Wednesday, November 7, 2018

Pick Trump apart before the mid term

This first appeared in Asia Times, written before the mid term election. Asia Times also posted a translation of this piece in Chinese.

His abrupt withdrawal from the Paris Accord, despite 195 signatories, is a clear indication that Trump does not care a whit what the community of nations thinks. Democrats should explain to the voters that reducing the emission of greenhouse gases is the most pressing universal challenge facing today’s world.

Abruptly breaking the nuclear weapons ban of 40 years with Russia without any replacement scheme is another dark side of unilateral action. In effect, by renewing the arms race, Trump has made the world a more dangerous place. At the same time, expenditures for a new arms race would add to the federal budget deficit.

Cold War footing

Trump has also deliberately placed China on a new Cold War footing; far from putting America first, his approach will end in self-inflicted losses. Vice-President Pence summarized the anti-China position in his speech early in October.

Just like his boss, Pence accused China of holding a huge trade surplus and forcing American companies to transfer their technology to China. Pence also accused China of having the audacity to “manipulate” the American election.

How? By using inserts in Iowa newspapers to explain that the consequences of Trump’s trade war would be harmful to the farmers’ livelihood.

Put Pence’s accusations together, even if cast in its worst light and without checking against reality, hardly seem to justify threatening to go to war with China.

Very simplistically and flying in the face of basic economic principles, Trump believes that China’s trade surplus is evidence of stealing from the US.  In other words, global free trade is actually a conspiracy against America first.

Trump believes imposing tariffs will solve the “unjust” trade balance. He has even declared that tariffs collected on imports from China would be new revenue to the US Treasury – a source of free money to Trump.

In reality, of course, the tariff would be paid by the importer and passed on to the end consumer in the form of a price increase. Far from free, the tariff represents a new tax for American consumers and taxpayers.

A large portion of imports from China is either made for American companies by contract manufacturing arrangements or by American corporations operating in China. The tariffs would raise the cost of the imports back to the US, but Trump believes that the tariff barrier would encourage American corporations to bring their manufacturing back to America from China.

A naive assumption

Trump’s assumption is naive. The US may no longer have the workers with the needed skills or workers willing to work under the comparably low wages paid in China. Furthermore, manufacturing in China enjoyed complementary supply chains of intermediate products that no longer exist in America.

Even for those operations that could be brought back to the US, it would take time to reestablish and a disruption in the market and to the American economy would be unavoidable.

Trump’s style of trade negotiation is to list demands coupled with the threat of tariffs. The approach may have intimidated Mexico and Canada, but it has not worked with China. He first imposed tariffs on a list of items and was offended that China did not immediately surrender but had the gall to retaliate with their own list of tariffs.

When the tariff war began, China’s stock market tumbled and Trump’s economic team immediately crowed that China was losing the trade war and victory for the US. Recently, it’s the American stock markets’ turn to tumble while China’s held steady. The reality is that short-term stock market fluctuations simply reflect that a long-term lose-lose scenario is in the making.

The Democrats need to explain to the American voters that imposing tariffs will cost everybody more money. American industries that depend on import of materials and intermediates will have to pay more even if the imports do not come from China simply because imports from other countries will raise their prices to match the Chinese competition with the newly added tariff.

Americans will have to pay more for their daily household items from China because of the added tariff. Even if there were competing imports from other countries, those imports would adjust their prices to reflect the new price from China including the added tariff. The net effect is that the tariff raises the cost of living for everybody.

The Democrats should simply ask: How is this going to help the US? There are plenty of domestic issues that need attention: repairing infrastructure, raising education standards, reducing gun violence and combating drug addiction, to mention a few. Why start a new Cold War to add to the list?

Of course, to become credible critics of Trump’s policy toward China, the Democrats would have to disclaim having been guilty of demonizing China, or at least explain that they see the error of their biases and that making China an enemy is not in America’s national interest.

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