What’s the proximate cause of America’s “losing” ways when it comes to international commerce, to employ Donald Trump’s characterization of trade deficits?
Answers vary. Trump prefers to blame “our stupid, stupid leaders” while regaling the MAGA faithful at rallies. He’s not wrong. Not exactly, anyway. And not entirely.
Hindsight’s 20/20, but you didn’t need to be an especially gifted clairvoyant to suggest China’s WTO accession might one day look like a mistake considering the long odds that the CCP, reform-minded or not, would live up to its end of various deals, explicit and implied.
Bringing China into the fold was always a Faustian bargain, but notwithstanding the idea that nothing’s worth your soul, I’d argue (as would many) that the risks were skewed to the upside for the West, asymmetrically even. And yet, in retrospect, letting China in the door helped sow the seeds for today’s crisis of Western democracy.
But is all America’s “losing” really, at heart, just about the juxtaposition between “stupid, stupid” Westerner politicians and sneaky, sneaky Chinese? Spoiler alert: No. For starters, nothing worth studying in the fields of political economy and socioeconomics is monocausal. Beyond that, though, there’s an argument to be made that this all comes back to the dollar.
Trump’s aware (hyper-aware, even) of the greenback’s role, and particularly of the role an active, complicit Fed could play in keeping a lid on dollar strength in the service of helping Trump “win at trade,” as he likes to put it. But as detailed here on countless occasions of late, Trump’s stuck in an insanity loop: On one hand, he wants a roaring-hot domestic economy, he wants everyone to invest in America and he arguably wants other countries to suffer (and not just economically either), but, on the other, he needs a weak dollar. Those goals are incompatible, or at least sometimes find themselves at odds.
With all of that in mind, find below another passage from the Richard Koo note I mentioned here on Wednesday, presented without further comment:
While it is understandable that President Trump would want to correct the trade imbalances that have been ignored for the last 37 years, it is highly doubtful whether the policies he has proposed will help to achieve that goal. Mr. Trump seeks to reduce US trade deficits by sharply increasing the tariffs imposed on imported goods. But no matter how aggressively tariffs are wielded, their impact will disappear instantaneously if the dollar rises in value against other currencies, while the economic inefficiencies tariffs create will remain. Moreover, it is clear that the strong dollar is the main cause of US trade deficits. If (as some economists have argued) the real cause of these deficits lies in the balance of savings and investment, and imports are only the result of US demand outstripping supply capacity, American manufacturers competing with imported goods should be reporting high profits since production is unable to keep up with demand. In reality, however, most have been forced into bankruptcy. Their disappearance can only be explained with an over-valued dollar that resulted in the loss of US industrial competitiveness. When the dollar rose sharply against other currencies last year in a move that ran counter to the objective of reducing the trade deficit, Mr. Trump called the Biden administration’s failure to do anything about it a big mistake. Yet President Trump himself has yet to announce any policies aimed at correcting the strong dollar. If he does nothing to address the excessive strength in the dollar that is the root cause of these deficits, attempts to reduce them with tariffs alone have no hope of working.
It could be argued that relative wage levels have played a related role.
Over the years, your GOP HAS tried to “correct” this through Right to Work legislation, especially in the red states. The goal was to lower US wages so we could better compete with cheaper labor in Mexico, China and now in many other nations.
Now the baton is being passed to AI.
What types of policies would reduce dollar strength?
YCC
Default US debt would do the trick immediately.
Apparently during his first term DJT toyed with the idea of defaulting on the UST debt held by the Chinese. The “adults in the room” were able to divert his from that nation.
On the interview with reporters on the flight to support the Chiefs at the Super Bowl (sorry, I meant the BIG GAME) he showed that he is still interested in that idea when he mused how much US debt was due to the trillions owed due to to the fradulent activity Musk has been unearthing.
Will we see the idea of selection ressurected if the Bond Vigilantes get out of hand or the US Dollar starts to move significantly higher from here? Or will Peter Navarro towel him down?
On Friday, Rogin Wigglesworth at the FT published a commentary titled “About all this ‘Mar-a-Lago Accord’ chatter.” In it he mentioned and idea that may or may not be being thrown around in the White House: ” Some aspects — such as forcing countries to swap their Treasuries for century bonds — seem a bit fantastical.”
A commenter replied with a trenchant observation: “Guys, forcing treasury holders to swap into zero coupon century bonds has a name: it’s called “selective default” as practiced by many struggling EM countries. US would go AAA to SD overnight, cratering the economy.”
Someone else opined that no one would be forced to accept the exchange, which raises a question – how would he know the proposed terms unless the idea is already under discussion?
All speculation at this point. Maybe, though what’s that quote about desperate times requiring desperate measures?
I see that someone queried that poster about his inside knowledge about the terms of any proposed debt swap deal. He confessed that he did not. All speculative, at this point anyway.
H:
One thing the GOP faithful still don’t understand is that buying goods and/or work from off shore is not just about money. When the Chinese make products for Apple and number of other companies, the suppliers build the facilities, even do design and engineering work for us, as well as saving on input costs. This lowers our risk and the CAPEX load on our companies so we not only cut our production costs but our investment loads as well, leaving money for stupid share buybacks. On the downside we lose the skill development of our workforce and the associated intellectual capital, which has been transferred to China, India, Malaysia, and others. Personally, I’d rather have the strong dollar but as you said, Trump has never liked it. He wants to get the free lunch from weakness so he can feather the nests of his pals.
Trump is not totally stupid. He just can’t actually think. You sir, are one of the situational synthesizers I have read. Trump is the worst. He never knows the interactions that will certainly arise from his “genius” ideas, creating dozens of painful unintended consequences (or who knows possibly intentional). He can’t bring any of his ideas together properly. He seems to be teaching Musk as well. I read yesterday that Musk has averred there are currently millions of people living in the US who are over 100 yo. They are a secret group we’re not supposed to know about. Another crazy bedbug in our midst. Actually, I think Musk has confused the number of Centenarians with the number of his out-of-wedlock children.
“Actually, I think Musk has confused the number of Centenarians with the number of his out-of-wedlock children.”
Now there’s zinger!!
Actually he is that stupid. He is spouting his non sequitors based on what the whispers he hears tell him. His hunches have become facts and his gut tells him the truth. We are so past the rabbit hole that even the Mad Hatter has left the party.
The billionaires that scorned him the first time round finally figured out they need to be in on the con this time around.
Not only is the king going about without clothes, his henchmen are gladly taking theirs off as well. Anyone who dares to disagree is a retard says the idiot savant who bought the presidency.
I am waiting for the “let them eat cake” moment.