President Trump is threatening a trade war with Europe. “I’ve had a lot of problems with the European Union, and it may morph into something very big from … a trade standpoint,” Trump said in an interview with British ITV on Sunday. “It’s a very unfair situation, we cannot get our product in. It’s very, very tough, and yet they send their product to us — no taxes, very little taxes.”
Yes, trade in goods and services with Europe is not precisely balanced. But why? Is it because it’s so hard to get products in, and they have a tax advantage? Wasn’t that supposedly taken care of in the recent tax bill?
Like most of what Trump says, the statement is not only wrong, but completely misses the difficult underlying reason why US trade will never be in balance. It’s a major feature of the power we wield around the world through the greatest strength we have – the US Dollar. And messing it up may make us lose far more than we think to in the destruction of a “war.”
Picture yourself in England at the start of Queen Victoria’s reign. If you have some skills as a part of the growing middle class, things look better every day. That life comes in part from unskilled workers driven into the growing (and filthy) cities who are more productive than ever before. The great symbol of the improving standard of living greets you in the morning as a cup of this once luxury beverage, tea. It comes from China, traded under the barrel of the guns of the Royal Navy through the new colony of Hong Kong. The latest in technology, the Clipper Ship, brings it to you with great speed and makes it possible to run this enterprise at a distance. The sun never sets on the British Empire, and tea is both its greatest commodity and emblem of success.
Today, in the waning daze of the American Empire that isn’t an empire, things could hardly be different even as they are the same. Coffee is the beverage of choice for 54% in the US. It has always been the workingman’s drink, but it is moving more yupscale – even though 35% of us still drink it black (as it is meant to be, damnit). It is shipped from tropical, underdeveloped nations in unromantic cargo containers as the second most traded commodity in the world by value ($15B per year), behind only oil. The nations that produce it are rapidly urbanizing into filthy cities. The trade is managed over the internet by a cadre of traders and speculators.
History doesn’t repeat, but it rhymes like a street poet hitting a beat.
What will it take to Make America Great Again? A big part of it, at least in terms of the public show, is the creation of manufacturing jobs. Of the four words in MAGA, the top two appear to be “America” and “Make”. It’s a noble effort all around, without a doubt.
But can this be done as a matter of policy? Can we turn back evils like bad trade deals and force the products which are consumed in America to be made in America?
Two stories from the opening daze of the Trump administration demonstrate just how unlikely this effort will be. Indeed, it’s entirely possible to cause more damage than good in many ways.
With all the noise after the election, it’s been a while since we checked in on the state of the economy. There’s a reason for that. Will the election results change what has been a slow but steady march to a strong economy? Will 2017 still be the year when we look around and realize that everything has changed?
It seems that, so far, it’s all still marching along. There is a good chance that jobs and general growth will indeed strengthen, making Trump look like a genius. Last Friday’s employment situation survey showed that it is still moving forward – and combined with a strong holiday season there is at least some reason to cheer as a dreary 2016 starts to fade into what promises to be a crazy 2017.
Money is fleeing China. That’s hardly news, since it’s been happening for well over a year now. More accurately, money is now seriously fleeing China – at a rate which shows how little confidence anyone has in the dragon. The mythical creature apparently is made from a wall of paper, but it bleeds like any other economic animal – green, not red.
While the throes of this beast are roiling stock markets all around the world the truth of the matter is that money leaving China has to go somewhere – and “somewhere” is going to be primarily in the US. The situation is much more like Japan circa 1990 than nearly anyone has admitted yet. Where the growing Shia-Sunni war in the Middle East is going to be the policy story of this year, the inflow of Chinese money is already shaping up to be the economic story of 2016.
The long anticipated meltdown in Chinese stocks has accelerated this week, although it took a break today. Whether or not it has implications for the broader economy in China and around the world is unclear, given how little China relies on its stock market for financing and growth.
It’s all about the “carry trade”, or ability to borrow money in a foreign currency (usually US Dollars) at low interest rates and invest it at home in the hope that the local currency (Renminbi, or “people’s currency”) will become more valuable relative to the foreign currency later. It’s a two-fer if you can invest it in something that appears to be gaining in value, such as local stocks, and Chinese investors went for it bigtime.
Yes, it was all another bubble waiting to pop, which it appears to be doing now. But can this hurt us? Speculation has centered on trade with Latin America, which has its own uneven growth and a growing reliance on China. But this is silly for a lot of reasons. It’s worth looking at Latin America as a unit and seeing what effects we can really expect.
Trans-Pacific Partnership, or TPP. It sounds like a great idea on the surface of it – lower trade barriers and require trade partners to improve working conditions in developing nations. There’s only one problem with it – no one knows what it is. That’s partly due to it being negotiated in secret and partly due to the fact that the negotiations are not done.
But many are against it for a wide array of reasons that span left and right. On the right, there is a good chance the sovereignty of the US will be diminished based on treaty obligations that, based on discussion, reach very far. On the left there seems to be yet another assault on good US jobs. And that secrecy? There are rumors that it will remain secret long after the treaty is passed.
It’s time to take a step back and sort out what TPP is and what is actually true about it.