Free Trade or Trade Wars? The problem with Tariffs

[Stavros]

On the very day that a small group of Conservatives in the UK established a new think tank -the Institute of Free Trade- to promote the economic benefits of leaving the European Union, the papers reported that the US Department of Commerce has proposed a tariff of 219.63% on the import into the USA of parts being used to construct the Dreamliner aircraft ordered by Delta Airlines, parts made by the Canadian-based Bombardier company that assembles the parts in various locations, in Canada and in this key case, Northern Ireland, where 4,000 people work for the company.

The argument appears to be simple and straightforward: when the Provincial Government of Quebec took a stake in Bombardier, it supplied the Company with a financial subsidy (or was it an investment?) with the consequence that the net cost of each aeroplane to Delta Airlines, a competitor of the US-based Boeing Corporation, would undercut the cost of their new fleet of aeroplanes. With the tariff imposed, the new Delta Airlines fleet would cost $61m per plane whereas Boeing has claimed with subsidies Delta will only pay $19m.
https://www.theguardian.com/business/2017/sep/27/uk-boeing-contracts-bombardier-us

What has shocked the business world is the size of the tariff, not an automatic ruling as this will now become the subject of appeal and litigation. What it does is expose the fantasy that tariffs may be inevitable but not something to worry about. Nigel Farage, the former leader of UKIP repeatedly stated that even if the UK crashed out of the EU and had to rely on WTO rules and tariffs, these tariffs would be low (his figures were around the 3-5% mark) and thus be easily managed by companies seeking to trade in the EU. Clearly, the levels tariff reach will be shaped to the value of the trade, though it isn't clear to me if this means aeroplanes are more expensive than bananas, and that tariffs will be higher on one than the other if, as seems to be happening, there is a shortage in supply of bananas making them more expensive to export than once they were.

The further complication is that, as suggested above, the Canadian Company could conceivably claim the Provincial Government of Quebec invested in their company, expecting a return on the investment, that it was not a subsidy. What is not in any doubt, is that not only did Boeing not compete with Bombardier for the Delta Airlines contract (so what's the problem?), Boeing itself has been subsidized by the State of Washington in the form of tax-breaks which were supposed to maintain jobs and did the opposite, as the LA Times reported earlier this year:

A few years ago, Washington state awarded the Boeing Co. the largest corporate tax break any state had given any corporation — a massive $8.7-billion handout aimed at encouraging the aerospace industry generally, and Boeing specifically, “to maintain and grow its workforce within the state.”Unwisely, state legislators and Democratic Gov. Jay Inslee (http://www.latimes.com/topic/politics-government/jay-inslee-PEPLT003164-topic.html) didn’t make that a hard and fast requirement of the handout. So they’ve had to stand by powerlessly as the company has cut 12,655 jobs, or more than 15% of its Washington workforce, since that heady signing ceremony in November 2013. Layoff notices have gone out to 429 more employees in just the last few weeks.
http://www.latimes.com/business/hiltzik/la-fi-hiltzik-boeing-washington-20170503-story.html

The reality is that there are no free markets. Whatever you call it, economic liberalism or neo-liberalism, capitalist firms survive or fall in a protection racket called state capitalism. Tariffs in this context look more like guided missiles in a war, rather than instruments designed to protect domestic industry. And look here: Boeing's aeroplanes are 'Products of More than One Country', it employs over 2,000 people in the UK, just as Bombardier employs 4,000 in Northern Ireland. Tariffs thus become guided missiles aimed at the UK from the USA with the parent company's own employees potentially losing their jobs as part of the 'collateral damage' of a war, in this case a trade war.

It was all supposed to be so easy, to welcoming, so beneficial. So is it peace and love in the wonderful world of trade, or tariffs and war?

[Stavros]

The US International Trade Commission has ruled in favour of Bombadier in the dispute over tariffs-

The US International Trade Commission (ITC) has ruled in favour of Bombardier in a trade dispute with rival aircraft-maker Boeing. The result had been expected to go in favour of the US aerospace giant. The US administration had threatened to impose duties of 292 per cent on imports of Bombardier’s CSeries aircraft.
The ruling is welcome news for Bombardier’s 1,000 employees in the North, and means the airline can start shipping its CSeries jets to Delta Air Lines as scheduled.
Workers in the North were said to be “jubilant”. Bombardier’s Belfast plant currently manufactures the wings for the CSeries jets, and Bombardier had previously warned that the CSeries programme was “critical” to the long term future of its entire operations.
https://www.irishtimes.com/business/transport-and-tourism/bombardier-wins-us-trade-case-taken-by-boeing-1.3369964

However, last week the US said it intended to impose tariffs on the import into the US of washing machines and solar panels, but as well as harsh reaction from China, the EU has also responded negatively-

The European Commission said it regretted the measures, had serious doubts that they met WTO conditions and would not hesitate to react if they harmed European Union exports.
German Finance Minister Peter Altmaier told reporters in Brussels that the EU opposed protectionism and said that the measures would make products more expensive for Americans.
https://uk.reuters.com/article/uk-usa-trade-tariffs-southkorea/asia-protests-at-u-s-solar-washer-tariffs-fears-more-to-come-idUKKBN1FC079

A more ominous sign of discontent in the EU when last week an unidentified Commissioner was quoted as saying
restrictive trade measures from the United States” would face a robust response from Europe.
“For us, trade policy is not a zero-sum game, it is not about winners and losers,” the spokesperson told reporters in Brussels.
“We here in the European Union believe that trade can and should be win-win.
“We also believe that while trade has to be open and fair it has also to be rules-based.
“The European Union stands ready to react swiftly and appropriately in case our exports are affected by any restrictive trade measures from the United States.”
http://www.independent.co.uk/news/world/europe/eu-donald-trump-trade-war-us-tariffs-european-union-protectionism-policy-a8183156.html

Just as ominous was the statement last week in Davos by US Secretary of State for Commerce, Wilbur Ross (once known as the 'King of Bankruptcies')

“US troops are now coming to the ramparts” in the fight against what he called “predatory trade practices”.

We shall see.

[Stavros]

Here we go again: the President has announced his intention to slap tariffs of 25% on imports of steel and 10% on aluminum. Although he claims China is dumping steel on global markets the US gets most of its steel imports from Brazil, Canada, Mexico, Germany and South Korea while most aluminum imports are from Canada, Russia and the United Arab Emirates.

It is reported in the Telegraph that
Mr Trump reportedly favoured a 25 per cent figure rather than the 24 per cent recommended because it was a round number.
https://www.telegraph.co.uk/news/2018/03/01/britain-major-lobbying-drive-avoid-donald-trumps-steel-tariff/

Round numbers do make sense, like when stock falls -as it did yesterday- and you tell your broker 'BUY 10,000!'. Best time to make some money, though of course I am not suggesting the President is making profits out of his public statements knowing they wil affect the stock price of firms with long-term potential and rich in assets...surely not!

The policy will be presented in more detail next week but the first reaction is not good unless you think protectionism is a good idea, and is, after all, better than a free market. That most jobs in the US steel industry disappeared because advanced technology reduced the need for labour is presumably a 'minor detail' the President is not interested in as it doesn't fit his 'we're being screwed' ideology.

But we have been here before: President GW Bush imposed tariffs on steel of 8-30% to last until 2005, but it only lasted a year during which supporters claimed it led to $3bn being spent re-structuring the US steel industry, while the threat of counter-sanctions from the EU and the increased cost in materials for car manufacturers was seen as a negative. So even if the tariffs are imposed, it is not certain they will last, and as the President seems to back one policy on Monday and change his mind on Friday, your guess is as good as mine.

On the 2002 tariffs-
https://www.economist.com/node/1021395
https://www.theguardian.com/world/2003/dec/04/usa.wto1

[Stavros]

As the tariff barriers may be raised, so

Donald Trump has escalated the threat of a trade war with Europe, warning that the US will slap a tax on cars made on the continent if the European Union (https://www.theguardian.com/world/eu) (EU) retaliates against tariffs on imports of steel and aluminium.
https://www.theguardian.com/us-news/2018/mar/03/trump-escalates-trade-war-threat-tax-eu-cars

Given the difference between Made in the USA, and Assembled in the USA, maybe someone should explain to the President how US cars are made, not just Toyota Cars (the engines come from Japan) and how the lowering of tariff barriers has actually facilitated intra-firm trade that devolves production around different parts of the world but still employs US workers directly involved in auto manufacture as well as the allied trades and services. Crucially, the point of imports is not that they are finished goods that Americans could in theory make themselves (the US doesn't have natural stocks of Aluminum so it can't make its own beer cans) bu that they are inputs used by American industries and low tariffs means the overall cost to the US producer and consumers is lower than it would be, thus:

In contrast, the higher the prices of imported inputs (e.g. through higher tariffs), the less competitive US companies will be, and the fewer workers they will hire. Keep that in mind the next time you hear Trump’s nitwittery about creating more American jobs by making imported inputs more expensive with his proposals to impose double-digit tariffs on goods from Mexico and China.
http://www.aei.org/publication/nearly-all-imports-even-consumer-goods-are-inputs-for-us-firms-and-factories/

The nitwit in chief made this decision off the cuff after a bad week in which he lost another ally in Hope Hicks. To soothe his ruffled pride Wilbur Ross and others in the fractured White House opposed to free trade late in the evening made the calls to assemble the Chief Executives of US steel firms the following morning when the Nitwit in Chief made his announcement, not having bothered to tell anyone else-


There were no prepared, approved remarks for the president to give at the planned meeting, there was no diplomatic strategy for how to alert foreign trade partners, there was no legislative strategy in place for informing Congress and no agreed upon communications plan beyond an email cobbled together by Ross’s team at the Commerce Department late Wednesday that had not been approved by the White House.

No one at the State Department, the Treasury Department or the Defense Department had been told that a new policy was about to be announced or given an opportunity to weigh in in advance.
https://www.vox.com/world/2018/3/2/17072300/trump-tariffs-steel-aluminum-disaster
What impulsive decision will the Nitwit in Chief come up with next? And anyway, so far nobody with the authority to do so has approved raising the tariff barriers.

[Stavros]

I read somewhere that the President is sympathetic to the idea, either from Wilbur Ross or Peter Navarro that the World Trade Organization is 'the problem' and that the US is thinking of withdrawing from it. This seems to me to fit the 'alt-right' economic dream of an international market composed of companies and entrepreneurs, the State having retreated from global markets taking its rules and regulatory bodies with them into the dustbin of history.

In this context, the tariff wars that the President says can be easily won would not in fact win a war, but as with wars in general, be destructive of the present system, and the urge to destroy what it exists so that 'free markets' can rebuild them is a potent aim of the Bannon brigades in the US, Farage and extremist in the Tory party like Liam Fox and Daniel Hannan, and of course Vladimir Putin who would welcome the collapse of the EU, the WTO and those 'trans-partnership' previous US administrations wanted to create.

How any of this is supposed to protect, let alone create jobs I don't know.

[filghy2]

Those who cannot learn from history are doomed to repeat it - along with the rest of us unfortunately https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act

[Stavros]

As markets tumble following the tariffs imposed by the US and China on each others range of goods -with the prospect of more to come- there is still time for both sides to negotiate their way out of this mess, someone -I can't recall where- has argued what the US really wants is a deal to protect its Intellectual Property rights and that if the Chinese agree to this the tariffs will not take effect. Not convinced by this, as it assumed the US will make the deal, but it does underline the indifference of the US to the WTO that could arbitrate in this dispute as this is one of the reasons it was created.

As for the President's hysterical tweets-
We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!

One wonders if he has any understanding of global trade, if he has any recollection of the policies on trade pursued by President Reagan in the 1980s and why in a capitalist system it became cheaper to make computers in China than in the US. Or it could be that he doesn't believe in free markets but rigged markets; that he doesn't believe in competition but control. But then, who knows what this man knows or believes? But note that just as in a tweet last year he claimed it is only since he became President that the US military has won anything -'we always used to fail before' consigning McMaster, Kelly, Matthis, McChrystal, Petraeus to the level of losers, so he is now casting other Americans as 'incompetent' and 'foolish'. Maybe the longest wars start at home?

Meanwhile, spare a thought for the Americans who have benefited from trade with China as reported by the US-China Business Council-
https://www.theguardian.com/business/live/2018/apr/04/china-us-trade-war-tariffs-wpp-markets-eurozone-jobs-business-live

[Stavros]

A graphic was supposed to appear in the previous post- it is in the link above.

[filghy2]

There is a famous quote by John Maynard Keynes: "Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

He probably doesn't know it, but Trump's frenzy on trade is distilled from the long-discredited economic theory of mercantilism, which held that a nation's prosperity is derived from accumulating financial reserves through trade surpluses. https://en.wikipedia.org/wiki/Mercantilism This theory implies that trade is a zero-sum game, not an exchange from which both parties gain.

Trump seems to view a trade deficit with another country as being like a loss-making business, so that cutting it off can only bring gain to the US at the other country's cost. Such simplistic analogies are the mark of the economic imbecile. I'm sure Gary Cohn quit because he got sick of trying to explain this for the millionth time.

It's also odd that the professed believer in free enterprise has such a statist view of the world - the trade deficit is blamed on incompetent politicians and officials and not the collective actions of businesses and individuals.

Perhaps one ray of hope is that Trump also seems to view the stock market as a measure of how well the economy is going. That's another simplistic analogy, but if the market keeps tanking then he might be dissuaded from ratcheting up the trade wars.

[Stavros]

A perceptive post, filghy2, and one to set aside the comments of the President's new economics advisor Larry Kudlow who has pointed out that tariffs have not yet been imposed and that he is thinking ahead in terms of rainbows and a pot of gold (!)-

“Don’t overreact, we’ll see how this works out,” Mr Kudlow said on Fox Business. “My view is, look, I’m a growth guy, I’m a Reagan supply-side growth guy. I think at the end of this whole process, the end of the rainbow, there’s a pot of gold.”

Fair enough, there are a couple of months for the Americans and the Chinese to calm down and sort it out, but when the deputy press secretary Hogan Gidley claims
The president is the best negotiator on the planet
one wonders if he is just angling for a raise and a better job-?

https://www.independent.co.uk/news/world/americas/us-politics/us-china-trade-war-tariffs-white-house-adviser-economics-a8290866.html

[filghy2]

Somebody needs to tell him that the leprechaun's pot of gold is (also) just a fantasy story. Kudlow's primary skill seems to be a capacity for making very confident predictions, and then being completely unfazed and refusing to learn anything when they turn out to be wildly wrong. Obviously the ideal economic adviser for Trump. Here's a few of his greatest misses.
http://time.com/money/5197470/trump-pick-kudlow-predictions/
https://thinkprogress.org/larry-kudlow-bad-economic-predictions-f02ebf47c918/

[Stavros]

Again, thanks for the links filghy2, as I had never heard of Kudlow before, but he seems well known to Americans. I suppose it raises the question, what does the NEC actually do, does it affect economic policy? One of my favourites in the lists of things Kudlow got wrong is this justifying war to change the regime in Iraq:

A couple of weeks later a final assault on Baghdad can take place. A small war, to use Wall Street Journal editorialist Max Boot’s lexicon, led by fast-moving special forces and leather-toughened Marines,

Hmm...leather-toughened marines, somehow this conjures up strapping young fellows naked but for their leather chaps cavorting around the barrack room. Throw in a Mia Maffia or two and you have a clear link to HungAngels...

[filghy2]

I'm not American Stavros, but I have lived there in the past. I know of Kudlow mainly from unfavourable mentions by Paul Krugman and some other US economists that I read. The NEC is supposed to be the main coordinating body for economic policy within the US administration. https://en.wikipedia.org/wiki/National_Economic_Council_(United_States)

[Stavros]

Proof that the international economy is shaped by State Capitalism is again provided by the President of the USA who either does not believe in Free Markets or believes 'Free Markets' under State Capitalism are free -as defined by the President. The complete incoherence of this Idiot, the Idiots in the White House and the Idiots in Congress is illustrated by the pincer-movement of tariffs on the one side, sanctions on the other, but where Napoleon used it to win wars, this President is using them, and losing, because that is what he is, a loser.

For two years this Idiot has been blaming China for the loss of American jobs that he says will return to America when he 'gets tough' with China, just as the other day he made it clear any European firm continuing to trade with Iran will face 'tough sanctions', yet on both he has just reneged on his own policy because it seems it doesn't return jobs to America at all, but if anything, destroys them. The man who agreed with France's racist and neo-nazi leader Marine Le Pen that today you are either a 'Patriot' or a 'Globalist', now seems to think Globalization might not be so bad after all.

Thus, on the Chinese telecoms firm ZTE-
In a surprise policy reversal, Donald Trump (https://www.theguardian.com/us-news/donaldtrump) said on Sunday he had instructed his commerce department to help get a Chinese telecommunications company “back into business”, after his government cut off access to its US suppliers.
The US commerce department last month blocked ZTE, a major supplier of telecoms networks and smartphones based in Shenzhen in southern China (https://www.theguardian.com/world/china), from importing American components for seven years. The US accused ZTE of misleading US regulators after it settled charges of violating sanctions against North Korea and Iran.

The problem is that US firms were supplierrs to ZTE-
Trump’s reversal will likely have a significant impact on companies such as Qualcomm and Intel. American firms are estimated to provide 25% to 30% of the components used in ZTE equipment, which includes smartphones and gear to build telecommunications networks.

So here is the President's commitment to his own policy, in his own words:
Trump, who has taken a hard line on trade and technology issues with Beijing and campaigned relentlessly on protecting jobs in the US, tweeted (https://twitter.com/realDonaldTrump/status/995680316458262533) on Sunday that he and Chinese leader Xi Jinping were “working together to give massive Chinese phone company, ZTE, a way to get back into business, fast”.
“Too many jobs in China lost,” the president wrote. “Commerce department has been instructed to get it done!” (my emphasis)
https://www.theguardian.com/world/2018/may/13/trump-xi-jinping-jobs-chinese-company-zte-us-ban

America First! America First!

As for tariffs, how about this: proposed tariffs on China now threaten US agricultural jobs to the extent the USA might re-join the Trans-Pacific Partnership-
President Trump’s potential trade war with China could hammer American farmers. Now Trump is scrambling to find ways to protect them, looking into reviving obscure Depression-era programs and potentially rejoining the free trade agreement he pulled out of during his first week in office.

If Trump ends up actually reentering the Trans-Pacific Partnership, the colossal trade accord he abandoned on January 23, 2017, he would be reneging on one of his signature campaign promises and pulling off one of the most head-spinning policy reversals of his presidency. Trump won the White House on an anti-free trade platform and had spent months arguing that the deal would kill American jobs.
https://www.vox.com/policy-and-politics/2018/4/12/17228874/trump-tpp-trade-war-china

Blast from the past-
The Trans-Pacific Partnership is an attack on America's business. It does not stop Japan's currency manipulation. This is a bad deal.
https://www.washingtonpost.com/news/worldviews/wp/2018/04/13/a-timeline-of-trumps-complicated-relationship-with-the-tpp/?noredirect=on&utm_term=.4505fd9c3323


So let's get this right:
Tariffs protect American jobs- until they don't.
Sanctions against North Korea and Iran protect the USA from external threat -until they don't.
Tariffs will be imposed on China -or maybe they won't.
Sanctions against Iran will be extended to anyone dealing with Iran -or maybe they won't.

This isn't policy-making, its posturing, and the President looks like what he is, an Idiot.

[Stavros]

Ah well, no surprises. Just as the President ignored his so-called Allies on the Iran Nuclear Deal, he has decided to impose tariffs, and can do so because Congress allows him to, not least when the President can claim it is a matter of 'national security'. There is a rather cynical article about it here which I came across when wondering if the President has the power to impose tariffs without Congressional approval, but which opens up a different argument about how the US political system functions-

So more and more over the past 80 years, authority over tariffs, as well as over all manner of properly legislative functions, has migrated to the executive branch, away from the legislative — even in instances (such as this aluminum-and-steel case) where there is no compelling or immediate foreign-policy mandate. Trump’s move is purely a play for aggrieved industrial workers, who should, in the constitutional schema, look to Congress and not the president for redress of their grievances.
And this is exactly the problem with our government in 2018. Nobody looks to Congress for redress of grievances anymore, for it would be foolish to do so! Nobody respects Congress. Nobody likes Congress. Congress, at least to judge from its members’ constant campaigning against it, does not even much like itself. Congress has systematically shrugged power off its shoulders over the past 80 years, and it inevitably screws up the handful of authorities it retains, such as income taxes and “discretionary” spending. The legislature is manifestly incapable of managing the burdens of a modern economy.
https://www.nationalreview.com/2018/03/tariffs-congress-handed-president-power-to-levy/

A more interesting development will take place when the European Union makes a legal case against the USA to the World Trade Organization, as the American President will almost certainly ignore it on the basis that the WTO should not exist, and the USA will do what it can to destroy it. There are no rules now, and no international organizations to manage conflict between states, there is only the power of the USA, which is there to be challenged by anyone who thinks they can take them on. It is even possible that in the short term the USA will benefit, but why, in the longer term, should we trade with people who only base their deals on what is best for them, and treat their 'partners' like schoolchildren? On this basis, I wish we had a Prime Minister determined not to sign any trade deals with the USA, but look East to India, China, Korea and Japan as the 21st century will be an Asian century, as the Republicans bury themselves and their country into a grave of their own making.

[filghy2]

Here's an idea that these other countries might consider - targeted sanctions against Trump businesses. https://www.vox.com/policy-and-politics/2018/6/5/17422492/sanction-trump-organization

After all, isn't what what you should do with rogue states - target the regime rather than the people?

[Stavros]

The phrase spin doctors use if applied to the G7 meeting that has just ended, means that the 'Takeaway' from this Summit is that the USA no longer believes in them, that the G7 might as well be Gee, does it still exist?

Theresa May's press conference last night confirmed that she clings on in desperation while senior members of her own Cabinet openly deride her management of Brexit. Meanwhile she insists that she has a good working relationship with the President of the USA even when he calls her a stuffy Schoolmistress, though she has (for comical reasons, if not entirely without reason) also been described as a Spokesman for the Ridiculous Jackets Association, wearing one for her press conference, something the President rarely if ever goes in for, even though he is the honorary Spokesman for the Ridiculous Handshakes Association.

Not so ridiculous is John Bolton, who may have been the prime mover behind the G7 farce as he has been frozen out of the Singapore Sling and this was his chance to prove he is as ignorant of international trade as his Boss. There are dozens of articles available on the internet which will explain what a 'trade deficit' actually is, and why that word 'deficit' when transformed in the USA for the benefit of 'the people' into 'dairy' --or milk and cheese if Dairy is too obscure, itself obscures the complex nature of trade in which an apparent deficit in goods, can means a surplus in trade if the currency is the trade.

Just as the President is going to Singapore to discuss de-nuclearization without a scientist with expert knowledge of nuclear physics (not needed because the President will make up his mind in 5 seconds on meeting the Wise Leader of Pyongyang), so this is a President without a basic understanding of international trade, but who does know that if the G7 leaders don't fall on their knees to adore him, it is because they are against him, and if they are against him, they are against the USA. Far better deal to deal with Autocrats and Mass Murderers. Why?

It is John Bolton, Wilbur Ross and the others who think they have the edge, but their friends on Wall St must be banging their heads against the wall, maybe even the street, unless this is all part of a short-term strategy to smash the WTO and the co-operative system of international trade that succeeded Bretton Woods, but which the USA has now decided -like the EU- is an obstacle to their version of 'free trade'.

But it is a gamble, based on their view that the USA is holding the best cards in a poker game. But does it? And do you want to gamble the rest of your life on one deck of cards?

The New York Times rundown on trade deficits is here-
https://www.nytimes.com/2018/06/09/upshot/what-is-the-trade-deficit.html

[filghy2]

There are dozens of articles available on the internet which will explain what a 'trade deficit' actually is, and why that word 'deficit' when transformed in the USA for the benefit of 'the people' into 'dairy' --or milk and cheese if Dairy is too obscure, itself obscures the complex nature of trade in which an apparent deficit in goods, can means a surplus in trade if the currency is the trade. [/URL]

The ultimate absurdity of all this is that the US has to run a trade deficit if it is borrowing from the rest of the world or, equivalently, that the rest of the world wants to hold US dollar assets. That is why there is no evidence that trade measures have any effect on trade deficits.

The recent tax cuts will increase US government borrowing, which means the US will also certainly need to borrow more from the rest of the world. Yet Trump's objective is to use trade barriers to eliminate trade deficits with other countries. That suggests we'll be looked into an endless cycle where Trump keeps pushing up tariffs in a vain attempt to offset the effects of his own policies.

The only way the US trade deficit might fall is some combination of two things - a loss of confidence in the US dollar and a US recession, in which private sector borrowing falls to more than offset increased budget deficits. Ironically, that is probably where things will end up if Trump continues along his current path, though it will hardly 'make America great again'.

[Stavros]

When the US walks away from the World Trade Organization, it may propose as an alternative the United States Fair and Reciprocal Tariff Act, or FART, in short.

I guess that sums up the administration, both in terms of its economic intelligence, and its use of the English language.

https://www.theguardian.com/us-news/2018/jul/02/trump-fart-act-report-blows-through-washington

[Stavros]

The announcement today that the US Government is to double its tariffs on imports of steel and aluminium from Turkey prompts the question: is the US using tariffs as sanctions? Indeed, could it be that in fact Tariffs are not these days an economic instrument in the balance of trade, but as sanctions, a weapon of war being used by one state to punish another?

It has not been stated explicitly, but the US Government has been in conflict with Turkey, not over steel or aluminium, but the detention of Pastor Andrew Brunson, who has been alleged by Turkey to have been involved in the 2016 attempted coup, being at one and the same time a member of the 'Gulen movement' while supporting the Kurdish independence party the PKK. His appearances in court have often lasted all day and have stretched the boundaries of credulity, but this is Turkey under Erdogan where the rule of law is figment of the imagination.

One also wonders at the bizarre situation in which the USA threatens anyone trading with Iran with sanctions of its own, in spite of the fact that it is only the US that has pulled out of the Iran Nuclear Deal, a deal that has the legal force of a Security Council Resolution, therefore meaning that anyone who feels obliged to obey the USA is in fact violating international law.

It seems to me that this is further proof of the incoherence at the heart of US policy, or it is another step toward the demolition of multinational institutions and international law, with the USA, hand on hips, guns locked and loaded, standing outside the Last Chance Saloon, daring the rest of the world to 'do something about it'.

Meanwhile the US seems committed to spend unaccounted billions of dollars it doesn't have, on a space war force it doesn't need, while the deficit sails past $10 Trillion.

https://www.theguardian.com/world/2018/aug/10/turkeys-economic-crisis-deepens-as-trump-doubles-tariffs

Who's next for a round of my tariffs can beat your tariffs? And does anyone in Congress care?

Info on Andrew Brunson here-
https://en.wikipedia.org/wiki/Andrew_Brunson

https://edition.cnn.com/2018/07/29/politics/andrew-brunson-pastor-turkey-detained/index.html

[Stavros]

There does not seem to be much interest in this topic, yet it could be that what we are witnessing in the behaviour of the USA toward Turkey and China, is not just the bully extracting favours from states it considers weaker than itself, but the beginning of the end of 'American power'. Just as the President is saturating the USA with an historic and colossal debt, the aim of which will be to offload debts in excess of $10 trillion on the Democrats when they win the Presidency and Congress, so the President is convinced that by smashing to pieces every multinational institution it can find, the USA will emerge stronger than ever before, though it can hardly be richer when it is so deep in debt. But just as in the past he bankrupted business after business and walked away, and while he may not personally be financially liable for the mess, America will be, but the signs are saying the opposite of what he claims. One istempted to argue that the sooner this economic cretin is removed from office the better off the USA might be, if it were not for the fact that the Republican Party is addicted to debt, and doesn't care who has to pay the bill when it is due.

A key reason is that China in the short term may give here and there, but has its eyes on the longer term, both in terms of regional supremacy -hence the continuous development of once uninhabited islands whose sovereignty in international law is a matter of dispute- and the domestic scene, where the key long term aim is to reduce the need to trade with the USA, and presumably at some point to divest its dollar holdings too. The argument has been made by Henry McVey, head of Global and Asset Allocation for KRR-

There is a palpable confidence within the Trump administration – and among a vocal circle of China hawks in Washington – that leaders in Beijing will be forced to capitulate to trade demands in short order, due to a fragile economy.

Such confidence is based on complete ignorance of what is happening in China, others argue, noting that the trade war is only accelerating China’s economic goals.
That is the opinion of private equity giant KKR, which pointed out on Thursday that Beijing’s plan to transition into a consumer services economy is already well underway, and a trade war plays into this shift, and deepens economic integration in Asia.
“Overall, we believe that the current trade wars with the United States will only accelerate China’s shift away from an export economy dependent on global trade/flows towards a more self-reliant consumer services economy that is gaining prominence, particularly within Asia,” wrote Henry McVey, head of global macro and asset allocation, as quoted by CNBC (https://www.cnbc.com/2018/08/09/private-equity-giant-kkr-outsized-returns-in-china-off-trade-war.html).
http://www.atimes.com/article/trade-war-creates-significant-opportunity-for-china-investments-kkr/

See also
http://media.kkr.com/media/media_releasedetail.cfm?releaseid=1074180

[Stavros]

What does the US have to show for nearly two years of tariffs that were supposed to return jobs to the US and re-balance the country's relationship with China to the benefit of the US?
In effect, the President went down on his knees to kow-tow the President Xi to help him out of the mess he has created. It was not a pretty surrender, but a surrender nonetheless. China 2, USA 0.

Jobs lost, costs increased, subsidies to compensate. The policy is in shreds. Thousands of exemptions from the tariffs beg the question -why them and not others? Soybean farmers get $12 billion a year, a 'tariff failure tax' that shifts dollars from Americans who work to those who don't -because tariffs killed their jobs. GM lays off 14,000 workers but won't get a subsidy to pay those workers to sweep the floor at the plant and make sandwiches for lunch. The tariffs on steel and aluminium the US doesn't make will remain in place -for now, but the policy is in the shredder and there is no Plan B. You can't expect a failed businessmen who lives on money borrowed from Russia and Arabia to develop a coherent trade policy, just as Steve Mnuchin and Wilbur Ross are too busy spending tax payers money on first class travel to waste their time developing a long term strategy to replace the lunacy of tariffs.

Did the US ever have so careless an Executive Team?

[Yvonne183]

Starvos needs to get out more, too much time online.