In his effort to “win” a trade war Trump Announces Tariffs on $50 Billion of China Imports.
The Trump administration detailed plans for steep tariffs it will impose on some $50 billion of imports from China unless it makes big trade and investment concessions soon, a broadside that represents the U.S.’s most powerful challenge in decades to Beijing’s economic practices.
The imports targeted for 25% levies reached across the U.S. economy, from high-tech industries like medicine, aviation and semiconductor machinery to intermediate goods like machinery and chemicals, as well as such consumer standards as dishwashers, snow plows and motorcycles, according to the U.S. Trade Representative.
Early reaction from the high-tech industry was negative. “If history is any indication, these proposed tariffs will not work and will be entirely counterproductive,” said Dean Garfield, president of the Information Technology Industry Council. “Tariffs penalize U.S. consumers by increasing prices on technology products and will not change China’s behavior.”
Hooray! Consumers and businesses will pay more, not for 1,300 products but rather 1,300 product categories. The tariffs start May 22. In the interim, businesses have a chance to respond. They will promptly be ignored.
When consumers pay more, Trump calls it “winning”.
Mike “Mish” Shedlock
And whilst you still have dollars with international supreme purchasing power you’d do well to buy farming machines, solar panels, water filters and such like from China.
Honestly save your family, save your town and community, but just forget about the United States of America. It’s far far far beyond the point of repair. The time to save America ended in the 1960s for crying out loud. All this Trump based optimism is in my analysis one laughable comedic send off for the nation.
Banks are both Too Big To Fail imposters and the rulers of the world. It sounds illogical I know, but that’s because treating “IOU” money as money pure and simple is illogical and all banking follows from that absurd principle.
Everything else you said I passionately agree with: I’m with you on the diagnosis of the disease but break with you on the cure. You preach a more productive nation, I preach a more productive and self-sufficient household. The reason for the difference likely being in my conviction that we have some very dark days ahead of us.
“The banks are owed everything in the world”. So what is it? Are banks financially shaky Too Big To Fail imposters? Or are banks the rulers of the world?
There are complex claims on the productive capacity of the world — some of which claims are mediated by banks — but the key is productive capacity. We human beings need a real chicken to put in a pot, and a real pot to put it in, and a real stove to cook it on. What drives the world is our capacity to produce the real goods & services we require or desire.
The West’s problems stem in part from becoming enamored of the “clean” financial world instead of the “icky” productive economy. In War & Peace, there is an analogy of the steam locomotive charging along the tracks, leaving a trail of smoke. Is it the trail of smoke which drives the locomotive forward? It is that mistake of effect for cause which so misleads many of us — resulting in otherwise intelligent people failing to realize that they have been on the losing end of a Trade War for decades.
Well spoken…….
@Kinuachdrach Tell yourself before you go to sleep at night thirty three times this sentence: “The banks are owed everything in the world.”
Then while your dreaming, wonder where these banks are and just exactly how the trickle down effect really works.
Case studies: How current accounts misled markets in 2008/09
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“In the mid-2000s, the US dollar depreciated against major currencies even as the US current account deficit widened to an historically large share of output. In an influential paper…[Paul] Krugman warned of an impending collapse in the value of the dollar, fretting that the dollar would fall abruptly when the currency market met its… [crisis] moment…In the event, the US dollar rose sharply with the onset of the global financial crisis in 2008. Its strong appreciation was associated with the deleveraging of financial market participants outside the United States, such as the European banks…who had used short-term dollar funding to invest in risky long-term dollar assets. As the crisis erupted and risky US mortgage bonds fell in value, these financial market participants found themselves overleveraged and with dollar liabilities in excess of depreciating dollar assets. This forced them to bid aggressively for dollars to repay their dollar debts, pushing up the dollar’s value in the process.”
“Korea was running current account surpluses in the run-up to the 2008 crisis, and had a positive net external asset position vis-à-vis the rest of the world. That is to say, the value of its claims on foreigners in debt instruments exceeded the value of its debt liabilities to foreigners. Furthermore…an appreciating dollar is a positive wealth shock for a country such as Korea. Nevertheless, Korea was one of the countries worst hit by the 2008 crisis, with GDP growth slowing sharply in 2009…A closer look at the sectoral decomposition of the international investment position sheds light on why Korea was hit so hard in 2009…There was considerable disparity across sectors. In particular, the corporate sector was a large net debtor vis-à-vis the rest of the world…The capital gains seen on the central bank balance sheet will not help the corporate borrowers who face a surge in the dollar’s value and a resulting bank credit crunch.”
Look, you didn’t read the article: I understand, this finance jargon can make for dense reading. However there’s a couple of case study examples at the bottom that are more accessible to everyone, let me quote them to you directly here.
Who said anything about “productive capacity,” that makes it sound like we contribute something to the world. I said we “export capital.” 🙂
Rayner-Hilles, Realist — thanks for trying. Certainly, the global economy is a very complex creature. And it is undoubtedly true that markets can stay irrational longer than any of us can stay solvent. Are we looking at irrational markets when we export productive capacity and borrow money to pay the formerly-employed to do nothing?
It really looks like the unilateral “Free” trade believers are selling their inheritance for a mess of pottage. And it really looks like the unilateral “Free” traders are thinking only about today, while the mercantilist Chinese are thinking about tomorrow and 20 years down the road. Lord knows what the German exporters of lumbering gas-guzzlers are thinking! Maybe not all market participants are rational?
@Kinuachdrach Sustainability is always the wall I hit in my thinking because there’s nothing sustainable about our financial system. Nevertheless it is our financial system that rules the world, and it has actually always been that way going back to the Italian renaissance; read “the ascent of money” by historian Niall Ferguson.
That’s the point that I struggle with constantly. Banks, fractional reserve crediting, is of supreme importance but you can’t count on it always being there. But whilst it is there, people who look too hard at the flow of goods and services in international trade will completely overlook what’s making them wealthy because they don’t understand our financial system.
On the other hand, banking is a drama of boom and bust, and in every bust there is indeed always room for tables to turn drastically in the international environment. The question isn’t so much is current account deficit sustainable with China, so much as is the capital account surplus sustainable with China and the rest of the third world?
The answer always contingent upon the ability of our banks to reset and begin the cycle again without losing international supremacy. Politics obviously has a huge role to play in that.
But beyond sustainability, you should remember that it is our financial system that employs you and pays you in a currency with internationally supreme purchasing power. It does this by constantly indebting the rest of the world, inflating the price of financial assets, and then offering those assets to auction within the international sphere of the 1% investor elite. This takes a good deal of bricks and mortar, technology and intellectual services to accomplish, as well as strong national brand.
It’s not the innocent tit for tat trade that makes America wealthy, it’s finance. Subtle, complex and horrifically unstable finance.
If you want a more sophisticated and technical explanation of what I’m saying, then here you go: link to sr-sv.com
Questions for Mish and the rest of the unilateral “Free” Trade crowd — is a $500,000 Million annual trade deficit with China sustainable? Are there any long-term impacts of offshoring factories & jobs on that scale?
These are serious questions, and I would appreciate understanding what you guys are thinking. You must be seeing something that evades the rest of us.
I can understand the “Hate America First” crowd, who are delighted to see American workers thrown out of jobs and the US brought down. But what about apparently smart people who don’t hate their fellow citizens. How do they assess the situation?
Well in this case I had to scour google; there’s a surprising lack of macroeconomy sector analysis for the US, perhaps it’s more of a fashion unique to the commonwealth; you’d be surprised how these various industry/academic “royal institutions” manage to circulate exactly the same ways of thinking between the UK CA AU & NZ.
Business sector analysis is something these countries push on business, economic and human geography students you understand. It’s very fundamental stuff.
Probably a major reason why protectionism is such heresy in these countries despite a relatively left leaning climate compared with the US. An implicit intuition of a “food chain” in world trade that US academics are perhaps relatively lacking?
A big part of that area of thought actually seems to have originated in trying to understand why some countries develop and others stagnate. The UK & Irish governments are particularly invested in these global humanitarian investments.
So official institutions are forced into knowing about the these crucial principles that underlie the relationship between free trade, industry classification & economic development. Conjecture on my part, but I can’t see an alternative explanation.
@Raynor-Hilles – great post – what is the source for your diagrams?
I second what you’re saying here. But we won’t need to look as far as CPI to see the cost push inflation effect, PPI will rise quicker; less inventory lag.
In firing our overseas servants for voluntarily taking pay cuts, we have essentially shutdown the nations business model.
They provide the primary secondary sector industry inputs, we then provide to ourselves and the world the tertiary quaternary outputs.
Only few understand how wealthy we are made by this because of this idiotic “current account vs capital account” dichotomy; the same idiocy being responsible for excluding home prices out of the CPI.
We export capital. Economic and financial capital. All forms of capital come together in the fantastic brick and mortar service sector nexus, that directly or indirectly employs the entire country.
We can export “capital account goods” and import “current account goods” because we have a ludicrously powerful comparative advantage in generating and selling capital. Trump is now in the process of eliminating that comparative advantage.
God only knows what would happen if he took inspiration from Australia and New Zealand and placed barriers to foreign purchases of US capital.
Probably what Australia and New Zealand is about to go through now (As also the UK – indirectly because of Brexit); I’d pay very close attention to these countries’ unemployment rates.
When a pendulum moves too far in one direction, it pushes back in the opposite direction. It is human nature. Global debt is now over $230 trillion. There is more going on than just the surface story of a trade war.
So the same guys who said trickle-down would work, who said outsourcing would work, who said NAFTA was great for America, who said that deregulation was great for America, who said corporate tax cuts were great for America, who said corporate-funding of elections was great for America and on and on and on, are now saying tariffs are bad??
Still wonder why the American people wouldn’t listen to your advice??!!
Who is so stupid to start a trade war in the lead up to elections? Beijing have the ultimate weapon in any trade war – midterms. We have them, they don’t. Beijing, as well as using Trump as a bogeyman to make the Party look good to their people, will offer conciliatory remarks while imposing tit-for-tat tariffs and wait six months. Trump will fold like a cheap umbrella as we get closer to November. This is beyond asinine.
Sorry – wrong post! 😊 link to seekingalpha.com
Let’s see for how long risk assets remain sanguine. Does China retaliate? Or do they back right down ..
“Just a repeat of the ’70s”. Yup
Mish is not for fair/reciprocal trade. He is for free trade.
Tariffs schmariffs. US consumers have so much money left over after rent and medical expenses that they can easily absorb higher prices for goods. They probably won’t even notice!
Mish, prior to US tariffs, did China place barriers to US products? Has China engaged in wholesale intellectual property theft? Is it fair to allow China to dump products with the intent of destroying US manufacturing? Do you profit in any way from China’s trade imbalance with the US?
Maybe tariffs are the new taxes?