The Wall Street Journal has the complete timeline in Turnover Under Trump.
Here’s today’s victim.
Gary Cohn
Globalist
A reader today accused me of being a “globalist”.
Based on that definition, I certainly am not. I do not advocate economic planning of any kind. It’s ridiculous.
I do not know whether Cohn is or not.
I can say I am a free trade advocate. A great agreement can fit on a napkin as I have stated many times.
Free Trade Proposal
My proposal: “Effective immediately all tariffs and all subsidies on all goods and services are eliminated.”
That’s it. And it holds whether or not any other nation does the same.
If other countries want to subsidize the US, so much the better for US consumers.
Pater Tenebrarum at the Acting Man blog pinged me with an interesting comment today on this subject:
“Exchanging pieces of paper with a vague promise of payment for real goods strikes me as an excellent deal. It is basically is an exchange of nothing for something. The idea that the US trade deficit is somehow a disadvantage seems even more flawed from that perspective.“
Please read that over and over again until it sinks in.
His comment was in response to Let’s Eliminate the Trade Deficit! Yeah, What If?
Not Easy to Win
Trade wars are not easy to win, for the simple reason that no one wins trade wars.
Kindergarten Math
Kindergarten Arithmetic suggests the same thing.
If Trump extends his wall to cover the entire border, instead of just the one shared with Mexico, and then bans or punitively tariffs every single good that uses steel as an input, recursively, as well; he just may succeed in driving up the domestic price of final goods, to the point where both nominal labor compensation and nominal raw materials prices can be increased at the same time.
In doing so, he will ensure that not a single American made product of any kind, will be internationally competitive over time. This is exactly what the Latin American import substituting “structuralists” did, back in the 50s and 60s.
The above analysis from reader “Stuki” is obviously correct.
Here’s an excellent comment by reader AWC: “Now Mish, don’t you know that all the world’s central planners know more than all the world’s markets and all the world’s market participants? “
Hard Math
For a mathematical explanation of trade deficits, please see Trump’s Tariffs Show He’s “Clueless About Trade”.
When did This Start?
Finally, it’s important to recall what allows these deficits in the first place.
For details, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
Maybe this is all part of a gigantic bluff by Trump. But what if it isn’t?
Mike “Mish” Shedlock
Was this quote meant to be serious?
“Exchanging pieces of paper with a vague promise of payment for real goods strikes me as an excellent deal. It is basically is an exchange of nothing for something”
Firstly at some point those pieces of paper come back, and since you apparently have nothing else ov value to sell, these pieces of paper purchase your real estate and your factories and your stock market and your politicians …
Secondly, as more and more of your pieces of paper leave the country, you have to print more pieces of paper to use internally – this is the very central bank action you constantly complain about …
Isn’t this effectively what happened when the indigenous people sold Manhattan for some trinkets?
You can’t wash your hands off with a “no one knows”. That is precisely the reason why people whose future is in peril will gravitate to someone who says he knows what to do. If you had an answer, you would have given it. You don’t have it. In the end, both you and the guy who promises to bring back the jobs are saying the same thing – “Trust me”. So you are no different from that other guy.
*TheLege said: “Will the US ever repay its debt? The answer is no. They will default and the country and its citizens will have acquired a good standard of living and a gargantuan pile of real goods for nothing.”*
They will have acquired a good standard of living for nothing, eh? I would not say being obligated to make payments in perpetuity is “nothing.”
If the US defaults outright it will be because we flushed the economy down the toilet in a major way so we are unable to make payments or because a major creditor decides to trigger a strategic default. I think it is possible the central banks might allow a strategic US dollar default someday, but since that currency is still one of the cornerstones of their power today, I doubt that is happening anytime soon. A geopolitical event could trigger it I suppose.
@Realist, You are correct in your responses to @whirlaway. But @whirlaway is on to something that I think you aren’t addressing. He or she is saying that as agriculture began to automate, there was an industrial revolution going on to provide employment for the displaced. And as industrialism is declining, there is a computer and service revolution to pick up the displaced. Now as the computer and service revolution are getting ready to be displaced, there is no new revolution. There is nowhere to go because the low-hanging fruit of technology, in all its aspects, has been picked. We should, today, and on a small scale, things that we can recognize will be employing millions in 10 – 20 years. Folks saw that with steam engines, rail roads, indoor plumbing, electricity, internal combustion engines, radio, telephones, computers, the Internet. I’m not seeing anything like this on the horizon. Not even close.
Clearly, we need more of those Nobel price winning e…conomists who brought us the great recession, NIRP, QEx, and the ongoing malaise.
First off, I know that innovation and modernization have been going on. The problem is not that. The problem is when the fruits of such changes fail to reach the average citizen or worker. When farming got modernized and automated, there were industrial jobs to fill the breach. These jobs paid as much or even higher wages as farming jobs. When these jobs first got exported, there were service jobs to fill the gap. BUT they paid a whole lot less. Now, even those jobs as well as the jobs that were exported are getting automated away. What replaces them? No one knows. Everyone says “acquire the skills” blah blah blah but those skills are getting automated away as well. Radiologists were said to have acquired such skills,. for instance. Now their jobs are getting automated away by machine learning! Where does it end????
Second, if you use US government statistics, you are a sucker. They lie about everything – GDP, inflation rates, unemployment rates, you name it. Even a pro-establishment staus quoist like Mish doesn’t believe them!
Third, I didn’t assume that you are one of the coastal elite. But you do talk like them – the bunch of people in NY, DC, Silicon Valley etc., who really believe the country is in an economic recovery when all that has happened is an asset price recovery and reflation and bubble.
There are no longer ANY “known knowns” with King Chaos large & in charge, but “are you not entertained”?
My definition of a Globalist is someone who does not put the interests of his country above what he perceives to be the best interests of the world, in general, or a specific other part of the world (i.e. the EU, the ‘3rd world’, ‘North America”) etc.
Hi Mish, 1. Labor and capital can’t move freely across national borders. When a nation allows goods to freely cross its borders it may setup a situation where financial predators can arbitrage wages (and possibly capital costs). This situation is akin to a monopoly in that labor and small businesses can’t easily defend themselves against this arbitrage. How do you reconcile this with your stance on free trade? 2. Cohn was/is very likely one the financial predators involved in the above mentioned wage arbitrage. He was useful to Trump during the tax cut process, but is a hindrance regarding tariffs since they could infringe upon his (Cohn’s) and his crony’s graivy train.
Well said. It is only those who support the status quo and the current political establishment who say those numbers are valid. Most Americans know those statistics are manufactured BS.
First off, there are jobs left in America. But those are low-paying jobs, gig economy jobs, part-time jobs, seasonal jobs etc. IOW, unstable and unreliable and poverty wage jobs. And even for that, Americans have to compete against illegal immigrant labor which is used by the elite to undercut the wages of the legal Americans. Second, if you believe the unemployment numbers from the BLS, heaven help you! You will be so far removed from reality that it is nearly hopeless. Third, whether misery loves company or not, it is a good thing for the comfortably ensconced elite to get to know what even a small dose of misery feels like.
“The unemployment rate (U1,U3,U6; take your pick) are at historic lows.” Only if you don’t include all the people on the other side of the participation rate, who aren’t counted as unemployed.
“I am not a fan of free movement of labor to the US .”
It does not matter what you think. Those who export good-paying jobs (whom you support) want to import labor for jobs that cannot be exported. Two reasons – 1. It drives the wages of those jobs down even more and 2. The imported labor force can be used as a target for the native citizens to rail against as their own economics conditions deteriorate.
You can’t understand because you are perhaps one of those coastal elites. The vast majority of people in this country are ALREADY in misery. So, they don’t care what happens when they throw a spanner in the works. Because it is already NOT working – as far as they are concerned. And if it causes YOU elites misery – they ****ing DON”t CARE!
Got it?!
Good point. These people think that things have been great all the time and at the same time, say that things are horrible. Which is it?
“My proposal: “Effective immediately all tariffs and all subsidies on all goods and services are eliminated.”
That’s it. And it holds whether or not any other nation does the same.”
False. It holds only for the rich in the US. Not for the regular folks.
“If other countries want to subsidize the US, so much the better for US consumers.”
If it was so much better for the US consumers, why did they have to go deeper and deeper into debt to buy the so-called subsidized products? Because they have no jobs – jobs that were lost to other countries because crooked politicians in the US followed the policy of “It holds true whether or not any other nation does the same” , and their tools in the media supported such policies.
The contrary side was Hillary. Who basically said there was nothing anyone could do to bring back jobs. She may have been right, but it was a stupid platform to run on.
Trump is trying to fulfill his campaign promises. Maybe they’ll end up causing misery, but at least he’s doing what he said he would. Which in of itself is refreshing.
Will the US ever repay its debt? The answer is no. They will default and the country and its citizens will have acquired a good standard of living and a gargantuan pile of real goods for nothing.
You don’t need ‘enough gold’ to redeem $500 billion/year (or any other amount for that matter). This is where people miss the point. The gold price will adjust to the money supply as and when a monetary reset takes place. What it boils down to is this: in a reset, how much ‘money’ goes to money heaven and how much money is printed to fill the gap. Once that’s sorted out, you’ll find out what the gold price is.
We have been in a trade war with China for 20 years.
Well the USG does pay interest on the debt.
@Carl_R: You’ll get no argument from me on your prediction of a bad outcome from the Trump 25% steel tariff. I recently heard something similar with respect to the 30% tariff imposed on solar panels in January. Due to automation, relatively few people are employed making solar panels compared to the number of people that install the systems. With the system cost being higher due to the tariff, it is expected that there will be net job losses due to projects being cancelled and installers being laid off.
“If other countries want to subsidize the US, so much the better for US consumers.” This is no different than monopolistic practice by dominant firms to restrict competition. If we truly believe in free trade, we should be criticizing China, Japan, Germany, Mexico, Canada, France, Italy,… before the US. The US has one of the most open markets in the world for trades.
Only 35,000 people are employed in the entire steel industry in the United States. It was estimated that the 30% steel tariff imposed by Bush in 2002 cost 200,000 American jobs, 50,000 of them being manufacturing jobs in industries that used steel. While some Steelmaking jobs may have been temporarily saved by the tariff, the job losses accelerated later, since customers who used to purchase American steel were put out of business during the tariff.
@CautiousObserver, but Mish himself has stated plenty of times that Dollar IOUs are the best IOUs that are floating across the world!
*Tenebrarum said: “Exchanging pieces of paper with a vague promise of payment for real goods strikes me as an excellent deal.”*
The pieces of paper are IOUs. Is Tenebrarum suggesting that those IOUs are essentially worthless today? Hopefully he is wrong about that. Look at Venezuela and the Bolivar. That did not work out so well for the Venezuelan people.
“And it holds whether or not any other nation does the same”
Let us take 3 countries, X, Y, Z
X subsidizes a product (that Y & Z also produce) and sells to Y & Z, good for Y & Z – Let us say Ok, even though all things may not be equal. By this I mean e.g. X may not apply the same environmental standards of Y & Z.
Now Y & Z make another product and want to sell it to X. Assume that Y subsidizes the product but Z does not. In such a case Z loses out to Y, even if it competes well on other parameters
In such a case, how can it hold, where the subsidy provides an unfair competitive edge.
In fact, currency and trade wars come about only because one country tries to take unfair advantage of the system.
I would like to state here that I am all for Free Trade but not with one partner’s hand tied behind his back.
The reality is there is no free trade in the world. That is because the bad guys (who exploit the system) make it tough on the good guys (who prefer fair play)
“If other countries want to subsidize the US, so much the better for US consumers.”
This is possible only if you import all products that are subsidized and do not make any product that is subsidized.
A trade deficit is only bad it you actually plan on paying people back.
Maybe we can compete on a paper gold standard… I can’t even imagine what real gold is worth since it only converts back to fiat currencies for so long now.
So, what’s the answer, Mish, go back on the gold standard? Do we have enough gold to redeem $500 billion/year? When do we run out of gold?
I am not a fan of free movement of labor to the US – Milton Friedman explained many times why it cannot possibly work – too many “free” benefits. But more trade is ALWAYS better. It accounts for improved standards of living.
Navarro is a huge anti-China former economics professor at I believe Berkely. He wrote a couple of anti-china books,
Excellent comment. I just added it to the post