Posts Tagged ‘protectionist’

Draghi Warns Risks From Trade War May Be Understated

June 29, 2018

European Central Bank President Mario Draghi warned European Union leaders that an escalating trade war between the U.S. and the world’s biggest economies may have a larger impact than policy makers and investors currently expect.

Mario Draghi Photographer: Jasper Juinen/Bloomberg

Rising tensions could erode confidence to an extent that is difficult to gauge, Draghi told the 27 heads of government from the bloc at a summit in Brussels on Friday. The complexity of intertwined global supply chains could magnify the impact on the world economy, he said, according to a person familiar with the discussion, who asked not to be named as the debate wasn’t public.

Draghi’s latest comments come days after U.S. president Donald Trump threatened to deal what could be a damaging blow to the German economy by imposing a 20 percent tariff on car imports from Europe. The risk prompted the EU to react with a joint statement on Friday, vowing an unwavering response “to all actions of a clear protectionist nature.”

The ECB has repeatedly warned about the threat protectionism poses to growth, but Draghi’s assessment contrasts with a relatively sanguine approach by some financial-market participants. Citigroup special economic adviser Willem Buiter said in an interview with Bloomberg Television on Friday that fears of a trade war are overblown and the economy could be in for a boost within months as those concerns fade.

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Europe already faces challenges including populism and divisions between member states in areas such as migration and the deepening of euro-area integration. Draghi told leaders that uncertainty and lower confidence are having a negative, visible impact on private investment already, and urged them to complete institutional overhauls of the currency bloc, including a joint financial backstop for the resolution of ailing banks.

“Make sure that it works and that it works soon,” Draghi said.


Peter Navarro’s radical transformation — From Free Trade to Trade War — Alarmist or Realist on China?

June 25, 2018

People think of Peter Navarro, the top White House trade adviser, as President Trump’s mind-meld on tariffs — the most hardline protectionist in the White House. But Navarro used to preach very different ideas in his early career as an economist.

The bottom line: In his 1984 book, “The Policy Game: How Special Interests and Ideologues are Stealing America,” that’s no longer in print — Axios got a copy from a university library — Navarro sounds a lot like the very administration officials he’s sparred with on trade policy. And he argues that tariffs will inevitably send the global economy into crisis.

Image result for Peter Navarro, photos

We asked Navarro what prompted the radical change in his views, and he explained how he went from a free trader to an economic nationalist. In response to “The Policy Game,” specifically, Navarro told Axios:

It borders on the comical that Axios would spend so much time on a book written 34 years ago and completely ignore the insights of my later works like the 2006 Coming China Wars, the 2011 Death By China, and the 2015 Crouching Tiger.  Together, these books explain at length why the globalist Ricardian free trade model is broken and urgently needs fixing in the name of both the economic and national security of the United States.
— Peter Navarro
Image may contain: text

From the book…

“The clear danger of this trend [protectionism] is an all-out global trade war; for when one country excludes others from its markets, the other countries inevitably retaliate with their own trade barriers. And as history has painfully taught, once protectionist wars begin, the likely result is a deadly and well-nigh unstoppable downward spiral by the entire world economy.
If the world is, in fact, sucked into this spiral, enormous gains from trade will be sacrificed. While such a sacrifice might save some jobs in sheltered domestic industries, it will destroy as many or more in other home industries, particularly those that rely heavily on export trade. At the same time, consumers will pay tens of billions of dollars more in higher prices for a much more limited selection of goods. Sacrificed, too, on the altar of protectionism will be the very heart of an international world order that since World War II has successfully changed the aggressive struggle among nations for world resources and markets into a peaceful economic competition rather than a confrontational political or military one.”
— “The Policy Game,” pg. 55

There are multiple passages in “Policy Game” that directly argue against Navarro’s current positions. Navarro’s go-to argument defending the White House’s trade moves has been national security. In a June New York Times op-ed, he wrote:

“President Trump reserves the right to defend those industries critical to our own national security. To do this, the United States has imposed tariffs on aluminum and steel imports. While critics may question how these metal tariffs can be imposed in the name of national security on allies and neighbors like Canada, they miss the fundamental point: These tariffs are not aimed at any one country. They are a defensive measure to ensure the domestic viability of two of the most important industries necessary for United States military and civilian production at times of crisis so that the United States can defend itself as well as its allies.”

But Navarro’s own book topples that argument as well:

“On the benefit side, protectionism within certain basic industries like autos, steel, and electronics helps to create and sustain an industrial base that, in times of war or national peril, can be shifted to defense purposes, However, this national security argument — and the existence of any benefits resulting from protecting these industries — can be legitimately called into question for several reasons.
First, the existence of any sizable benefits rests on the assumption that import competition in our defense-related industries would not only reduce the size of these industries but also shrink them to the point where they would be too small to support our defense needs. The threshold of danger is a matter of some dispute. How big, after all, do our auto, steel, or electronics industries have to be to keep our borders safe? In spite of this uncertainty, few analysts would argue that import competition is likely to push a nation with as large and mature an industrial base as ours anywhere close to that threshold.
Second, it is highly possible that our defense capability might actually be enhanced — not damaged — by import competition. Without the umbrella of protectionism, our defense-related industries would be forced to operate at lowest cost, engage in more research and development, aggressively innovate to stay one step ahead of the competition, and modernize their plants at a faster pace. Thus, while import competition might shrink these industries, they would be leaner, tougher, more efficient, and more modern and in all likelihood outperform a bigger and inefficient (protected) version of those same industries.
On the national security cost side, the major effect of protectionism is to threaten the stability of the international economic order through a global trade war…”
— “The Policy Game,” pg. 82

Navarro lauded the impact of tariffs on saving American jobs in a May op-ed in USA Today, writing:

“There can be no better way to make America — and American manufacturing — great again than to start to rebuild those communities of America most harmed by the forces of globalization. These new facilities will stand as shining testimony to the success of tough trade actions, smart tax policies and targeted worker-training programs.”

But he warned against the harmful longer-run effects of tariffs on jobs in his 1984 book:

“American protectionism threatens employment and profits in the export-dependent nexus because it invites retaliation from our trading partners …
From these direct and indirect effects, it is clear that over time, the major benefits of protectionism — more jobs and higher profits — are largely and perhaps completely offset by a reduction in jobs and profits in export and linkage industries and in those industries vulnerable to the ‘end run.’ Therefore, the argument that protectionism serves as a jobs and income assistance program must be discounted.”
— “The Policy Game,” pg. 79-80

And Navarro has emphasized that tariffs won’t hurt American consumers, saying on CBS’ “Face the Nation” in March that the Trump administration’s moves’ effect on the prices of consumer goods will be “negligible to nothing.”

In 1984, Navarro held a very different view:

“The biggest losers in the protectionist policy game are consumers. Even here. however, ‘consumers’ do not constitute a monolith, for there are several different consumer categories.
Bearing the greatest burden of protectionism are American retail shoppers who pay over $70 billion annually in higher prices (and reduced consumption) for products ranging from autos, bicycles, and color TVs to shoes, shirts, and cutlery.”
— “The Policy Game,” pg. 65

Go deeper: Navarro explains his journey from globalist to protectionist — in his own words.



Trump Tariffs Are Just a Blip in the March of Free Trade — In The Longer Run, China is The Greatest Risk

June 8, 2018

Is the age of free trade coming to an end? It sure feels that way, with the U.S. levying tariffs against its allies, the Chinese not budging from their mercantilist system, Brexit on track, and authoritarian governments on the rise. The good news, however, lies outside the realm of politics: The long-run trend is one of greater interconnectedness, at least for traditional goods and services.

Dawn will come again.

Photographer: SeongJoon Cho/Bloomberg

Here’s why I am still (mostly) an optimist about the future of trade.

First, the changing nature and greater complexity of international supply chains makes effective protectionism hard to pull off. To cite a simple example, foreign steel is an input into many American products sold abroad, such as cars. If tariffs or quotas restrict the importation of foreign steel, American automakers will face higher costs, and they will find it harder to export. Policy makers might like to think that tariffs can target foreign interests with precision, but that has never been less the case than now.

Second, we have been down this protectionist road before, in the 1980s under President Ronald Reagan, who imposed limitations on Japanese auto imports and tariffs on Japanese computers and televisions. In 2002, President George W. Bush imposed tariffs on steel imports. Whatever you think of those policies, they did not reverse the longer-run trend toward more cross-border trade. Over time, the economics proved more potent than the politics, and those restrictions were removed.

Third, and perhaps most important, human beings around the world are tied together more closely than ever before. In particular, migrants from emerging economies now live in many different countries in unprecedented numbers.

Why does this matter? Well, the numbers on international trade suggest that distance is usually a greater barrier to trade than are tariffs, a result from “the gravity model.” To put it concretely, the U.S. trades far more with Canada than with Australia, even though those two countries have broadly the same economic profile. The reason isn’t mainly about the costs of transportation (water transport is pretty cheap), but rather the U.S. has better networks with Canada than with Australia. Canadians are more likely to have school experience, business contacts or friends in the U.S., and vice versa, because of proximity. That encourages subsequent business ties and trade.

A lot of the recent cross-border migration is planting a hugely positive, pro-trade legacy that will yield dividends for decades to come. The Chinese, Indians, Nigerians and many other groups around the world will continue to build economic connections, even when the countries involved aren’t always so geographically close. I expect the positive trade gains from these connections and personal networks will outweigh the downside from some higher tariffs in the meantime. Ultimately the opportunities are there, and the biggest problem is the lack of human talent to execute on them.

I do think there is a major threat to free trade today, but hardly anyone is talking about it, at least not in the U.S.

I am not so much an optimist about free trade in China. The Chinese government may make marginal concessions to limit the scope of a trade war, but I don’t think it will let in the major American tech companies anytime soon. Their government obsesses over controlling the flow of information, and if only for national security reasons it won’t liberalize technology or communications. More than ever before, information flows and trade flows are inseparable.

The internet shows some signs of breaking down into separate networks, connected only imperfectly. The Chinese “Great Firewall” has proved robust, and recently the European Union has moved toward creating its own set of stringent privacy and data protection laws, such as the new General Data Protection Regulation standards. Sitting here in Norway for a conference, I find I am unable to access many American websites, such as the Chicago Tribune, which are not (yet?) GDPR-compliant. There is thus a danger that the internet will become carved into three or more separate systems, to the detriment of trade, data flows and eventually personal  connections.

Even on this issue, I am relatively optimistic because I think markets will find ways to connect the various balkanized networks, more or less seamlessly, perhaps using more advanced versions of today’s VPN or blockchain technologies. Still, for all the talk about President Donald Trump endangering the international economic order, in the longer run the combination of China and the internet is the greater risk. It won’t help much to have China – slated to become the world’s largest economy – firmly committed to censorship and tech restrictions.

The internet as an open, well-governed commons, is one of today’s most significant public goods, but exactly who or what is going to keep it that way? In the broader sweep of world history, we’re probably not going to remember this era for its temporary uptick in steel tariffs.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Tyler Cowen at

To contact the editor responsible for this story:
Stacey Shick at

Another Sad Day For U.S. Trade, Relations With The World

June 1, 2018
I analyze export-import data, connecting it to trade policy, life  Opinions expressed by Forbes Contributors are their own.

President Trump pumps his fist to the crowd as he arrives at Ellington Field Joint Reserve Base in Houston, Texas on Thursday. (Photo by JIM WATSON/AFP/Getty Images)


The good news is that people are talking about trade. It makes a guy like me a little more topical at dinner parties.

The bad news is, we are talking about trade for all the wrong reasons.

The most recent affront is President Trump’s indefensible decision Thursday to impose steel and aluminum tariffs on national security grounds against countries previously treated like allies, countries that have largely fought on our side in the last two world wars as well as a several countries that didn’t but that have been among our most loyal friends for more than half a century.

Let’s remember where this started: China was “dumping” too much steel and aluminum on world markets, depressing prices.

There have been other poorly reasoned moves, and I will get to some of those, but let me start by saying that I have tried to give President Trump the benefit of the doubt since he took office. Every president deserves that.

So, I tried. When I could, anyway.

It didn’t start well. On his first full weekday as president, Trump withdrew the United States from the Trans-Pacific Partnership and I just couldn’t find anything good to say. To date, that remains  the worst, most consequential policy decision he has made.

Some of his critics will argue that pulling out of the essentially voluntary Paris climate accords was worse, leaving the United States as the world’s only country not part of it, while still others will point to the more recent decision to walk away from the Iran peace accords, even though Iran was in compliance. A few might nominate the decision to move the U.S. embassy from Tel Aviv to Jerusalem.

Trust me, it’s the T.P.P. decision. That was an important free trade agreement seven years in the making, one that sought to dilute rising Chinese influence. All the other nations that were part of the negotiations have subsequently signed it.

But there have been instances where I have been able to give the president the benefit of the doubt, even as fellow proponents of increased trade have not.

When Trump said he wanted to renegotiate the North America Free Trade Agreement, after calling NAFTA the worst treaty ever during the campaign and subsequently vowing to walk away from it on numerous occasions, the approach was and remains un-presidential but I didn’t think it was a terrible idea to take another look at a treaty that had been in place for a quarter century. A lot has changed since the first President Bush negotiated the treaty and his successor, President Clinton, pushed it across the finish line with the help of Republicans in Congress. So, I reasoned, why not update it?

Today, as the NAFTA negotiations appear stalled due largely to one or two largely unpalatable U.S. positions, Trump announced that tariffs on steel and aluminum go in place against Canada and Mexico.

On China, when he complained about intellectual property issues and the nation’s continued reliance on the “developing nation” crutch, I had no objections. Reasonable complaints, I thought. Yesterday, the White House announced, as previously threatened, that it will be placing 25% tariffs on at least $50 billion in Chinese imports. The stated purpose is to reduce the U.S. trade deficit, rather than push toward protecting intellectual property rights.

When he got into a verbal scuffle with Canada’s president, Justin Trudeau, over whether the United States had a trade deficit with Canada or not, I took Trump’s side even though he somewhat inexplicably chose to admit he didn’t really know. Although the slings and arrows directed northward have been more benign than to most U.S. allies, Trump included Canada in the steel and aluminium tariffs. I don’t see that helping in the NAFTA negotiations.

When he questioned why automobile tariffs between the United States and Germany are not equal, I thought it a reasonable question (though wondered if the answer is more complex). Germany, our No. 3 market for auto exports thanks to Mercedes manufacturing in Alabama and BMW manufacturing in South Carolina, is now subject to the steel and aluminum tariffs as are the rest of the European Union nations. Those cars, as they rely on foreign steel but made by American workers, will now be more expensive.

Egged on by a trade triumvirate that is as decidedly opposed to trade as any in the post-World War II era, Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer and Director of Trade Policy Robert Navarro, Trump is now lighting a match to the world order that has, while imperfect, done more to improve the human condition more rapidly, than at any time in history. Remember, the first two are long-time advocates of defending the U.S. steel industry from foreign competition through government intervention while the latter is an avowed and unapologetic China basher.

One of the president’s few cordial relationships with a head of state to date has been with Japanese Prime Minister Shinzo Abe. The steel and aluminum tariffs against Japan went into effect today.

W e are increasingly isolated as a nation by a president who came to politics as a builder and developer and now does little more than demolish. He has no plans to build. He talked of being opposed to multilateral deals and preferring bilateral treaties but there are no negotiations underway. Think I’m too harsh? Quick, name the United States’ strongest ally. Sure, Israel’s Benjamin Netanyahu is often in agreement with the president but the roster gets pretty thin from there.

If this isn’t a trade war, it’s pretty close to one. And if it is, there’s no one on our side. I wish I could be more optimistic.

Agree? Disagree? Email me. Or follow me here or on LinkedIn or Twitter, or watch my “Trade Matters” series on WorldCity’s YouTube channel

Trump’s Steel Destruction

June 1, 2018

He starts a needless trade war with America’s best friends.

Canadian Prime Minister Justin Trudeau speaks during a news conference in Ottawa, Ontario, May 31. He said: “These tariffs are totally unacceptable.”
Canadian Prime Minister Justin Trudeau speaks during a news conference in Ottawa, Ontario, May 31. He said: “These tariffs are totally unacceptable.” PHOTO: PATRICK DOYLE/ASSOCIATED PRESS

So much for Donald Trump as genius deal-maker. We are supposed to believe his tariff threats are a clever negotiation strategy, but on Thursday he revealed he’s merely an old-fashioned protectionist. His decision to slap tariffs on steel and aluminum imports from Europe, Canada and Mexico will hurt the U.S. economy, his own foreign policy and perhaps Republicans in November.

In March Commerce Secretary Wilbur Ross dangled temporary exemptions to 25% steel and 10% aluminum tariffs to extort trade concessions from U.S. allies. Mr. Ross withdrew the exemptions on Thursday, saying the U.S. “was unable to reach satisfactory arrangements” with Canada, Mexico and the European Union. He means they didn’t unilaterally surrender.

Mr. Ross announced the tariffs under Section 232 of the 1962 Trade Expansion Act ostensibly to circumvent the World Trade Organization. WTO rules let countries adopt tariffs to protect national security, but Canada, Mexico and Europe are hardly a threat.

Canadian steel and aluminum are actually integral to U.S. national defense, as Commerce’s Section 232 reports acknowledge. Mr. Trump complained that Lockheed ’s F-35s cost too much, but now he’s going to make U.S. fighter jets and other weapons more expensive, which could give Russia an advantage in international arms sales. Brilliant. Another irony is that Mr. Trump has denounced China for using national security as a pretext to promote domestic industries like semiconductors. He’s essentially doing the same.

American businesses rely on complex cross-border supply chains that take time and money to change. Most will have to internalize the tariff costs, which will mean raising prices or hiring fewer workers and paying lower wages. The tariffs also create uncertainty as businesses petition Commerce for product exemptions while delaying investment. Note to Mr. Trump: Regulatory uncertainty was a big reason growth was so slow during the Obama years.

Taxing steel and aluminum imports will make U.S. manufacturers less competitive. Prior to Thursday’s announcement, U.S. steel prices were up 40% this year and nearly 50% over the European benchmark. How does punishing American manufacturers square with Mr. Trump’s goal of making more cars in America?

Mr. Ross has dismissed the impact on consumers, but a 25% increase in input costs is nothing to sniff at. Companies use imported steel and aluminum in everything from cars to beer cans to Hershey’s kisses wrappers. The Federal Reserve in April reported that a maker of tractor trailers said that it “can’t raise prices as fast as material costs.” A toy manufacturer in the Northeast that uses a thin-gauge aluminum foil said the tariffs had raised its prices three-fold.

Then there’s the larger trade fallout, not least to Nafta. Canada provides 43% of U.S. aluminum imports—more than twice as much as China and Russia combined. Mexico and Canada together account for about a fifth of U.S. steel imports compared to China’s 2% and Russia’s 9%. As Nebraska Senator Ben Sasse tweeted, “You don’t treat allies the same way you treat opponents.” On trade Mr. Trump treats them worse.

Nafta is already in jeopardy due to excessive U.S. demands that include a wage mandate on autos and a five-year sunset. Canadian Prime Minister Justin Trudeau said Thursday that he recently offered to visit the White House to close a Nafta deal. But Vice President Mike Pence told him he’d have to accept a five-year Nafta sunset. Mr. Trudeau rightly said no Canadian leader would agree to such a self-defeating provision.

Instead, other countries are retaliating. Europe has teed up tariffs of up to 50% on $3.3 billion of U.S. products including bourbon, motorboats, cranberries and playing cards. Canada plans to hit up to $12.8 billion in products including U.S. steel, yogurt, hair lacquers, beer kegs and sailboats. Mexico announced tariffs on U.S. steel, lamps, pork, apples, grapes and cheese. Many items on the tariff lists overlap because they target states that Mr. Trump won and House districts where Republicans have competitive races.

All of which means that President Trump’s gambit could backfire politically. Mexico is America’s biggest apple export market. Washington Rep. Dave Reichert says apple and pear exports to Mexico increased by 70% after Nafta. Wisconsin produces more than half of the nation’s cranberries whose biggest export markets are the Netherlands and Canada.

Democrats have bought billboards in California’s Central Valley denouncing the impact of Mr. Trump’s trade policies on farmers. Even steel manufacturers will take a hit since Canada buys about half of U.S. steel exports while Mexico imports about 40%. The steelworkers union supported an exemption for Canada.

Mr. Trump has been establishing a solid economic record with tax cuts and deregulation, but his escalating trade war puts that at risk. He aspires to be Ronald Reagan but his tariff folly echoes of Herbert Hoover.

Trump Shows How Not to Be a Protectionist

May 30, 2018

Tariffs are better than quotas and other lessons in how to do protectionism well

President Trump promised this week to restrict Chinese investment and imports over intellectual-property violations, but his record raises doubts about whether he will follow through.
President Trump promised this week to restrict Chinese investment and imports over intellectual-property violations, but his record raises doubts about whether he will follow through. PHOTO: EVAN VUCCI/ASSOCIATED PRESS

Free trade, for all its virtues, isn’t an easy sell. Every country applies some level of protectionism out of economic or political necessity.

But protectionism can be done well or done badly. Done well, it minimizes costs to taxpayers and consumers, maximizes benefits to domestic industry, and discourages bad behavior by trade partners. President Donald Trump routinely does protectionism badly, using the wrong tools on the wrong behavior and the wrong countries.

On Tuesday, he actually suggested hitting the right target the right way, when he promised to restrict Chinese investment and imports over intellectual-property violations. But his record raises doubts about whether he will actually follow through.

Here are some lessons in how to do protectionism well:

Lesson one: tariffs are better than quotas. Tariffs, which are a tax on imports, are more predictable and transparent than non-tariff barriers such as quotas, which are a quantitative limit on imports.

Protected But Still ShrinkingU.S. steel has enjoyed varying levels of   since the 1990s but total employment has still shrunk.Percentage of steel imports covered    : Chad Bown, Peterson Institute forInternational

Yet Mr. Trump is negotiating quotas on imported steel in lieu of tariffs. Quotas, by restricting supply, raise prices, just as tariffs would. But whereas tariff revenue goes to taxpayers, the higher prices on imports caused by quotas benefit foreign companies.

Quotas have unpredictable effects. If demand for steel softens, imports will fall, the quota will no longer bind, and domestic industry will lose protection at its most vulnerable time.

Allocating the quota also invites lobbying, favor trading and opaque gamesmanship, yielding odd results. Argentina’s steel quota is 35% larger than recent exports, enabling it to take market share from competitors such as South Korea whose quota is 30% smaller.

Lesson two: threatening tariffs is worse than actual tariffs. For months Mr. Trump threatened to impose tariffs without actually enacting them. That prompted steel buyers in the U.S. to stock up, an important reason the volume of imports is up 2% year to date. The Alliance for American Manufacturing, which backs the tariffs, complains the influx of imports during the administration’s drawn-out investigation into whether steel and aluminum imports threaten national security cost 13,500 jobs last year. Yet because demand for steel is strong thanks to a healthy U.S. economy, prices are up nearly 40% this year—as if a tariff were already in place. That means the foreign suppliers of those imports are enjoying a windfall.

Mr. Trump thinks threats are a useful lever in broader negotiations. But domestic manufacturers can’t be sure if the tariff will ever take effect or if it does, will stay. The gamesmanship thus reduces their incentive to invest in new capacity or jobs.

Lesson three: punish bad actors, not good. Presidents typically save their harshest treatment for the most egregious rule breakers in hopes of changing their ways.

Mr. Trump has done the opposite: he has picked fights with Western Europe, Japan, South Korea, Canada and Mexico, all U.S. allies or neighbors that more or less play by the rules. He has thus far been relatively easy on China, which even free traders agree is a serial violator of the rules of free trade and the ultimate cause of global overcapacity in steel and aluminum. He promised tariffs on $150 billion worth of imports then suspended them, announced devastating penalties against telecommunications company ZTE Corp. for violating sanctions on Iran and North Korea then softened them.

On Tuesday, he reiterated a threat to hit $50 billion of imports containing “industrially significant technology” with a 25% tariff, but it might be another negotiating tactic that China doesn’t take seriously.

Mr. Trump sees trade as governed by power and leverage, not rules. Because Japan, South Korea, Canada, Mexico and most of Western Europe depend on the U.S. military, market or both, he counts on them rolling over without retaliating. China, which is a strategic and economic rival, hasn’t hesitated to exercise all the leverage at its disposal, from its sway over North Korea to its agricultural imports from key Republican states.

This calculus may yield short-run wins but at the expense of long-term cooperation. “With friends like that who needs enemies,” European Council President Donald Tusk recently tweeted in response to Mr. Trump’s tariffs on European Union steel and aluminum. “But frankly, EU should be grateful. Thanks to him we got rid of all illusions. We realize that if you need a helping hand, you will find one at the end of your arm.”

Lesson four: have a post-protection plan. China’s protectionism is future-focused, seeking to become globally competitive in industries such as aerospace, renewable energy and robotics. Mr. Trump, by contrast, seems obsessed with the past, when American coal, cars and steel ruled the world.

But protection cannot make an industry grow that is fundamentally in decline: tariffs and quotas didn’t prevent the long-term decline of U.S. clothing manufacturers as production shifted to countries with cheaper labor.

Chad Bown of the Peterson Institute for International Economics notes steel has been protected to varying degrees from European, Japanese, South Korean and other Asian competitors since the 1990s. At the end of 2017, 60% of U.S. steel imports were subject to protection, compared with 4% of all imports in 2016, Mr. Bown has found. In that time, import penetration didn’t change much, but U.S. steel employment fell by half as productivity rose and the relative importance of steel to economic output declined.

Even if several thousand manufacturing workers see their jobs brought back by protection, many thousands who aren’t so fortunate will need skills in growing industries where the U.S. has an advantage. On this, Mr. Trump hasn’t had much to offer.

Write to Greg Ip at

Punishing America First — “He’s threatening to light American agriculture on fire….”

April 8, 2018

Trump to Iowa: You’ll have to suffer while I force Xi Jinping to give in.

A farmer holds a hand full of soybeans at a large farm in northern Iowa, April 4.
A farmer holds a hand full of soybeans at a large farm in northern Iowa, April 4. PHOTO: CRAIG LASSIG/EPA-EFE/REX/SHUTTER/EPA/SHUTTERSTOCK

Donald Trump and his advisers spent much of Friday telling everyone that the U.S. is not in a trade war with China, but investors weren’t buying it. Equity markets took a major header, falling by more than 2% across the board. Maybe investors are starting to look at the damage Mr. Trump may do to the Farm Belt states and to the GOP’s chances of holding Congress.

Mr. Trump raised the stakes late Thursday in his tariff showdown with Beijing, vowing to impose another $100 billion in tariffs on Chinese goods in light of its “unfair retaliation” after his initial $50 billion in tariffs. The latest target list still hasn’t been drawn up, and the silver-lining crowd is hoping that Mr. Trump was merely popping off as part of his negotiating strategy. Maybe that’s right. But then China popped off in return, saying it is ready to “forcefully” strike back if the new tariffs are imposed.

That’s the problem with protectionism. The other side can strike back, and businesses and markets don’t know when the politicians will decide to stop pounding their chests.


We’ve been warning since Mr. Trump first emerged as a candidate that his nationalist economics should be taken seriously. This is one policy he seems truly to believe in, he has empowered protectionist advisers, and previous Congresses have given a President wide latitude to act unilaterally. Trade was always the biggest economic risk of the Trump Presidency, and now we’re living through his punch-first policy as he tries to stare down Xi Jinping.

Mr. Trump doesn’t even seem to mind if the tariffs do some economic damage while he’s supposedly fixing the U.S. trade deficit. “I’m not saying there won’t be a little pain, but the market has gone up 40%, 42%, so we might lose a little bit of it. But we’re going to have a much stronger country when we’re finished,” the President told a New York radio show on Friday. Nice to know it will all turn out for the best.

Punishing America First

Meanwhile, much of that pain will fall on American agriculture, not least the Farm Belt states that Mr. Trump carried in 2016. Apparently he thinks he has them in the bag for 2020 as well, though he might want to reconsider if the tariff wars continue.

China targeted the $14 billion of U.S. soybean exports a year to China, about half of the U.S. crop, with a 25% tariff. Chinese consumers will pay more for pork because the beans are used mainly to feed pigs. But U.S. farmers will suffer more if Argentine and Brazilian soybean producers snatch American market share.

The financial hit would come at a rough time in the farm states, which have had to cope with low commodity prices for several years. The nearby table shows how several agriculture states underperformed in income gains last year. Iowa, which Mr. Trump carried by 9.5% in 2016, finished 49th out of 50. As a swing state that Barack Obama carried twice, Iowa could easily swing back in 2020.

Farm-state Republicans are beginning to notice. “China is guilty of many things, but the President has no actual plan to win right now. He’s threatening to light American agriculture on fire,” said Nebraska Senator Ben Sasse on Thursday. “Let’s absolutely take on Chinese bad behavior, but with a plan that punishes them instead of us. This is the dumbest possible way to do this.”

Someone in the White House seems to know the risks because its press shop spent Friday sending out missives telling farmers not to worry. Mr. Trump’s $100 billion tariff threat on Thursday included that he had told the secretary of agriculture “to use his broad authority to implement a plan to protect our farmers and agriculture interests.”

What’s Secretary Sonny Perdue going to do—buy up all the soybeans China no longer buys? Order farmers to slaughter their pigs to produce less pork that will also be subject to Chinese tariffs?

The basic economic problem with trade protectionism is that it is a political intervention that distorts markets. One political intervention leads to another, and the cumulative consequence is higher prices, less investment and slower economic growth.

Mr. Obama spent eight years interfering in the domestic economy for his political purposes, and the resulting slow growth was one reason Mr. Trump won. The Republican tax reform and deregulation have put the economy on a faster growth path, but Mr. Trump’s restrictions on trade, and on immigration amid a labor shortage, are threats to that progress.

China’s trade abuses need to be addressed, but Mr. Trump’s tariffs first strategy risks punishing America first. He—and we—had better hope Mr. Xi is willing to bargain.

Appeared in the April 7, 2018, print edition.

Wall Street Journal pummels Trump for ‘punishing America first’ with botched tariff war with China

The conservative Wall Street Journal lashed out at President Donald Trump on Saturday morning with a blistering editorial, hammering the President for plunging the U.S. into a trade war with China which is hurting American farmers and businessmen.

Under a very pointed headline reading, “Punishing America First,” the editorial board at the Rupert Murdoch-owned WSJ, was unsparing in it’s criticism of Trump’s tariff moves that have plunged the markets into chaos, while the president has offered the cold comfort that Americans will have to suffer a bit as he figures it out.

“Donald Trump and his advisers spent much of Friday telling everyone that the U.S. is not in a trade war with China, but investors weren’t buying it,” The editors wrote. “Equity markets took a major header, falling by more than 2% across the board. Maybe investors are starting to look at the damage Mr. Trump may do to the Farm Belt states and to the GOP’s chances of holding Congress.”

“We’ve been warning since Mr. Trump first emerged as a candidate that his nationalist economics should be taken seriously,” the piece continued. “This is one policy he seems truly to believe in, he has empowered protectionist advisers, and previous Congresses have given a President wide latitude to act unilaterally. Trade was always the biggest economic risk of the Trump Presidency, and now we’re living through his punch-first policy as he tries to stare down Xi Jinping.”

“Mr. Trump doesn’t even seem to mind if the tariffs do some economic damage while he’s supposedly fixing the U.S. trade deficit. ‘I’m not saying there won’t be a little pain, but the market has gone up 40%, 42%, so we might lose a little bit of it. But we’re going to have a much stronger country when we’re finished,’ the President told a New York radio show on Friday,” the opinion piece added before following with a sarcastic, “Nice to know it will all turn out for the best.”

Taking up the cause of American farmers who are looking at taking a huge economic hit, the Journal hammered Trump over what his administration proposes to do now that China has retaliated.

“Someone in the White House seems to know the risks because its press shop spent Friday sending out missives telling farmers not to worry. Mr. Trump’s $100 billion tariff threat on Thursday included that he had told the secretary of agriculture ‘to use his broad authority to implement a plan to protect our farmers and agriculture interests,” the editors wrote. “What’s [Agriculture] Secretary Sonny Perdue going to do—buy up all the soybeans China no longer buys? Order farmers to slaughter their pigs to produce less pork that will also be subject to Chinese tariffs?”

“China’s trade abuses need to be addressed, but Mr. Trump’s tariffs first strategy risks punishing America first. He—and we—had better hope Mr. Xi is willing to bargain,” the piece concluded.

You can read the whole thing here, subscription required.

Asian market down — Worries over Facebook, Tech Sector Plus Possible Increase in US Interest Rate

March 20, 2018

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HONG KONG (AFP) – Asian markets sank on Tuesday following sharp losses in New York as a massive data breach at Facebook fuelled fears of a regulatory crackdown on the technology sector.

The scandal at the social media giant come as investors fret over a possible increase in the rate of US interest rate hikes and Donald Trump steps up his protectionist rhetoric that has sparked talk of a global trade war.

Reports said Cambridge Analytica, the analysis firm hired by Donald Trump’s 2016 presidential campaign, stole data from 50 million Facebook user profiles to help design software to predict and influence voters’ choices.

Stephen Innes, head of Asia-Pacific trading at OANDA, warned: “This security breach could end up being a significant turning point for the social media and network portal.”

The news hammered tech giants with Facebook plunging 6.8 percent, while other household names were also hit — including Apple, Google-parent Alphabet and Netflix — by regulatory concerns.

“The adults are starting to realise that the altruistic kids who started some of these tech behemoths are either unwilling or unable to deal with the fact that the companies they wrought and thought were a force for good can be manipulated by those who seek to do ill,” said Greg McKenna, chief market strategist at AxiTrader.

The US losses filtered through to Asia, with Hong Kong-listed internet giant Tencent and AAC Technologies sharply lower. Samsung retreated in Seoul, while Sony was one percent lower in Tokyo.

On broader markets Japan’s Nikkei went into the break more than one percent lower, while Hong Kong shed 0.6 percent and Sydney was off 0.5 percent.

Shanghai dropped 0.3 percent, Singapore gave up 0.2 percent and Seoul retreated 0.4 percent, with Wellington, Manila, Taipei and Jakarta all sharply down.

Investors are keeping a close watch on the Federal Reserve’s policy meeting this week looking for clues about its timetable for tightening monetary policy. Opinion is split on the number of rate hikes it will likely announce this year, with some forecasting three and others saying four.

Market-watchers warn a G20 meeting of finance ministers in Argentina could also revive tensions on international trade after Trump unveiled his controversial tariffs this month.

On currency markets the pound extended gains against the dollar after Britain and European Union leaders agreed a post-Brexit transition deal that will buy businesses and citizens time to adjust to life after the divorce.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 1.0 percent at 21268.93 (break)

Hong Kong – Hang Seng: DOWN 0.6 percent at 31,311.83

Euro/dollar: UP at $1.2345 from $1.2290 at 2100 GMT

Pound/dollar: UP at $1.4038 from $1.3942

Dollar/yen: UP at 106.23 yen from 106.01 yen

Oil – West Texas Intermediate: UP 19 cents at $62.25 per barrel

Oil – Brent North Sea: UP 18 cents at $66.23 per barrel

New York – Dow: DOWN 1.4 percent at 24,610.91 (close)

London – FTSE 100: DOWN 1.7 percent at 7,042.93 (close)

Protectionist threats cloud German industry’s sunny outlook

March 9, 2018


© POOL/AFP/File / by Tom BARFIELD | Trump singled out Germany in his announcement on tariffs
FRANKFURT AM MAIN (AFP) – Industrial production in Germany made a steady start to the year in January, official data showed Friday, but analysts warn signs of a looming trade war threaten Europe’s largest economy.Overall production fell 0.1 percent month-on-month, figures from federal statistics authority Destatis showed.

But the dip was caused by lower output from energy and construction firms, a breakdown of the data showed, while industry increased output by 0.6 percent, led by makers of capital goods and consumer goods.

“The economic situation in industry remains lively, and the continuing positive picture in industrial orders points to this development continuing,” the economy ministry in Berlin said in a statement.

“Weak January data are rather a sign for an extended vacation period after Christmas than a structural slowdown,” ING Diba bank economist Carsten Brzeski said.

“At least in the near term, prospects for German industry have never looked rosier,” he added, although “the risk for Germany is for real” from a looming transatlantic trade war.

US President Donald Trump on Thursday signed off a 10-percent tariff on aluminium imports and 25 percent on steel, blasting “an assault on our country” from “aggressive foreign trade practices”.

– ‘Call for level-headedness’ –

Trump singled out Germany in the announcement, arguing that “many of the countries that treat us the worst on trade and the military are our allies” — referring both to Germany’s massive trade surpluses and its failure to meet NATO defence spending targets.

A separate Destatis release Friday showed Germany’s trade surplus — the amount its exports outweigh its imports — remained high in January, with a reading of 21.3 billion euros ($26.2 billion) adjusting for seasonal and calendar effects.

Over the full year 2017, Germany’s trade surplus shrank slightly to 245 billion euros, figures released last month showed.

That was far from enough to soothe grumbles from Europe and Washington that Berlin is not doing enough to stoke domestic demand and boost imports.

A tit-for-tat transatlantic trade war could be especially bad news for Berlin.

“The EU may now take steps we wouldn’t want… we call urgently for level-headedness,” head of the BGA German exporters’ association Holger Bingmann told news agency DPA.

While Brussels has vowed to tax US motorcycles, whiskey, orange juice and jeans in retaliation for the steel and aluminium levies, Trump has threatened the EU with a hike in duties on car imports in response.

The car industry is Germany’s largest, employing some 800,000 people.


The Cohn Departure — Another Expert Leaves Trump

March 7, 2018

The tariff mess has cost President Trump an important ally.

Former White House chief economic adviser Gary Cohn speaks to reporters during the daily press briefing at the White House, Jan. 23.
Former White House chief economic adviser Gary Cohn speaks to reporters during the daily press briefing at the White House, Jan. 23. PHOTO:MANUEL BALCE CENETA/ASSOCIATED PRESS

The resignation of Gary Cohn is a significant blow to Donald Trump’s Presidency, and recovering from it will be a significant challenge.

Departures are normal after a President’s second year, but the circumstances of Mr. Cohn’s leave-taking as top economic advisor are anything but normal after only 14 months.

Mr. Cohn was in the middle of a major policy dispute inside the Trump administration over trade policy. On one side were Mr. Cohn and free-trade advocates, and on the other was the Administration’s protectionist wing led by Commerce Secretary Wilbur Ross, trade negotiator Robert Lighthizer and Mr. Trump’s personal trade swami, Peter Navarro.

Losing policy disputes comes with the job, but the particulars of this loss revealed more about Mr. Trump’s increasingly self-damaging style of managing his senior officials.

Last week, the President announced his intention to impose tariffs on imported steel and aluminum, though “announcement” overstates what happened. Mr. Trump essentially blurted out the news at a White House meeting, blind-siding Mr. Cohn and the rest of the Administration team, in what amounted to a coup d’état by Mr. Ross and the protectionists.

Predictably the news caused a firestorm in financial markets and among countries who are not merely U.S. trading partners but its needed allies on international security issues, such as enforcing sanctions against North Korea.

Mr. Cohn leaves behind a strong legacy. He pushed hard for deregulatory initiatives that have produced strong growth. With Council of Economic Advisers Chair Kevin Hassett, he ran point for the White House on the big tax-cut bill. As important, Mr. Cohn assembled a first-rate team of policy advisors, not just on taxes but also on health care and infrastructure.

So an obvious question: Who will replace him? Put differently, who in the community of free-market economic specialists would take the job now? Mr. Cohn, a strong personality in his own right, provided ballast against some of Mr. Trump’s worst economic-policy instincts. It is difficult to imagine that anyone outside the President’s current protectionist cheer-leading squad would volunteer to put up with more of what happened during the past week.

Mr. Trump’s early appointments to key Cabinet positions and to the White House policy-making apparatus were often stellar. Now, surely, the mill of rumors will begin grinding about more departures of top people, such as National Security Adviser H.R. McMaster.

A successful President needs allies, and Mr. Trump has had them so far. By contrast, the tariff decision is a leadership fiasco that has cost Mr. Trump a key ally in Gary Cohn. It is a loss, and this Presidency cannot afford more like it.

Appeared in the March 7, 2018, print edition as ‘The Cohn Departure.’

See also:

Gary Cohn resigns as Trump’s top economic advisor