Sunday, March 4, 2018

Trump's Trade War and the Unsustainable Status Quo

A number of Trump's staff, who have spent a year trying to restrain him, have now left the administration. Now the President is pursuing exactly what he said that he would do during his entire time as candidate Trump: he's getting tough on trade and our chronic trade deficits. I don't think it'll work. But a world-wide financial crisis and collapse will.

In my blog post from last week,"Extremes in Unsound Money and Finance Leading to Catastrophe," I mentioned that we live with a status quo that is completely unsustainable and that collapse is probable. With trade and budget deficits soaring for 40 years (after abandoning the last vestige of the gold standard in 1971), we now have massive accumulated financial and trade imbalances. Those trade deficits do indeed represent a transfer of our wealth to the rest of the world, mostly China. The result is the US and US consumer are basically on life support of ever-increasing debt as the economy stagnates. It literally can't go on anymore, which is why we have Trump as President. Candidate Trump constantly railed against our problem with trade during his campaign. (Trump never railed at our debt though and unless the country's budget deficit is reduced, the trade deficit will remain or increase. It's simple math.)

On Thursday, March 1st, Trump that the US will impose tariffs on steel and aluminum imports next week. In a tweet he said:
"our steel and aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries around the world...We must not let our country, companies and workers be taken advantage of..."
"United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!"
On Friday morning, Trump said regarding trade with the EU and China:
“We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!”
Friday morning, he also said
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!” 
Trump is basically correct. If Trump suddenly banned trade with China, or imposed a 25% across-the-board tariffs, it would collapse like a house of cards. China buys very little from the US as they are hardcore mercantilists.

Trump is, of course, entirely correct about the pernicious aspect of our trade. Below is the US trade deficit with the EU and with the world:

US Trade Deficit With Europe

US Overall Monthly Trade Deficit in $Billions per Month
It wasn't long before the entire world erupted in anger directed toward Trump and his trade advisors Peter Navarro and Wilbur Ross. There have been no rational calls for a trade summit -- which may yet emerge. EU President Jean-Claude Juncker, who is clearly the biggest idiot and biggest liar on earth, said the bloc is prepared to respond quickly and forcefully by targeting imports of Harley-Davidson motorbikes, Levi Strauss & Co. jeans and bourbon whiskey from the U.S.  Good Mr Juncker, screw you too.

In response, President Trump said:
"If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!"
It's true that there is no free trade with the EU or China. And President Trump correctly pointed out that there is a national security aspect to our country's 40 year long de-industrialization (that could have only happened in our fiat money world).  Paraphrasing, he said that, if the US didn't have any heavy industry, then we "don't have a country." He was correctly referring to the fact that, in wartime, US factories are required for the manufacture of materiel, armaments and weapons. For example, during WWII, GM and other automaker assembly lines were converted into a huge producers of tanks, planes, trucks and weapons. So, if we don't have heavy manufacturing, then we have a big strategic and national security problem should we ever face another world war.  And I believe that we're just a few years away from a big war consistent with The Fourth Turning.

Buckle up. JFK had a rising inflation problem, threatened US steel makers to not raise prices in 1962, and the stock market plunged more than 30%.  In 2002, President George W. Bush imposed tariffs as high as 30% on global steel imports and stocks also plunged 30%.

There's an Eerie Parallel Between JFK's Administration and Trump's Election
Fall-out From George Bush's Steel Tariffs in 2002

1 comment:

Ed Sessions III said...

Absolutely spot on!! Bravo ��!! Bravo!! You bet I will share this!!