way it was.....

Ken B said...

Some of you might be right. The trade war might cost China more. More than what you ask? More than it costs Americans. Before you cheer, notice that it *costs Americans *.

daskol said...

It's a trade negotiation, not a trade war. If one is unwilling to trade short term pain or risk of pain for long term benefits, then one should step away from the table and let the players play.

mandrewa said...

John Henry, I have a little different way to think about this.

Let's take your microwave. It's a micro example but I'm going to push it up to the macro consequences.

So someone in the US buys a microwave and a $100 goes to China. Now the normal thing that happens at this point, and the context in which Adam Smith was arguing and in which free trade makes sense, is that someone in China spends that $100 that they have earned. Now there's a chance that part of the $100 would have been spent on an import, which itself would contribute to trade balancing.

But another side-effect of someone in China spending the $100 on a good being consumed in China is that the value of the yuan, the Chinese currency, goes up a tiny bit. And that has the effect of making Chinese exports a little bit more expensive and US exports a little bit less expensive. This is a part of the balancing mechanism built in to normal trade. The odds jump that someone in China will buy something from the US. And you add up millions of transactions like this and the economic push is towards an overall balance.

But China is not doing normal trade because at a high level in their government the policy is to discourage Chinese consumers from spending and so instead they try to send that $100 back to the United States and spend it on an asset in the United States. This has the effect of increasing the value of the dollar (and discouraging US exports) and decreasing the value of yuan (and encouraging Chinese exports). So that increases the trade imbalance.

Now why is China's government doing this? A lot of it is just about jobs. Doing this pushes jobs from the United States to China as a side-effect, and China 40 years ago had a truly massive unemployment problem, although after 40 years of this it's not nearly as bad as it used to be.

But as you see it's China's policy to create as large a trade imbalance as they can, and it continues to this day, and it has worked very well for them.

Now is China the first country to do this? No, there are others that have done it, and they are many that try to do it, but actually it's hard to pull off. And most countries are not able to do this. It wouldn't be possible, for instance, if the consumers in China had any real political power.

Nonapod said...

What we seem to do best these days, in the Chinese opinion, is issue govt debt.

That and we can grow the hell out of some soybeans.

I have no strong opinion about whether this trade war is a good idea or a bad idea. So many economists, so many experts seem so sure about a given trade policy. But historically speaking when it comes to predicting outcomes, experts are often wrong more than they're right. I find it best to be skeptical of just about everything people claim when it comes to predicting the future in general, and specifically when talking about something as complex as a national economy. There's just so many variables and so many unknowable factors, things that can't be foreseen, that it seems simplistic and reductive to predict an outcome. This trade war could be a disaster for us. Or not.

daskol said...

It's not a trade a war! It's a trade negotiation, with talks and tweets and tariffs. Calling it a trade war is misleadingly scary.

mockturtle said...

If we are trading like for like, cars for cars, cellphones for cellphones, microwaves for microwaves, what is the point of trading at all?

John Henry, I don't think anyone here is arguing for 'like for like' trade. Weyerhaeuser Co., for whom I worked, exported [and probably still does] a lot of timber and timber products to Japan. US farmers export grain and soybeans. We import cars, computers and TV sets. Trade has always been thus. Fortunately, our auto manufacturers learned [finally] from their mistakes after being shown up by a far superior Japanese product. Build a better mousetrap. And if you can't, then you must import mouse traps.

Michael K said...

Washington is thinking no further than 2020. China can wait this out unless Trump is re-elected.<

Yes, this is key. The Chinese have bought Clinton and Biden. Will their investment pay off? Watch the polls next year.

How much of the US media do the Chinese own?

Also, we went through something very similar with the Japanese in the 1980s. One huge difference is that Japanese did not move here. They bought assets but stayed home. Most of eastern Los Angeles is now Chinese. I've been to huge Chinese restaurants in areas that were once all Caucasian upper class. About 20% of US Army recruits in Los Angeles when I was examining them, were Chinese kids signing up for a program that conferees citizenship on completion of the enlistment. My Chinese medical students came here for medical school so she could take care of her parents when they got old. She told me that China has no pension system.

I suspect that lots of Chinese, unlike the 1980s Japanese, have no confidence in the present regime and are leaving.

Chuck said...

Hahaha.

https://mobile.twitter.com/mmcassella/status/1128266856064790529

Chuck said...

Hahahaha.

Trump just said again that the U.S. is making record amounts from tariffs. That is, American importers, manufacturers and consumers are paying more than anytime in history, for goods coming from China. A rather gigantic kind of tax increase.

narciso said...

The hundred year marathons thesis should be considered here, William Perry was allied with Chinese DARPA

TreeJoe said...

I'm a businessman working in my 4th small business (actually my small business was acquired 2.5 years ago and now I'm part of a multi-billion dollar business) and I received an MBA with some training by economists - but not a focus in economics. My point is my focus is business.

Tariffs are a stupid long-term policy but an incredibly important short-term surgical tool for a country like the U.S. - and I don't think I've ever seen them used so effectively before.

I feel Trump is putting the U.S. in the best position to set a proper frame for US/China economic relations for the next few decades - especially on IP. The risk to Trump is timing and political - if the Chinese can wait him out, which is a big IF, Trump and the U.S. will suffer longer than a surgical strike like Tariffs should last. The Chinese will suffer more short term of course.

To me the calculus is this: Are the Chinese willing to suffer for ~18 months in order to potentially keep their competitive advantages and benefit from our IP for possibly decades to come if they can help prevent Trump from being re-elected?

Achilles said...

Taxes and tariffs do exactly the same thing. You have to tax something.

I find it interesting they never ask these economists to explain how raising taxes on thing made in the USA affects costs.

They have been pushing the free trade bullshit for a long time and convinced a lot of republican voters into signing off on gutting our economy.

Free trade is a two way street. Our leaders have sold us out for long enough.

narciso said...

That's just one example in the 90s
https://mobile.wnd.com/1999/03/7038
Hanbrechr and quist underwrite salon as well.

PuertoRicoSpaceport.com said...


Fortunately, our auto manufacturers learned [finally] from their mistakes after being shown up by a far superior Japanese product.

OT, but I would point out that we did not learn from the Japanese. Lean manufacturng, total quality, JIT, 5S and all the other things that came from Japan under the general heading Toyota Production System were developed by Henry Ford and his team in Dearborn in 1910-1920.

Taichi Ohno, who developed the Toyota Production System is the first to say so.

It was not secret, Henry Ford prosletyzed with the fervor of a Jehovah's Witness on Speed. He thought everyone should benefit from his techniques.

The best book ever written on lean manufacturing is Henry Ford's 1923 "My Life and Work" The whole Toyota Production System is laid out there. His subsequent books "Today and Tomorrow" and "Moving Forward" are also must reads for anyone involved or interested in manufacturing. I'll be happy to share PDF copies.

It was out of print in English for 75 years until I privately republished it about 15 years ago. It has never been out of print in Japanese.

We didn't need to learn from the Japanese as much as we needed to remember and reimplement our past.

The lack of competition made us soft and lazy. GM, Ford et al didn't need to be good. We'd buy their cars because we had no choice. We'd pay what they charged because we had no choice. Until we did.

They did continue developing and building on the Ford system so there is still a lot to learn from them, of course.

(You really should not get me started on Ford or Lean Manufacturing)

John Henry

Darcy said...

Trump is courageously doing the right thing, but I do think it's risky. When you look at the big picture - not just dollars, the moral and national security causes are compelling enough for me. We are now going to hear constantly about how much this will cost Americans from the news orgs (funny that they don't do this with illegal immigration), but do we hear about the massive internment camps in China? Nah. We are encouraged to turn our heads and buy the cheap Chinese products.

EDH said...

Notice the arguments here fall in one of two categories:

1.) Chuck School: Hahaha. Anything Trump does is wrong. No taxes have any social any cost except the tariffs that Trump proposes.

2.) Other School: All taxes have costs and consequences, why does the establishment support domestic tax increases and propose carbon taxes, yet decry tariffs? Import elasticities indicate that the economic incidence of the tariffs may fall 4:1 on Chinese exporters, even if US importers "pay" them. It's better to tame the hegemonic ambitions of a tyranny in a trade war now than a shooting war later.

Oh, yeah, and Schumer supports Trump on this.

elkh1 said...

After 10 rounds of talks, China reneges on all because their economy seems to not slide as fast as expected, so they want no deals to drag Trump down. They want Biden, whose son is a Chinese stooge, to be elected.

The war has to be fought. For those who fault Trump, please look at what the Chinese have done for the last forty years, how they rose so high and so fast. Short answer: they stole, spied, and robbed.

It's their usual tactics: Just before the signing of an agreement, they renege on their promises. Previous presidents signed the resulted useless agreements anyway because it was close to their re-election and wanted something that looked good on paper for their campaigns. That is why, every deal that we made before, we lost.

Same tactic was adopted by the Norks, a complete renege of promises in return for a US concession.

Trump walked.

William said...

Some people here have presented knowledgeable arguments. My limited remaining time on earth and addiction to internet porn prevent me from acquiring expertise in this area. Here are my uninformed views of the matter: I would have more faith in Trump than in Hillary to negotiate a trade deal. However, the fact that Schumer and the gang are not calling for Trump's impeachment over the raised tariffs gives me pause......We're just past the Centenary of WWI. That war addressed the problem of Germany's trade imbalances. It's fair to say that things didn't work out as planned......I hope for the best but the stock market tanked six hundred points. Not the end of the world, but it's a little dark cloud, no bigger than your fist, on the horizon.

William said...

Wars almost invariably don't work out as planned. What's the track record on trade wars?

PuertoRicoSpaceport.com said...

Blogger Chuck said...

A rather gigantic kind of tax increase.

But a wholly voluntary one.

Don't like paying the tariff? Buy American. No tariffs on cars from Spartanburg.

Or motorcycles from Marysville

Or microwaves from Missisipi,Iowa,Colorado or other states.

Unfortunately Fop brand pomade seems to be made in Germany. No idea what tariffs might be on it.

Not to worry Chuck. It won't turn your hair, or presumably any other part of you, red.

John Henry

Lewis Wetzel said...

I would like to see the income tax replaced by tariffs.

elkh1 said...

What Trump is doing now is to tank the Chinese economy. Ours is pretty robust at this moment. His tariffs cause a lot of manufacturers to leave China, or at least move some of their capacity to other countries like India, and Vietnam to avoid the tariffs.

China is very inhospitable to foreigners. Every foreign company must partner with a Chinese company. Technology from these companies are transferred to the Chinese. If there was no technology transferred, then the Chinese would wait after the foreign company was established, then they accused the company of a crime, hauled their officers to jail and took over the company: e.g. McDonald. They accused Micky D of using tainted meat. Micky D told its non-native-Chinese employees and their families to leave right away lest they would be held hostage. Now Micky D, renamed the Golden Arches, is totally owned by the Chinese. KFC was sold to them to avoid MickD's fate.

daskol said...

Sheesh guys, even CNN (it's on in the airport) is calling it a "trade dispute" rather than a trade war. Market has recovered nearly half its losses. It looks like the Chinese have miscalculated, thinking Trump wouldn't risk 2020 by sticking to his guns. Now the Chinese are amping up the stakes, calling us nasty names, while Trump takes the high road.

daskol said...

And I don't think Trump is trying to tank any economy, let alone ours or China's.

narciso said...

Markets overreacted I bet apples strike out at the court, was as much responsible.

Nobody said...

Voters in the "Swing States Formerly Known as the 'Blue Wall”[TM] have to wonder who is fighting for them, as of now, it looks like Trump. Obama was the kind of guy who pays an extra couple of grand for his car because he doesn’t want the salesman to think he’s not a nice guy.

Ray - SoCal said...

10 Assumptions By The Chinese Leadership

1. Is China so important to the US economy, that a trade war will kill the US economy, and the US will not be able to with stand the pain.

2. Trump is a lame duck President, as shown by the actions of the Resistance, and Media report. Trump will not be reelected in 2020 per all the smartest people.

3. Trump with limited political capital can't risk a trade war, especially if he wants to be re-elected.

4. Joe Biden will be the next President, and is in China's corner.

5. The US establishment is against Tarrifs.

6. China can get a deal that looks good on paper, but has a meaningless impact.

7. The US is in decline economically, overstretched overseas, and China will soon overtake it as the world's super power as China's growing economic and military power.

8. The US is too soft to make the needed sacrifices to stand up to China.

9. "The Capitalists will sell us the rope with which we will hang them." - Lenin

10. Chinese Culture, Government Centralized Planning by an Elite, and Technology Planning / Investment has created a growing economy, that will triumph over a dysfunctional US that is in decline.

Nobody said...

Joe Biden's son signed a billion dollar deal with the Chinese two weeks after flying in there on Air Force 2. Just an interesting news item.

Nobody said...

Joe Biden is Spiro Agnew with a ‘D’ after his name.

Michael K said...

His tariffs cause a lot of manufacturers to leave China, or at least move some of their capacity to other countries like India, and Vietnam to avoid the tariffs.

This is a key insight. Vietnam is a long term enemy/ rival to China. The threats are not a joke.

Also, the chief negotiator for China just got fired.

Reminds me of the days of Mao.

Drago said...

Durbin Cuckholster Chuck: "Hahahaha.
......... A rather gigantic kind of tax increase."

LOL

Its like Chuck has never even heard a conservative economic principle or tactic before.

Why, that would make him the equivalent if every other leftist that ever existed......just like all of his other comments.

You know, I am starting to think Chuck isnt a real LLR after all.......

William said...

The tacit assumption of all the arguments presented here is that China will act in its rational self interest. There's very little in the history of humanity to support that assumption and even less support to find in the history of China. At least by body count, Mao was the most murderous despot of the 20th century. His portrait still hangs over Tiannamen Square. I can easily visualize a scenario that's lose\lose. Perhaps China will lose more and this will count as a win for us.

gerry said...

What Trump is doing now is to tank the Chinese economy.

And with that, of course, Xi will lose face; and with that, of course, he will be suddenly unable to continue to be the boss.

Breathing may become difficult for him, too.

Nobody said...

I am starting to think Chuck isnt a real LLR after all.......

He’s at least as much of one as Comey is.

Michael K said...

I am starting to think Chuck isnt a real LLR after all.......

I skimmed by Patterico today, as I do once a week or so. He is also cheering for Trump, and the US of course, to fail as well.

What is it with these insane Trump haters who would prefer the US go down to get the man they hate ?

Patterico used to have good posts about the LA Times and local LA issues. He has also lost his mind.

Chuck said...

Hahaha.

You Trump “conservatives” sound exactly like UAW/Steelworker Democrats.

There is nothing conservative, or Republican, about trade wars and tariffs.

narciso said...

He seems like frum Gerson Rubin parker or that very stable fellow Tom Nichols does the naval war college only admit crazy or they just end up that way

Michael K said...

You Trump “conservatives” sound exactly like UAW/Steelworker Democrats.

Yeah, Chuck really hates those steelworkers. Chuck likes robots and is learning Chinese. He's having difficulty with Cantonese because it's tough to learn if you are tone deaf.

narciso said...




There Is this to consider:

https://www.americanthinker.com/articles/2019/05/trump_pareto_and_the_fall_of_the_elites.html?fbclid=IwAR3IQeqNXLw7-kfNtpAQfFkTGNU0LHI9dN7dyTwB2OhQKKegTUipX0wUGYw#.XNru22CwkLU.facebook

mockturtle said...

Chuck seems to think he knows what a Republican should sound like but he seems to think maybe David Brooks exemplifies the Ideal Conservative man. Was Teddy Roosevelt an elitist? Was Lincoln? Come out of your self-drawn illusions, Chuck, and smell the coffee. [And BTW, it's not Starbucks]

Nobody said...

You Trump “conservatives” sound exactly like UAW/Steelworker Democrats.

There’s another word for those guys, Americans. The Chamber of Cucks is done for as a political force in the Republican Party. Why don’t you all head over to the party of billionaires already, the Democrats, where they too hate steelworkers.

LLR platform: War for oil, open borders and cheap labor, and use of the FBI against anybody who questions the first two.

Nobody said...

Isn’t Biden running on a tax cut for rich New Yorkers and Californians and to pay for it by taxing the middle class? Sounds like your kind of party Chuck, I am amazed it took you this long to realize it.

Chuck said...

Trump’s Twitter account is just becoming a punching bag:

Trump cries about a rebuilt, stronger US steel industry and Frank Luntz compares stock prices.

https://mobile.twitter.com/FrankLuntz/status/1128342394947002368

Hahaha.

Nobody said...

You know what’s funny? When steelworkers lose their jobs!

KheSanh 0802 said...

Once again Chuck cherry picks to news and comes up looking less than bright. Here's what happening in the US steel industry overall.not just US Steel.

From the article: "The American Iron and Steel Institute reported that U.S. weekly capability utilization climbed to 78.7% in the week ending on March 3. That was the highest rate since the start of 2015 and compares favorably with 74.9% for the same week in 2017, says Miller." That means more steel workers are working which was part of Trump's program all along.

Angle-Dyne, Samurai Buzzard said...

Chuck: There is nothing conservative, or Republican, about trade wars and tariffs.

It's 2019, Chuck. Time to put away the tired (and a-historical) notion that the American conservative tradition = post-war neoliberalism.

Be sweet if you and the rest of the GOPe-er Real Conservatives would go sit in the corner for a while with your fellow tools, the crazy progs, and leave the public square safe for intelligent debate for a while. A let-up from y'alls' dumbing down the nation's political landscape for lo these many decades would sure be nice.

Paul said...

Pumping money??? You mean printing money? If so that causes INFLATION. Bad news.

China is on the ropes. And Trump is the one who made them ropes!

Drago said...

Adam Schiff-republican Chuck: "There is nothing conservative, or Republican, about trade wars and tariffs."

This is a lie.

Those tools, if necessary to create fair trade conditions, are quintessentially conservative.

Whats not conservativeis surrendering to the dems, praising far left politicians and media figures and spouting far left talking points all day every day.

Thus, LLR Chuck is no republican, nor conservative.

Which is hardly surprising now that he has positioned himself to the far left of Nancy Pelosi on policy.

"Unexpectedly"

Drago said...

Durbin Cuckholster Chuck: "You Trump “conservatives” sound exactly like UAW/Steelworker Democrats."

Trump has delivered the most conservative policy outcomes and governance in your lifetime Chuck.

No wonder you hate him since you proudly proclaimed conservative political victories literal "disasters".

Right after praising Maddow and obamacare and Da Nang Dick Blumenthal and every other lefty in sight!

LOL

"True conservative"!

Drago said...

Its pretty clear Chuck is not taking the news about Barr appointing a prosecutor to investigate Chuck's beloved dems very well at all, is he?

By the way, did you happen to catch the story about China stripping their lead trade negotiator of his title?

LOL

Trump is kicking democrat and commie butt....no wonder Chuck and AOC and Ferociously Heterosexual Cory Booker and Nadler and Swalwell are all so grumpy!!

Give them all our best Chuck!

iowan2 said...

102 comments. 100 comments lay out the economic positions and explanations of more than a dozen commentators.

Then there are two "Ha Ha" Trump something something ha ha.

Talk about the turd in the punch bowl.

Nichevo said...

I'll be happy to share PDF copies.


Please do, John Henry!

Drago said...

iowan2: "Then there are two "Ha Ha" Trump something something ha ha.
Talk about the turd in the punch bowl."

Those on the far far left, like LLR Chuck and the rest of the antifa types, have nothing else.

Nothing.

PuertoRicoSpaceport.com said...

Nichevo, and anyone else who wants the Ford books, drop me a note

johnfajardohenry@gmail.com

John HEnry

Achilles said...

There is no difference between a tax on American business and tariffs imposed on imported goods.

Tariffs on imported goods need to be at least as high as taxes on things produced here.

Anything else is suicidal.

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Fen said...

There is always pain during withdrawal from a deleterious but addictive drug like cheap Chinese goods.

I dunno, I'm tired of all the cheap chinese stuff breaking 3 months out of the box.

Fen said...

Patterico used to have good posts about the LA Times and local LA issues. He has also lost his mind.

Patterico banned me for "trolling". But his ban hammer software is glitchy or something, it didn't take. When I realized it the next day ("hey I thought I banned you!") I gracefully said I would self-ban since his software failed.

Trolling. You're doing it wrong :)

Trump certainly has unmasked people we thought had our back.

grackle said...

Haha. Trump has no clue.

It seems that the Post has breathlessly discovered that a tariff war results in higher prices to consumers and brings other negative effects to certain segments of American production. I’ve seen so-called “experts” on the cables loudly proclaim the same.

Readers, what I’ve NEVER heard – not even once – is what the anti-Trumpers would do about the enormous trade imbalance that America has been suffering under for many decades. Just allow it to continue, I guess.