Trump Ignores Aides, Goes It Alone
Please consider Trump is Ignoring his Aides and Going it Alone in the Trade War Now.
No Comment From Kudlow
- Trump is trusting his instincts and ignoring the advice of his aides regarding issues surrounding the trade conflict with the world’s second largest economy, said five people briefed on the action.
- National Economic Council director Larry Kudlow declined to comment in a CNBC interview Tuesday that he and other advisors disagree with Trump’s trade war actions.
- Last week, Politico reported that Trump’s advisors are pushing him to focus on keeping the economy strong even if it means letting up on China in the trade war and loosening Trump’s intense criticism of the Federal Reserve Chairman Jerome Powell.
No Comment is a Comment
No comment on such questions is indeed a comment.
There is clear dissent among Trump’s advisors.
Trump’s Trade Quagmire
I do not often agree with Krugman, but this is one of the times that I do.
In Trump’s Trade Quagmire (Wonkish), Krugman notes the obvious “He just keeps escalating as his strategy fails.”
Remember the Vietnam quagmire? Well, here’s my thought: Trump’s trade war is looking more and more like a classic policy quagmire. It’s not working — that is, it isn’t at all delivering the results Trump wants. But he’s even less willing than the average politician to admit to a mistake, so he keeps doing even more of what’s not working. And if you extrapolate based on that insight, the implications for the U.S. and world economies are starting to get pretty scary.
Krugman’s Five Points
- The trade war is getting big. Tariffs on Chinese goods are back to levels we associate with pre-1930s protectionism. And the trade war is reaching the point where it becomes a significant drag on the U.S. economy.
- The trade war is failing in its goals, at least as Trump sees them: the Chinese aren’t crying uncle, and the trade deficit is rising, not falling.
- The Fed probably can’t offset the harm the trade war is doing, and is probably getting less willing even to try.
- Trump is likely to respond to his disappointments by escalating, with tariffs on more stuff and more countries, and — despite denials — in the end, with currency intervention.
- Other countries will retaliate, and this will get very ugly, very fast.
US Treasury Declares China a Currency Manipulator
I agree with Krugman on all five points.
Of course, I do, because I have made those same points myself over the past year.
The situation came to a head yesterday as noted in US Treasury Declares China a Currency Manipulator Under Orders From Trump
The currency manipulation charge came following a tit-for-tat retaliation in which China Halts All US Ag Imports in response to Trump placing additional tariffs on China.
Failure of Trump’s Tariffs
Krugman posted some charts showing Trump’s failures and lies.
They are from Fred, the St. Louis Fed, repository and PIIE.
I recreated the Fred charts with extra details and comments.
Average Tariff Rates
Those tariffs act as a tax on consumers, approximately 21% on $500 billion in imports.
How much customs duties are collected?
Customs Duties
Let’s give Trump credit for roughly $33.9 billion in increased tariff duties per year.
What about exports?
Net Exports of Goods and Services
Let’s home in on that starting with the moment Trump placed tariffs on China.
Next Exports of Goods and Services Detail
Tariff Man Success
Since Trump launched his ever-escalating trade war:
- Net exports have fallen by $90.8 billion
- Customs duties have risen by $33.9 billion
- Taxes on consumers and business are up by about $100 billion
If that’s not success, what is?
Lie of the Day
Massive amounts of money from China and other parts of the world is pouring into the United States for reasons of safety, investment, and interest rates! We are in a very strong position. Companies are also coming to the U.S. in big numbers. A beautiful thing to watch!
— Donald J. Trump (@realDonaldTrump) August 6, 2019
The alleged “massive” amount of money is an additional $33.9 billion while net exports are down by $90.8 billion and taxes on consumers are up.
We call this “winning”.
Why Trump’s Policies Aren’t Shrinking the Deficit
Krugman has this explanation:
“Mainly the answer is that Trump’s theory of the case is all wrong. Trade balances are mainly about macroeconomics, not tariff policy. In particular, the persistent weakness of the Japanese and European economies, probably mainly the result of shrinking prime-age work forces, keeps the yen and the euro low and makes the U.S. less competitive.”
Import Shuffle
Krugman also notes, as have I, “U.S. tariffs on Chinese goods don’t do much to reduce overall imports, because we just shift to products from other Asian economies.”
In Import Shuffle: Canada, Mexico Surpass China as the US’ Biggest Trading Partner, I noted Vietnam is the biggest beneficiary of in percentage terms, followed by the Netherlands, Belgium and Taiwan.
Personalities Aside
I follow many people I typically disagree with. Paul Krugman is one of them.
Why?
Because sometimes they are spot on. Krugman wrote an excellent column that led to this one.
Never let personalities get in the way of a well-presented case.
Fancy that.
I don’t ever recall agreeing with Larry Summers. https://t.co/zT4k6w5UEs— Mike “Mish” Shedlock (@MishGEA) August 6, 2019
In contrast with Krugman with whom I agree about 20% of the time, I don’t ever recall agreeing with Larry Summers on anything significant.
Recession May “Help”
In a perverse way, Trump may manage to reduce the trade imbalance.
A Global Manufacturing Recession Started and Trump’s China Tariffs Made Matters Worse.
Trump’s tariffs are certainly recessionary. Note what happens to trade in recession in my first chart on net exports above.
And please note the average lead time between manufacturing recessions is less than a full quarter.
For discussion, please see Manufacturing Recessions vs Real Recessions: How Much Lead Time Do You Expect?
Mike “Mish” Shedlock
Mish, I totally agree with you the foolishness of Trumps policies, but I wonder what you think about the following: we can partly blame Trump for the trade war, but doesn’t the bad economic situation make people support someone like Trump, even thought his trade policy doesn’t make sense? Of course this bad economic situation was caused by his predecessors, who are ‘sensible’ people we were told.
Also many young people support Bernie Sanders and AOC who want to give many free lunches and pay for it by high taxation and printing money. I guess it is party bad economic times that make people support crazy economic ideas from the right and the left.
On good thing is that I see more and more people and economists criticising central banks for their crusade to create 2% inflation at all costs, and more mainstream economist are saying that falling consumer prices are not a problem. Five years ago almost all of them were cheering at the easing policies of central banks. I don’t have statistics, but I feel their mindset is slowly changing.
The Fourth Turning is unfolding before our eyes.
America’s Fourth Turning wars.
The Revolutionary War.
The Civil War.
World War 2.
The world is awash in some 250 trillion dollars of debt.
Our policy towards China for the last 50 years has not worked. The policy of opening our markets and letting them steal our intellectual property has failed. It was supposed to make them move towards more freedom for their people and closer to western values. This has not happened. I don’t believe that China can survive as they are without the US market and US food.
We need to confront China and doing so economically is the best way.
All you free traders don’t care if slave labor is used to produce cheap products. China is killing the environment and enslaving people and your moral compass sees only a lower price. That is sad.
Additionally, things are better than they were 3 years ago. More people working and earning more money. Taxes are lower and we haven’t entered another war.
Stop being Chicken Little!
We have lost the middle class. We have fentanyl, opioids, increased suicide in youth.
So “putting out foot down” n theft? Very funny. By doing what? We’ve talked for 25 years and accomplished nothing while working with our trading partners.
Soon the ChiComs will capture the human organs market. Then you and our trading partners can line up to buy the cheap organs and we can benefit from lower prices in health care.
As long as you don’t see the harvesting, you have no moral problem.
Trump had an anti China agenda from the beginning and it is playing out daily. But is it the right approach toward Chinese behavior? Many critics but few offer an alternative. I contend that Trump had a better plan dropped right in his lap the TPP.
An 11 nation economic block (minus China) could have been to move a significant amount of production out of China and into the TPP nations thus creating competition (the long term smart play). Instead Trump blundered bigly with tariffs, the quick fix sugar high approach.
“…In particular, the persistent weakness of the Japanese and European economies, probably mainly the result of shrinking prime-age work forces, keeps the yen and the euro low and makes the U.S. less competitive.”
Because reducing the supply of labor, is what makes economies competitive……. It’s almost unbelievable that this clown was at one point considered an economist…
US companies move operations overseas because they are paid by Federal Govt to do so with tax benefits. Trump is not smart enough to know this and his advisors won’t tell because they helped pass those laws and they support them. Tariffs won’t get jobs back to US, but changing the tax laws would help.
Trump’s instincts have been honed by a life-time of bullying creditors and stiffing others, posturing, grandstanding, and bluffing, and it has stood him in good stead. Now we are about to discover if his experience in NY real estate extrapolates to geopolitics and the economics of manufacturing.
Just wait, he will bankrupt all those Asians with their subsidized production and soon enough America will win back all those markets. [just kidding]
obama’s instincts have been honed by a life-time of “community organizing” – just what did that get us with trade with China?
Bush’s instincts have been honed by a life-time of “Texas oil and baseball” – just what did that get us with trade with China?
Clinton’s instincts have been honed by a life-time of “schlonging bimbos” – just what did that get us with trade with China?
Yes. But did they all ignore their advisors and go with their instincts? Were they equally poor at appointing allies to insert their agenda into the state’s apparatus? I actually think Trump is not as bad at core as many of his antecedents, but they interacted a little better with the team around them (not that I put much stock in their team, the Pentagon and State department are in a ghetto of their own making.)
Advisors…. expert advisors who were probably wrong about the last crash, iraq wmd, etc.
would it be accurate to extrapolate that with trade tensions China’s reserves of US dollar is growing faster given the larger reduction of US exports to China (-90 B) compared to imports?
As Armstrong points out, the dollar has been rising against all the majors. China cannot stop this trend if it wanted to – link to armstrongeconomics.com
And yet the data shows no price increases due to tariffs.
“The consumer price index rose just 0.1 percent in May, the Department of Labor said Tuesday. Compared with a year ago, prices rose just 1.8 percent. After taking out volatile food and energy prices, inflation ran at 0.1 percent for the month and 2.0 percent for the year, both below economist expectations.
In other words, even with the tariffs the Trump administration has imposed, consumer prices are rising by less than the Fed thinks is consistent with price stability. Its theoretically possible prices would be rising at an even slower rate than they are if the tariffs were not in place. But that would only mean the Fed would have to work harder to push them back toward the target.
Car and truck prices are perhaps the most important consumer item that tariff opponents claimed would be pushed up by the metals tariffs. But these have hardly moved. Compared with a year ago, car prices are up just 1.1 percent. The price of new trucks is 0.8 percent higher than a year ago.”
Tools and hardware were often cited by those promoting the “tariffs are taxes on consumers” narrative. But prices on these are up just 1.5 percent compared with a year ago.
The prices of televisions have crashed. In May, television prices fell 1.5 percent. This is the tenth consecutive monthly decline for televisions. Compared with a year ago, television prices are off 18.6 percent.
But computers and related hardware prices are down 4.9 percent compared with last year. Phone prices fell again, for at least the ninth consecutive month, and are now down 13.8 percent compared with a year ago.
Wow the amount of TDS is high in this one. First, he’s trying to use CPI to measure price increases due to tarriffs, then he chooses to list an item (TV) as proof that was not even on the tariff list in 2018.
why not use an item that was subject to tariffs like washing machines?
link to econlib.org
Washing machine is not representative as the tariff tax is as high as 50%. According to Wikipedia, “An April 2019 working paper by economists found that the tariffs on washing machines caused the prices of washers to increase by approximately 12 percent in the United States.”
I would be very hesitant attributing trade numbers solely to DJT’s tariff policy.
Until Powell’s U-Turn at beginning of year, the Federal Reserve had embarked on a tightening policy (QT + rate hikes) the past couple of years, which sent $US higher … while most other central banks continued easing.
as Goldmand calculates this adds ~ 23 bp to the PCE it brings US REAL negative rates that much closer helping our gold/silver plays that much more. Bring on the stagflation!
The one period of tariffs, the Smoot Hawley 1930s, that is said to have contributed to the G Depression was preceded by tariffs in 1861, 1864, 1890 and 1922 which did NOT produce recessions of any kind (per Rickards). We’ve had 45 years of stagnant wages, young people (some my friends) that can find no real jobs, wealth inequality to the max and the hollowing out of America. Trump is a failed businessperson and a horrible example for humanity as a whole. But we have to try something before everyone of your houses has no bidders at all.
I would hardly use 1861, 1864, 1890 and 1922 as good argument for tariffs. I mean economies then and now are universes apart.
I despise trump’s moves in this arena, but I’m wondering, is he trying to force a chinese collapse? That seems to be the only way these moves make sense to me?
Problem is they can most likely wait him out. If the US economy collapses he is blamed and there is a new president
I suspect he thinks he can wait them out