❝ With each passing day, it becomes increasingly evident that US President Donald Trump’s administration cares less about economics and more about the aggressive exercise of political power. This is obviously a source of enormous frustration for those of us who practice the art and science of economics. But by now, the verdict is self-evident: Trump and his team continue to flaunt virtually every principle of conventional economics.
❝ Trade policy is an obvious and essential case in point. Showing no appreciation of the time-honored linkage between trade deficits and macroeconomic saving-investment imbalances, the president continues to fixate on bilateral solutions to a multilateral problem – in effect, blaming China for America’s merchandise trade deficits with 102 countries. Similarly, his refusal to sign the recent G7 communiqué was couched in the claim that the US is like a “piggy bank that everybody is robbing” through unfair trading practices. But piggy banks are for saving, and in the first quarter of this year, America’s net domestic saving rate was just 1.5% of national income. Not much to rob there!
❝…What Trump is doing is not about economics – or at least not about economics as most academics, political leaders, and citizens know it…But why single out economics? The same complaint could be made about Trump’s views on climate change, immigration, foreign policy, or even gun control. It’s power politics over fact-based policymaking.
RTFA. Please. You don’t have to agree with Stephen Roach 100% of the time. His experience and knowledge-based analysis is a helluva place to start, though!
8 thoughts on “Politics Trumps Economics”
“The Great Soybean Conspiracy” By Paul Krugman (NYT Op-Ed 6/25/18) “…the administration has no idea what it’s doing. Its ideas on trade don’t seem to have evolved at all from those expressed in a white paper circulated by Wilbur Ross, now the commerce secretary, and Peter Navarro, now the trade czar, in 2016. [see https://assets.donaldjtrump.com/Trump_Economic_Plan.pdf ] That white paper was a display of sheer ignorance that had actual trade experts banging their heads on their desks. So these people are completely unprepared for the coming blowback. [additionally] this administration is infested — I use that word advisedly — with conspiracy theorists. In fact, it seems, literally, to treat belief in absurd conspiracy theories as a job qualification.
So what will happen when cluelessness meets conspiracy theorizing?”
“Everett Eissenstat, a senior White House official who represented President Donald Trump at major international meetings, including this month’s dramatic G-7 summit in Canada, is leaving the administration next month.” https://www.politico.com/story/2018/06/26/top-economic-official-leaving-white-house-677900 “Eissenstat, a former top aide to Sen. Orrin Hatch (R-Utah), joined the administration last year for a joint appointment on the National Economic Council and the National Security Council, where he focused on international economic affairs.
When Eissenstat departs early next month, he’ll take with him a wealth of trade policy expertise at a time when the issue is at the center of a fierce debate in the White House. Before joining the White House, he was chief Republican trade counsel for the Senate Finance Committee under Hatch. Eissenstat also served as assistant U.S. trade representative for the Western Hemisphere.
…International officials grew to like and trust Eissenstat, a fact that some of the hard-line nationalists in the White House were suspicious of.”
Jun. 27, 2018: “The Trump administration has threatened to slap tariffs on nearly all Chinese imports to the US, a move Beijing isn’t able to match in duties of its own. Meanwhile, the yuan has weakened to fresh lows, raising questions about whether China could counter trade threats with currency manipulation.
The yuan hit its lowest level of the year on Wednesday at 6.6105 versus the dollar. It has plummeted 6% versus the dollar since March, when the Trump administration announced plans to penalize China for what officials found to be unfair trade practices. A weaker currency typically boosts exports.” http://markets.businessinsider.com/currencies/news/china-currency-manipulation-could-be-used-trump-trade-war-2018-6-1027323154
“White House Retreats From Plans for Strict Limits on Chinese Investment” (6/27/18) https://www.wsj.com/articles/white-house-retreats-from-plans-for-strict-limits-on-chinese-investment-1530143264 According to the American Enterprise Institute (AEI), a conservative US think-tank, China invested $24.2bn across all sectors in the US last year.
“President Donald Trump’s threat to slap heavy tariffs on imported cars and parts may cost hundreds of thousands of American jobs and raise auto prices in the U.S. by roughly 10 percent. That’s according to analyses from economists, industry groups, lawmakers and carmakers ahead of a June 29 deadline to submit comments to the U.S. Commerce Department.
Indeed, General Motors Co. warned on Friday that the tariffs being considered by the Trump administration could lead to a “a smaller GM” and risks isolating U.S. businesses from the global market, Reuters reported. The largest U.S. automaker, with around 180,000 employees, said in its comments to the Commerce Department that the tariffs could “lead to a smaller GM, a reduced presence at home and abroad for this iconic American company, and risk less — not more — U.S. jobs.” (CBS News 6/29/18) https://www.cbsnews.com/news/trump-auto-tariffs-may-cost-hundreds-of-thousands-of-u-s-jobs/
All new cars sold in the United States will cost more — to build and probably to buy — if the Trump administration imposes an auto tariff. That’s because every car sold in America is at least partly imported. https://money.cnn.com/2018/07/02/news/companies/auto-tariffs/index.html
The Commerce Department is considering tariffs on cars assembled at foreign plants and on foreign-made auto parts. Every car assembled in the United States contains a significant percentage of foreign parts, according to government data. “There are no purely American vehicles,” said Michelle Krebs, senior analyst at AutoTrader. “These are global automakers who use global sources for all types of parts.”
Re: “What is good for General Motors is good for the country, and what is good for the country is good for General Motors.” (attributed to General Motors President Charles E. Wilson) see https://blogs.loc.gov/inside_adams/2016/04/when-a-quote-is-not-exactly-a-quote-general-motors/
The U.S. Chamber of Commerce, usually a staunch ally with Republicans, on Monday will launch a campaign against the president’s recent tariff policy. https://www.politico.com/story/2018/07/02/us-chamber-of-commerce-trump-689658 “The administration is threatening to undermine the economic progress it worked so hard to achieve,” Chamber President Tom Donohue said. “We should seek free and fair trade, but this is just not the way to do it.”
The chamber is using state-by-state analysis to argue that Trump is risking a global trade war.
“Trump goes to war with corporate America : The president’s widening trade war is pushing longtime GOP allies to the front lines of a fight against the Trump administration.” https://www.politico.com/story/2018/07/03/trump-war-corporate-america-harley-davidson-666926 “Trump’s approach has created a high-stakes showdown without recent political precedent: A Republican president betting that his populist approach to trade will thrill his working-class base and blow away any short-term economic fallout or reduced political support from the nation’s largest business organizations. His message to corporate America so far: I don’t care what you say, my base is with me.”
Donald J. Trump @realDonaldTrump (tweet) 8:00 AM – Jul 3, 2018 “Now that Harley-Davidson is moving part of its operation out of the U.S., my Administration is working with other Motor Cycle companies who want to move into the U.S. Harley customers are not happy with their move – sales are down 7% in 2017. The U.S. is where the Action is!”
The president cited 2017 sales data, but Harley made its announcement only last week. No production will be moving to Europe as a result of the tariffs, according to the company. Harley’s overseas manufacturing plants are in Brazil, India, Australia and Thailand. In the U.S., the company is shutting down a Kansas City, Missouri, factory and transferring operations to York, Pennsylvania.
China’s trade surplus with the U.S. reached a record monthly high in June as Chinese companies rushed to sell their goods before President Trump’s tariffs went into effect on July 5th https://www.cnbc.com/2018/07/13/chinas-trade-surplus-with-us-hits-record-as-exporters-rush-to-beat-ta.html The surplus in June was $28.97 billion, up from $24.58 billion in May. For the first half of 2018, China’s surplus with the U.S. was $133.76 billion, up from $117.51 billion in the first half of 2017. However the surplus for the second half of 2018 will likely be significantly lower than that of the same period last year as Trump’s trade war slows down the flow of Chinese exports into the U.S. Meanwhile, in a sign Beijing is seeking alternative supplies of the commodities as it hit U.S. imports with extra tariffs, China had dropped import tariffs on a range of animal feed ingredients from several Asian countries.
So far this year Chinese buyers have accounted for just 17 percent of all advanced purchases of the fall U.S. soybean harvest – down from an average of 60 percent over the past decade. They are instead loading up on Brazilian soybeans, which now sell at a premium of up to $1.50 a bushel as U.S. soybean futures have fallen 17 percent over six weeks to about $8.50, their lowest level in nearly a decade. The price gap has sparked a run on U.S. soybeans by importers from Mexico to Pakistan to Thailand, according to the analysis of U.S. Agriculture Department data. https://www.reuters.com/article/us-usa-trade-china-soybeans/importers-snap-up-cheap-u-s-soybeans-as-china-stops-buying-idUSKBN1K21IB