Trump on Tariffs: Lies and Stupidity

America doesn’t like what it cannot control – Never has

Donald Trump’s policy on tariffs is based on a double lie: that the United States is facing an economic emergency, and that the United States has been “ripped off, looted, pillaged, raped and plundered” by the rest of the world. It is true that globalisation of the world economy has winners and losers, and that among the losers has been the blue-collar workers in America (and in Europe) as manufacturing has moved to low labour cost Asia. But among the winners has been US companies, and their workers, who have benefitted from low-cost components in what they do manufacture, while consumers have been able to enjoy a flow of cheap things they like to wear and buy for their homes.

Economic emergency? When Trump took office old sleepy Joe’s administration left him an economy growing faster than any other, the stock market was near a high, unemployment was low, inflation was under control, and US GDP was 27 per cent of the world’s total. An economy manifestly not in emergency condition.

If the United States with 4 per cent of the world population has been ripped off by the 96 per cent others using their combined power to deliberately do it down, as Trump claims, how is that US per-capita GDP went from $36,330 in 2000 to $87,769 by 2023, while global per-capita GDP in the same period only went up $7,675 and China by only $11,655?

He never mentions Services

Then there is the other part of world trade that Trump seems oblivious of – services. “Services” is a wide umbrella word: health care, education (one in four international students in the US come from China), insurance, tourists and the hotels they stay in, cars they hire, meals they take and entertainment they go to, financial services, media, Hollywood films, maintenance, licensing to enable others to manufacture are among its elements. Over 70% of the US economy is services, and services are 27% of US exports. Total world exports of services is $7.09 trillion, of which $1.1trn is American, with the US gaining a worldwide surplus in services exports of $300 bn. China has a deficit in services of $150bn.

America doesn’t like what it cannot control – Never has

Trump has set out to destroy the accomplishment of 123 countries who created a worldwide rules based trade system called the World Trade Organisation. It took from 1986-93, in what was known as the Uruguay Round, to form WTO and set a high degree of stability and certainty in the way nations trade with each other. WTO is not perfect, and countries have disputes over trade practices, but it has disputes resolution procedures that are, at present, paralysed – by the United States. WTO works on the basis of consensus, so that one country can block a measure.

From George Washington onwards there has been a strong strand of America first isolationist policy. The US Senate rejected Woodrow Wilson’s proposal to join the League of Nations after World War I. Even Franklin Roosevelt, with all the power and influence he wielded, and in 1940 with the US watching as Hitler’s Nazis were conquering Europe and Japan was one of his allies, only got a conscription Bill through the House of Representatives by one vote. Basically, the United States does not like international organisations it cannot control, because it wants to exercise its sovereignty as it sees fit.

Trump has history with WTO – He paralysed it

Trump is in that isolationist tradition. In his first presidency, he did not like the way WTO was working from the US point of view, namely it lost when another country took a complaint against its trade practice to the Disputes Panel , with the US finally failing in its defence when it took an appeal to the Appellate Body, made up of 7 judges. So, in 2017 Trump set out to destroy the disputes system by refusing consent to the appointment of judges to the Appellate Body.

This did not immediately hamstring the disputes system as there were still a quorum of judges (3). But as time went on and judges retired there were no replacements, and eventually by 2020 the Appellate body had less than three judges and was no longer operating. Biden did not alter that position. Recently, on a resolution co-sponsored by 130 member countries to restore the appointment of judges, which was the 73^rd attempt to do so, the United States blocked it. Dealing with disputes according to the rules that all member countries have signed up to is fundamental to the continuing relevance, and success, of WTO and to stability and certainty in conduct of trade. Trump has paralysed WTO.

In its place he wants a trade system in which other countries come to the United States individually and agree bi-lateral rules set by America which are primarily in its interests. These rules will not only include the US view of the goods that come into its ports and airports, but also the food standards that the other country has that present a non-tariff barrier to American exports of its agricultural products (chlorinated chicken and beef reared on lower standards than, for example, in the UK), and the kind of taxation it levies on US firms that operate as part of its economy. Trump seems to have a particular obsession with VAT.

In short the United States will bring to an end a world trade system based on universal rules, and replace it with one that is organised and ruled by rules that it sets for different countries, whose trade conduct it will monitor and punish if it decides it is America’s interest to do so.

GETTING at CHINA

Economists and commentators have tried to find a rationale for Trump’s tariff assault on allies and adversaries. His U-turn as the markets had a nervous break-down meant no one bought his toadies’ claim that it has all been a master-stroke by the greatest one-man genius of a dealer the world has ever seen.

But one aspect of his actions is clear. It is Get at China. Make China’s position in world trade, with its reliance on the WTO system, extremely difficult and thus not only constrain it but diminish it in world power terms, and learn the lesson that America will not accept any other state seeking to nudge it out of the number one place.

China as the target was evident even before the present tariff policy came into play. China has outbuilt the rest of the world in the production of large commercial ships. In 1999 it bult 5 % now it is 50%. J.D. Vance is on the record complaining how many ships China builds compared to the USA, although there is no evidence that China has taken any steps to stop his country from building.

But Chinese-built vessels carrying not only Chinese goods but those of other countries exporting to the US has riled Trump. He came up with this idea to punish China: Reuters has reported that he has a draft executive order that any Chinese built ship, and any ship sailing under the Chinese flag, no matter whose exports it is carrying, should pay between $500,000-1.5million port fees at every port it calls at within the USA. Will the draft become operative?

Trump should beware of what he wishes for

Taiwan could be more than his trade problem

Dr. Jim Walker (a Scot) is the chief economist of Aletheia-Capital, a research platform for the Asia-Pacific region whose office is in Hong Kong. He has been visiting and building high level contacts in China for the past 35 years.

In a visit last week, for the first time ever, he met people who said they were “worried about war with Taiwan” as one consequence of Trump’s attempt to isolate China not only from the USA, but by tying up others to America through his new tariff regime, also from the rest of the world.

That view of China taking action against Taiwan is one I have discussed with a grandson for some time. In that scenario of America “orchestrating the world against China,” China could strike back at where everyone else was vulnerable – their reliance on Taiwan and its high grade chips. An attack on Taiwan would not be necessary as a blockade would throttle that essential supply chain, and havoc in worldwide manufacturing, including the in the USA, would follow. China is on the record. It is determined to have Taiwan back some day, and a world turned upside down by Trump, with every country concentrating on its own economic survival in the unprecedented times Trump has created, presents an opportunity to carry out its reunification policy.

What would Trump do? He is handling Ukraine unilaterally, is involved with Israel in Gaza, negotiating with Iran, blasting the Houthis, and still threatening to take Greenland, all the while attempting to get one-on-one complex trade agreements with the 75 countries he says are calling him. A Chinese blockade of Taiwan would be another difficult ball in the air. China might not even need to actually blockade, just let the rumour loose that it was planning to do so, and then watch the US stocks sink, the cost of Treasury bonds go sky high, and the US plunge into a deep recession – and goodbye the Republicans in next year’s midterm elections, and hello to a lame-duck Donald.

Trump has taken on the Communist Party

It Cannot afford to be beaten by him

With almost 90 million members, that is 1 in every 16 people a member, the Chinese Communist Party is not an ordinary one, it is the Chinese institution that sits as the core of the state. One part of the CCP legitimacy as the government comes from the key part it has played in making the Chinese nation stand tall in the world again, ending the century of humiliation that allowed others to dictate to it. There is more nationalist DNA in the body of the CPP than there ever was in the Communist Party of the USSR.

The prestige of the nation is entwined with the prestige of the party. If Trump thinks he can humble China and bring it to heel, and accept a weakened subservient role to the United States by using tariffs, it is the biggest mistake any president has ever made.

It is quite simple to understand. Xi Jinping at a personal level within the party, and the party itself, cannot afford to be defeated by a USA led by Trump or anyone else. Watch China pivot its trade to other areas where there is room for more exports. It is already talking to Korea and Japan, it is a member of BRICS, and an applicant to join the Trans Pacific Partnership (CPTPP), and its relations with the developing countries is better than theirs now is with the USA thanks to Trump.

Internally, China is now seeking to persuade its people to spend and consume more, thus making for a far larger internal market, and has taken measures to aid that aim. It has plenty of scope financially. It is not, like the USA, loaded with debt. Its debt to GDP ratio is 60 per cent, which gives it room for fiscal expansion (the US debt to GDP ratio is 112 per cent and rising).

I end with an interesting point of comparison made by one or two economists that is relevant to the Trump claim that there will be a bit of pain all round arising from his tariffs. Whereas the Chinese people have a history of tolerance when it comes to coping with adversity and hard times, the United States citizen has a low threshold for accepting economic pain. Also the Chinese Communist Party cannot be unelected. If the price of eggs, gas, avocados and mortgage rates go too high, the Yanks will throw out their leaders.