Posts Tagged ‘U.S. economy’

45 US trade groups urge Trump to stop planned China tariffs — Everybody against unfair Chinese practices — Nobody wants teriffs

March 19, 2018


© AFP/File | The Trump administration has vowed to target what is says are unfair trade practices by China

WASHINGTON (AFP) – Leading US trade associations have written to President Donald Trump urging him to halt plans to slap tariffs on Chinese imports.The letter, first reported Sunday by the Wall Street Journal, is signed by 45 US trade groups representing everything from the high-tech industry to apparel vendors, agribusiness and auto parts importers.

The trade groups represent companies such as Apple, Alphabet – the parent company of Google – Walmart and Nike.

“The imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the U.S. economy, provoking retaliation; stifling U.S. agriculture, goods, and services exports; and raising costs for businesses and consumers,” reads the letter, dated Sunday.

The Trump administration “should not respond to unfair Chinese practices and policies by imposing tariffs or other measures that will harm U.S. companies, workers, farmers, ranchers, consumers, and investors.”

US officials should “work with like-minded partners to address common concerns with China’s trade and investment policies,” the letter reads.

Unilateral US tariffs “would only serve to split the United States from its allies, hinder joint action to effectively address shared challenges, and ensure that foreign companies take the place of markets that American companies, farmers and ranchers must vacate when China retaliates.”

It also asked that the administration let “industry experts … comment on these issues, including the economic impact of any potential actions.”

The United States has long accused Beijing of forcing US companies to turn over proprietary commercial information and intellectual property as a condition of operating in China.

US Trade Representative Robert Lighthizer recently proposed a package of $30 billion in tariffs on China but Trump wants it to go higher, according to US media.

The US trade deficit with China ran to a record $375 billion last year — but US exports to the country were also at a record.

Peter Navarro, a senior White House advisor on trade, said Thursday that the president would soon consider fresh punitive measures against Beijing over its “theft” of US intellectual property.

Chinese officials have warned they are likely to retaliate in kind.

With tariffs recently announced on major imports including steel and aluminum, trade war fears have left markets jittery and US trading partners torn between conciliation and pushback in response.


US Fed to raise rates with trade tensions on horizon

March 18, 2018


© AFP / by Douglas Gillison | Federal Reserve Chairman Jerome Powell took over the job on February 5, 2018, replacing replacing Janet Yellen, the only woman ever to lead the central bank in its 100-year history

WASHINGTON (AFP) – The Federal Reserve this week will fire the opening salvo in a series of interest rate hikes this year, hoping to get out in front of an expected pickup in inflation.

The first rate hike of the year is overwhelmingly predicted by futures markets, analysts and investors alike to come Wednesday at the conclusion of the Fed’s two-day policy meeting. It also will be the first under newly-installed Fed Chairman Jerome Powell.

The central bank is preparing to raise the key lending rate as economic conditions converge to put upward pressure on prices, including massive new tax cuts, a weaker dollar and even the threat of a trade war.

Fears the Fed could raise its benchmark interest rate at a faster pace, perhaps as many as four times this year, spooked markets last month, briefly sparking a global stocks selloff in early February.

But Fed officials have called for calm, signaling that even the planned steady but gradual monetary policy tightening should not interrupt the momentum of the world’s largest economy, which they say has enough slack to allow for continued low unemployment and some wage increases without sparking inflation.

“They’re trying to prepare the markets and say, ‘Let’s not go crazy,'” Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, told AFP.

But like other economists he now expects four hikes this year rather than three.

“I predict they will have to. It’s not a bad thing. It’s a good thing.”

Fed officials also will update their quarterly forecasts for the economy and the path of interest rates this week. With stocks on edge last month, Powell told lawmakers his outlook for the US economy had “strengthened since December.”

Since the Fed’s last policy meeting in January, economic data have been somewhat mixed, weighing on expectations for GDP growth in the first quarter: the trade deficit continues to widen, retail and auto sales as well as the housing market have been weaker, durable goods orders have undershot expectations and construction spending has been soft.

But surveys of sentiment in the manufacturing and services sectors show a strong head of steam in the economy while measures of consumer confidence and business sentiment are at record highs.

– Inflation in a trade war –

Job creation also exploded in February, one of the best months of the current economic recovery, with 313,000 new positions added while unemployment remains at a historically-low 4.1 percent.

Meanwhile, inflation, the Fed’s other primary concern, looks as though it may at last emerge from years in the doldrums.

Recent inflation measures have fallen short of the Fed’s two percent target but over the past six months, the Consumer Price Index has averaged gains of 2.5 percent — a good predictor that it will soon be heading north, Gagnon said.

In addition to strong job markets and low unemployment, the United States now faces an expected short-term boost to growth from the recent $1.5 trillion tax cuts, which comes at a rare moment when all the world’s major economies are growing simultaneously. At the same time oil prices are recovering, while the US dollar is falling — losing 10 percent in value over the last year — making imports more expensive.

But one wildcard in any Fed forecast, economists say: President Donald Trump.

Trump is poised to reshape the Fed’s board of governors, where four vacancies remain, giving him the potential to influence monetary policy for years to come.

He also stokes fears of a trade war on an almost daily basis, most recently announcing punishing tariffs on steel and aluminum.

With top economic advisor Gary Cohn out the door in protest, protectionist views are ascendant in the White House and major trading partners are threatening to retaliate.

That could causes prices to rise even further, spurring the Fed to act faster to keep inflation in check, economists say.

“We are in a tinderbox of tensions with regard to trade, making a full-blown trade war more likely,” Diane Swonk, chief economist at Grant Thornton, wrote in a monthly analysis.

“Worse yet, the loss in growth associated with a trade war would further up the costs and the rise in federal deficits and debt associated with recent fiscal stimulus,” she added.

“Much like a family torn apart by warring factions, or even one bad player, everyone loses.”

by Douglas Gillison

Trump trade shifts could undo tax boon: business lobby

March 13, 2018


© GETTY/AFP/File | JPMorgan chief Jamie Dimon, who chairs the Business Rountable, says issues around trade need to be thought through with allies

NEW YORK (AFP) – US business sentiment has soared after tax cuts, but the gains could be undone by restrictive trade policy in the Trump era, the Business Roundtable said Tuesday.Business Roundtable president Joshua Bolten warned that corporate confidence faces a “possible major headwind” from shifting trade policies and that a US exit from NAFTA would be a “disaster” for US companies.

The lobbying group, which represents large US companies, released a quarterly business survey that showed surging expectations for hiring and capital investment after President Donald Trump signed massive US tax cuts into law in December.

But the survey of chief executives, which came in at the highest-ever level in the index’s 15-year history, was conducted in February prior to Trump’s controversial decision to impose tariffs on imported steel and aluminum.

Questions about trade dominated a brief conference call with reporters.

“There are issues (around trade),” said JPMorgan Chase chief executive Jamie Dimon, who serves as chairman of the roundtable.

“But the right way to go about that is to really think it through strategically with the allies and make sure we’re doing the right thing and not doing these one-off things which tend to backfire.”

Bolten said the group was working to “scale back” the steel and aluminum tariffs and described other levies suggested by Trump administration officials in response to foreign tariffs on US goods as bad for business.

“Predictability and consistency is absolutely crucial for all of our CEOs’ planning,” Bolten said.

Bolten also expressed worry over the state of talks on the North America Free Trade Agreement, which Trump has sometimes said the US might quit.

“We are strongly opposed to any direction in the negotiations that might result in US withdrawal from NAFTA, which would be a disaster not so much for the Mexicans and the Canadians, but for US businesses and exporters,” he said.


CNN Money

Jamie Dimon has a message for President Trump: Corporate America is worried about your trade agenda.

The JPMorgan Chase (JPM) boss warned on Tuesday that “one-off things” like Trump’s tariff plans “tend to backfire.”

Dimon is the chair of the Business Roundtable, a powerful lobby that represents major corporations. He said on a conference call with reporters that the group is “very concerned” that Trump’s trade policy “will do more harm than good to the economy.”

Dimon conceded he agrees with Trump that there are “some major issues around trade.” But rather than imposing various tariffs, Dimon said “the right way to go about it is to think about it strategically with allies.”

Last week, Trump detailed plans to impose tariffs of 25% on steel and 10% on aluminum, both aimed at reviving those industries in the United States. Major trading partners, including allies like the European Union, have threatened to retaliate. A wide range of businesses, from automakers to brewers, have expressed concern about higher prices.

Trade barriers are a “recipe for disaster and a cascading trade war,” warned Joshua Bolten, CEO of the Business Roundtable CEO and a former chief of staff under President George W. Bush. He said these actions could cause an economic downturn in the United States.

The White House has pushed back against concerns of a trade war. Last week, Commerce Secretary Wilbur Ross said the tariffs will be implemented “without blowing up the world.” And Trump softened his initial stance by exempting Canada and Mexico from the tariffs, at least for now.

Related: What is the WTO and how does it work?

The Business Roundtable staunchly defends free trade. Its member companies, which employ more than 16 million people, get about one-third of their sales from outside the United States.

Bolten said the group is deeply engaged with the administration on the tariffs and is “pressing hard to get those scaled back.” He added, “we are hopeful the administration will listen.”

CEOs are also paying close attention to Washington’s attempt to renegotiate NAFTA, a trade deal with Canada and Mexico that is firmly ingrained in the way North American companies do business. Trump has repeatedly threatened to withdraw the United States from NAFTA, an outcome that Bolten said would be a “disaster” for American companies that export.

The Business Roundtable is concerned that Trump’s increasingly aggressive stance on trade will drown out any economic benefits from the administration’s efforts on taxes and deregulation.

Thanks in large part to Trump’s business tax cuts, business leaders polled by the Business Roundtable last month were feeling extremely confident. The Business Roundtable’s CEO Economic Outlook Index surged to the highest level since the survey began at the end of 2002.

The most recent survey, which was taken before Trump’s tariff announcement, showed that CEO plans for hiring and capital investment also hit all-time highs. Expectations for 2018 economic growth were also higher.

The question now is whether Trump’s toughening stance on trade will darken the outlook.

Bolten said “missteps” on trade threaten to “undermine” Trump’s progress on taxes and deregulation, “perhaps even reverse it.”

Includes video:


Investors, Worried About End of Goldilocks Market, Pare Back Riskier Bets

March 12, 2018

Investors reassess their risk tolerance amid bouts of market volatility and signs of rising inflation

Previous postfinancial-crisis stock corrections were largely triggered by signs of weakening economic growth or fears of deflation. But February’s selloff was different.
Previous postfinancial-crisis stock corrections were largely triggered by signs of weakening economic growth or fears of deflation. But February’s selloff was different. PHOTO: MICHAEL NAGLE/BLOOMBERG

Nine years into a roaring stock bull market, fund managers are paying their last respects to Goldilocks.

Investors broadly remain bullish on stocks and other investments, aided by an upbeat U.S. jobs report on Friday. But repeated bouts of market volatility in 2018 and signs of a pickup in inflation have forced them for the first time in several years to reassess their tolerance for risk. For many, that means boosting cash positions, slashing equity or diversifying portfolios.

Take Zurich’s GAM Holding , which has $163 billion under management. During the height of February’s stock swoon, senior investors at a regular strategy pow-wow concluded a new regime for markets was taking shape, after nearly two years of steadily rising asset prices and low volatility spawned a not-too-hot, not-too-cool trading environment likened to the 19th-century fairy tale.

While modest but improving economic growth and very gradual rises in interest rates may indeed continue to characterize the financial markets in 2018, signs of higher inflation, rising U.S. interest rates and threats of a global trade war have shaken investor confidence.

“Something fundamental was creeping into markets and market psychology,“ said Larry Hatheway, GAM’s chief economist who sat on the committee meeting last month. ”Until now, the expansion was seen as one that could go on and on without any signs of price inflation, and that’s being questioned now.”

At GAM, the team is moving money into long-short strategies, which bet both on rising as well as falling assets, and areas like emerging-market debt to reduce correlations within their portfolios.

Although the U.S. jobs report showed the pace of wage growth easing last month, in this environment, “good” economic news can be taken as “bad news” for stocks if the economy shows signs of overheating. That can lead to higher interest rates, pressuring both stocks and bonds.

Bank of America Merrill Lynch’s most recent fund-manager survey showed a record monthly climb in the percentage of fund managers taking out protection against a sharp fall in equity markets in the next three months.

Previous postfinancial-crisis corrections were largely triggered by signs of weakening economic growth or fears of deflation. But February’s selloff was different in that it came on the heels of a rise in wages, sparking fears that inflation may accelerate.

Some investors say all this means rethinking long-held beliefs.

For nearly a decade, Swiss private bank Julius Baer Group , which manages $410 billion, had broadly followed the classic 60-40 equity-bond portfolio, focusing on growth-biased stocks. That ratio offers a higher allocation to stocks but still a healthy dose of bonds, which typically offer lower but more stable returns.

“Now, we’re at an inflection point. Buy and hold won’t work anymore,” said Yves Bonzon, the group’s chief investment officer.

Mr. Bonzon is also reducing allocations to stocks and holding more cash.

Eric Stein, co-director of global income at Boston-based Eaton Vance, said that his fund, which uses long-short strategies, has been getting more calls from investors showing interest in the past month.

“It was frustrating [last year] when everything was only going up. I thought, why would clients talk to us?” said Mr. Stein, whose firm manages $449 billion. “But now these strategies make more sense, when there are bigger disconnects in markets.”

Those disconnects could come from a changing macroeconomic environment.

Fading SupportCiti Economic Surprise IndexSource: FactSetNote: Index above zero indicates economic data beat economist expectations
EurozoneUSOct. 9Nov. 6Dec. 4Jan. 1Jan. 29Feb. 26-20020406080100

A strong labor market, rising commodity prices and fiscal stimulus from Washington are expected to boost inflation, prompting the Federal Reserve to tighten policy at a faster and less predictable pace than before. That has recently pushed the 10-year Treasury yield to within reach of 3% for the first time in four years.

At the same time, large, positive surprises on global growth have started to fade, says Richard Turnill, global chief investment strategist at BlackRock , the world’s largest money manager.

Not all the trends have been discouraging. Corporate earnings, particularly in the U.S., have been solid, and an elevated level of global growth could continue to lift stocks for some time.

But global manufacturing surveys have fallen for two consecutive months after reaching a seven-year high in December, and the Citi Economic Surprise Index for the eurozone, which measures data releases against forecasts, has fallen below zero for the first time since 2016.

The Trump administration’s announcement on Thursday that it is imposing tariffs on steel and aluminium imports, while reiterating its desire to rewrite existing trade pacts, has stoked fears of a trade war that could damp global economic growth.

While BlackRock believes the economic cycle is still supportive of investing in stocks, the fund manager is now less keen on areas like European equities, which they believe do best when global growth is unexpectedly accelerating. Mr. Turnill favors U.S. stocks and short-term Treasurys.

Others are taking a different approach. For the first time in years, Jeffrey Kleintop, chief global investment strategist at Charles Schwab , which manages $2.9 trillion in client assets, said he has been urging his U.S. clients to diversify their portfolios internationally in order to reduce risk.

Shortly after February’s correction, Mr. Kleintop said he went on a series of meetings from California to Kentucky prepared to reassure clients that the bull market wasn’t over yet and that stocks could still do well, albeit in a more volatile climate.

To his surprise, “they were all very confident,” ready to buy the dip, he said. “It does get you worried—it’s a sign we’re late in the cycle.”

Write to Riva Gold at and Georgi Kantchev at

Trump Alienates Allies Needed for a Trade Fight With China

March 7, 2018

China’s predatory trade behavior is threatening sectors much more vital than steel and aluminum

The pain of President Donald Trump’s tariffs will fall not on China but on actors that play by the rules, including Canada, Japan and the European Union. Photo: Evan Vucci/Associated Press

The U.S. isn’t the only country that has a chip on its shoulder about trade. When it comes to China, so do countless others.

For President Donald Trump, this could be an opportunity to lead a coalition against China’s predatory trade behavior. Instead, he is threatening trade war with the countries that would make up such a coalition, over commodities that are much less vital to the U.S.’s economy and national security than the sectors threatened by China’s expropriation of intellectual property.

This comes at a crucial time. President Xi Jinping’s recent elevation to de facto leader for life may have finally buried the doctrine, subscribed to by previous American presidents, that drawing China into the global economy would liberalize its economy and politics.

“Beijing has doubled down on its state capitalist model even as it has gotten richer,” Kurt Campbell and Ely Ratner, who both served in foreign-policy roles under former President Barack Obama, write in the current issue of Foreign Affairs. “Cooperative and voluntary mechanisms to pry open China’s economy have by and large failed.”


  • How Trump’s Tariff Punch Hurt His Pro-Business Agenda March 2, 2018
  • A Plausible Scenario for an Unpleasant Inflation Surprise February 28, 2018
  • America’s Emerging Petro Economy Flips the Impact of Oil February 21, 2018
  • Mulvaney’s Real Target: Government, Not Deficits February 14, 2018
  • A Warning Sign Behind the Market Swings February 7, 2018

When Mr. Trump took office he already possessed a visceral resentment of China due to its huge trade surplus with the U.S. Many of his foreign-policy and economic advisers consider the obsession with trade imbalances misplaced, yet agree China is a unique menace.

“Every year, competitors such as China steal U.S. intellectual property valued at hundreds of billions of dollars,” his national security strategy declared last December. “China is gaining a strategic foothold in Europe by expanding its unfair trade practices and investing in key industries, sensitive technologies, and infrastructure.”

In its annual economic report, Mr. Trump’s Council of Economic Advisers extolled free trade while singling out the harm to the U.S. from intellectual-property theft and economic espionage, which it puts at $227 billion to $599 billion a year. (By comparison, the total U.S. trade deficit in steel and aluminum is just $30 billion).

The report also noted the large number of disputes other countries have brought against China at the World Trade Organization as proof the U.S. isn’t alone.

But Mr. Trump has consistently rejected collective action in favor of going it alone. His officials downgraded multilateral efforts to reduce steel overcapacity. In January 2017, Mr. Obama’s administration launched a case at the WTO against China for subsidizing aluminum, but Mr. Trump has failed to follow up. Last week, Mr. Trump invoked a little-used 1962 statute to promise tariffs of 25% on imported steel and 10% on aluminum, ostensibly for national security, a factor that led his chief economic adviser, Gary Cohn, to announce his resignation Tuesday.

The Commerce Department, in arguing for the tariffs, acknowledged the U.S. is the victim of global excess capacity attributable to China, which is “unresponsive to market forces.” It noted that since 2003 China has four times promised to address overcapacity in steel production, as its actual capacity quadrupled to roughly half the world total. “The crisis confronting the U.S. aluminum industry is China, plain and simple,” one industry group told the department.

Yet China exports little steel to the U.S. because of existing duties and accounts for just 11% of its aluminum imports, far behind Canada. The Commerce Department argued for a global remedy because Chinese production depresses global prices and drives foreign producers out of third markets, and they then ship to the U.S.

This means the pain of Mr. Trump’s tariffs will fall not on China but on actors that play by the rules, including Canada, Japan and the European Union. When the EU threatened to retaliate, Mr. Trump said he would escalate by raising duties on European cars.

Chinese misbehavior has thus brought the U.S. to the brink of trade war with its own economic and strategic allies, echoing how Russian meddling has served to fuel internal strife in Europe and the U.S.

Some policy makers worry this makes global cooperation harder where the stakes are far higher: Chinese forced technology transfer, commercial espionage and intellectual-property theft, all aimed at creating Chinese champions in key industries by 2025.

These pose a far greater threat to U.S. technological leadership and the enormous value it adds to U.S. exports than do growing imports of steel and aluminum which, while vital to some communities, are commodities.

The U.S. is preparing a sweeping penalty against China, but it would be more effective if done jointly; otherwise, Beijing may simply persuade others to hand over their technology in exchange for Chinese sales or capital.

A coordinated response has worked before. In 2012, the U.S., EU and Japan launched a joint WTO complaint against China for restricting exports of “rare earths,” which are vital to many advanced technologies. In 2014, they won and China lifted its restrictions. One former U.S. trade official says the U.S. could create a similar united front against Chinese takeovers of technology companies: “That would get their attention.” Nor would it violate WTO rules, which are less restrictive on investment than tariffs, he said.

This would require the WTO to act more quickly than it typically does, and for other countries to stand up to potential Chinese blowback.

Most of all, though, it requires Mr. Trump to understand where leverage comes from.

“Chinese misbehavior with respect to intellectual property and economic espionage is a real problem that requires a response,” Patrick Toomey, a Republican senator from Pennsylvania, said in an interview. “We are much more likely to get our allies to work with us if we aren’t punishing them for selling us steel that our consumers want to buy.”

The Art of Trade War (Hint: China Wrote the Book)

March 7, 2018


By David Fickling

How Xi Jinping could subdue the enemy without fighting.
Getty Images

As the world’s largest economies stumble toward an all-out trade war, President Donald Trump is tweeting in all-caps, but carrying a small stick.

We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!

After White House chief economic adviser Gary Cohn announced Tuesday he’s resigning, the Trump administration is considering tariffs on a range of Chinese imports from shoes and clothing to consumer electronics, people familiar with the matter told Andrew Mayeda and Jennifer Jacobs of Bloomberg News. China “will take necessary measures” if its interests are harmed, Vice-Foreign Minister Zhang Yesui said Sunday.

Which side has the divisions best-arrayed to bring victory in this conflict?

One lesson from real warfare is that battles tend to be won and lost on the home front — and in that respect, the U.S. is laboring under a significant handicap. Its major imports from China are overwhelmingly consumer goods, where the predictable effect of tariffs will be to increase costs to American citizens, as Gadfly’s Tim Culpan points out. The largest categories are computers, phones, knitwear, other clothing, and toys.

Trading Places

China accounts for more than a one-third share of U.S. imports of most consumer products

Source: International Trade Centre

Note: 2016 figures. Shows trade categories in which U.S. imports from China were worth at least $5 billion.

It won’t be easy for U.S. retailers to replace these goods. In every one of the consumer sectors where Chinese exports to the U.S. were worth more than $5 billion in 2016, China accounted for more than one-third of U.S. imports by value. Global supply chains can’t source from rival regions fast enough to avoid a tax on shoppers’ wallets, should further tariffs be imposed.

The ideal solution, from Trump’s perspective, would be for domestic production to come to the rescue — but that horse has long bolted.

In clothing manufacturing, the U.S. production-line workforce has shrunk by more than 90 percent since 1990, and the electronics industry has lost almost 40 percent of its jobs. With China itself seeing industries quitting for cheaper locations in South and Southeast Asia and Africa, the chances of those jobs coming back to the U.S. are slim.

Made in America

The U.S. electronics and apparel workforces have cratered over the past three decades

Source: Bureau of Labor Statistics

Note: Shows January data for non-supervisory roles.

By contrast, China imports mainly intermediate products and parts from the U.S., led by soybeans, aircraft, cars, integrated circuits and plastic. The cost of any retaliatory tariffs on those products will pass through a number of producers before any citizens feel it in their hip pockets — and dictatorships don’t have to worry so much about popular backlash, anyway.

If Xi Jinping chooses to fight back, watch what happens to the semiconductor industry. A quarter of U.S. chip exports go to China, but that constitutes just 3.8 percent of the People’s Republic’s total imports of integrated circuits. A relatively small shift in Chinese business patterns could deliver a devastating blow to one of America’s most successful export trades.

Pressure Points

Most Chinese imports from the U.S. are in business-to-business categories

Source: International Trade Centre

Note: 2016 figures. Shows all export categories where Chinese annual imports from the U.S. were worth more than $5 billion.

Soybeans, too, could come in the firing line. China swallows up more than 60 percent of America’s exports of the legume, but that trade accounts for only 12 percent or so of Chinese consumption, at least as measured by domestic production plus imports. 1 Putting levies on those imports will turn up the heat at a time when global soybean prices are at a two-year high, raising pressure on the processors and farmers who use soy for animal feed — but prices for pork, the most critical end-use sector in China, have been declining for 12 straight months, so they could afford to rise a little.

Food Feed

Soybean prices are surging. Pork prices are slumping

Source: Bloomberg, Gadfly calculations

The smarter move for China might be to stand pat. Despite Xi’s boasts at Davos and elsewhere, the country’s record on free trade is dismal, a potential handicap if matters degenerate into a wider trade war. The better policy would be to let Trump raise costs for American consumers with ill-advised tariffs; refuse to retaliate; then pose as the innocent victim.

Governments in Washington’s sphere of influence, motivated by strategic investments in the likes of Deutsche Bank AG and Brazilian utility CPFL Energia SA and taken aback by Trump’s aggressive stance, may be persuaded to regard Beijing as the friendlier ally.

That would be the greater victory for a Chinese president without term limits and with a view to posterity: To subdue the enemy without fighting, as the Chinese philosopher Sun Tzu wrote, is the supreme art of war.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. China barely exports any soybeans — 114,000 metric tons in 2017, according to U.S. Department of Agriculture estimates, compared with 159 million tons of domestic output and 96 million tons of imports.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Paul Sillitoe at


Opinion: What history teaches us about who wins in trade wars

By Charles Hankla

Published: Mar 3, 2018 12:52 p.m. ET

As America eyes steel tariffs, look at what’s happening to the solar industry

Getty Images
A pile of steel rods at a plant in China.

President Donald Trump finally appears poised to make good on his promised threats to slam the door on free trade and erect walls around the country’s economy.

Citing the need to protect national security, he released plans to impose tariffs of 25% on foreign steel and 10% on aluminum for a “long period of time.”

This new initiative stems directly from the “America First” trade policy he has been promoting since the presidential campaign. Trump is orienting the country distinctly toward protectionism and claiming that unilateralism in trade is good for the U.S.

But economic history should make Americans skeptical of this claim.

President Trump’s approach to trade seems to be based on a false understanding of how the global economy works, one that also plagued American policy makers nearly a century ago. Essentially, the administration has forgotten an important lesson from the Great Depression.

Virtually all economists and trade researchers like meagree that the costs could be steep.

Trump’s “America First” orientation assumes that the United States, as the world’s dominant actor, can behave freely and independently in trade.

Unfortunately for the administration, America’s top economic position doesn’t shield it from the dire consequences that unilateral trade policy can provoke. The constraints on U.S. action result from the basic nature of the international economy and from America’s declining dominance of the world trade system.


It is a standard principle of economics that all individual actors exist within a system. Any action taken by one actor will likely result in a response from others. This means that wise governments, in considering which policies to adopt, must make difficult calculations about how their actions will interact with those of others.

“America First” fails to make these calculations. It disregards how America’s trading partners will respond to the new U.S. protectionism — which is also what American lawmakers ignored during the Great Depression.

‘Beggar thy neighbor’

Before the 1930s, America’s trade policy was generally set unilaterally by Congress — that is, without the international negotiations used today.

Lawmakers, already in a protectionist mood, responded to the pain of the Great Depression by passing the infamous Smoot-Hawley Tariff Act of 1930, which raised duties on hundreds of imports.

Meant in part to ease the effects of the Depression by protecting American industry and agriculture from foreign competition, the act instead helped prolong the downturn. Many U.S. trading partners reacted by raising their own tariffs, which contributed significantly to shutting down world trade.

Fortunately, the U.S. and the world learned a lesson from this experience. With the Reciprocal Trade Agreements Act of 1934 and its successors, which granted the president authority to reach tariff reduction agreements with foreign governments, U.S. trade policy came to be global and strategic. This new approach was institutionalized at the international level with the creation of the General Agreement on Tariffs and Trade in 1948 and its successor, the World Trade Organization, in 1995.

The basic principle of these agreements is reciprocity — that each country will agree to liberalize its trade to the extent that other countries liberalize theirs. The approach uses international negotiations to overcome protectionist political pressures and recognizes that trade is a global phenomenon that generates national interdependence.

Dangers of ignoring history

The dangers of ignoring history are only beginning to manifest themselves, but they can be seen in several recent developments that bode ill for us all.

One of the Trump administration’s first actions was to withdraw the United States from the Trans-Pacific Partnership. This agreement, which was a major initiative of the Obama administration, would have created the largest economic bloc in the world by linking America’s economy with those of 11 other Pacific nations. It would also have created an American-led, liberal bulwark in Asia against any Chinese challenge to the regional economic order.

Withdrawing from the agreement denied American exporters enhanced access to foreign markets and was a gift to Chinese influence in Asia. But we are only now beginning to see the longer-term repercussions of President Trump’s decision.

During Trump’s trip, the other 11 signatories of the original trade deal, including Japan, Australia, Canada and Mexico, agreed to move forward without the U.S. This is a problem for the U.S. because it means that these countries will grant preferential market access to one another, making it harder for American companies to compete in their markets.

American companies are already feeling the impact of what happens when they’re left out of a trade deal. A recent New York Times article, for example, highlights the plight of American lobster producers whose prices are being undercut by Canadian producers in the wake of a new Canada-European Union trade agreement.

If the United States is reluctant to participate in multilateral trade agreements, other countries have every incentive to do deals that exclude and even may hurt the U.S.

Trump’s ongoing efforts to renegotiate the North American Free Trade Agreement also pose potential dangers. The administration has a tendency to speak of renegotiation as if it can dictate the terms. But while Canada and Mexico may be more dependent on the U.S. than the U.S. is on them, an implosion of Nafta would be devastating for many U.S. industries that rely on North American trade. Markets increasingly worry that Nafta may not survive the negotiations.

In addition to withdrawing from and renegotiating trade agreements, the administration has ramped up unilateral efforts to sanction U.S. trading partners for receiving subsidies or for dumping their products on the American market.

Decisions to impose trade penalties — such as the latest steel and aluminum tariffs — risk blowback, as when sanctions on Bombardier drove the Canadian plane manufacturer into the arms of Airbus, Boeing’s top foreign rival. The imposition of sanctions on imports of solar panels is having a similar effect, damaging American panel installers and encouraging foreign retaliation.

Trade needs a champion

President Trump assumes the U.S. can act unilaterally without consequences.

Economic history shows this doesn’t work. The world’s economies are far more interdependent than they were during the Great Depression, so the impact of governments all following a “my country first” trade policy — as the president said he expected world leaders to do — could have disastrous consequences.

Today, the international trade system the U.S. helped create, one based on open markets and classically liberal principles, is under threat as never before. Yet President Trump’s “America First” approach is a total abdication of the traditional U.S. role as its defender. And in fact, the president is doing his best to undermine that system.

In the final analysis, the Trump administration is reverting to a policy that is, I would argue, dangerous for the U.S. economy and for the international system.

If the U.S. abdicates as champion of the international trading system, China may be the only country that can take the reins. The question is, what would that mean for the current system of open and free markets?

Charles Hankla is an associate professor of political science at Georgia State University. This first appeared on The Conversation — “Economic history shows why Trump’s ‘America First’ tariff policy is so dangerous”.


<img src=”×600&siteId=25259157&kv7=8&kv15=ABOVE_THE_FOLD&kv16=38.830772399902344&kv17=-77.23475646972656&kv18=&kv24=WEB&kv20=&kv21=&kv22=&kv11=5a9f9ace0e30d293019e0008&kv3=60b2f565-fd91-4a77-beaa-c2188b4a51ce&; width=”1″ height=”1″ style=”position: absolute; left: -150px;” />

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

Mark Penn: When Did America Lose Its Backbone?

March 6, 2018

Image may contain: sky, cloud, twilight, night and outdoor


When did America lose its backbone? How did we become a nation of whiners?

This is the country that saved the world from Adolf Hitler, rebuilt Europe with the Marshall Plan, blockaded Cuba to prevent Soviet missiles in this hemisphere and knocked back the Taliban after 9/11. We have the world’s greatest military and largest economy, with almost 30 percent of all economic activity despite having only 5 percent of the world’s people.

The North Korean regime is one of the worst on earth on every score, from the way it treats its people to the complete lack of human rights. Human Rights Watch and the United Nations say that its lack of human rights is “without parallel in the contemporary world. They include extermination, murder, enslavement, torture, imprisonment, rape … and other sexual violence … There is no independent media or religious freedom.” Plus, the U.N. now reports North Korea is in league with the Iranians, supplying them with chemical-weapon components.

The president, in a policy that echoed previous presidents, laid down a bright line that North Korea cannot have nuclear weapons with intercontinental ballistic missiles. He has added fresh sanctions to North Korea, worked with the Chinese to put pressure on the North, and said in no uncertain terms he means business.

Incredibly, a gaggle of politicians and editorial boards then condemned the president for going overboard. Most Americans now think that we are too tough on North Korea, even while agreeing it’s a heinous rogue regime that cannot be allowed to hold onto nukes. Where is the backbone of America to stare down and isolate this dictator? Rather than support a tough policy to which past presidents gave lip service, elites ran for cover, attacking America for taking a “dangerous” approach to this madman.

Iran has never stopped spreading regional terrorism, has continued to hold onto hostages and is using the Syrian civil war to establish new military presence abutting Israel. The Iran nuclear deal was rammed through despite minority support in Congress and almost no public support at all. The minute that the president suggests standing up to Iran, possibly decertifying the deal, the press goes wild and the elites say we can’t waste the benefits of this incredible deal, even if it allows the Iranians to build intercontinental ballistic missiles and sell their oil on the world marketplace while chanting “Death to America” and repressing their own people.

Another issue the president raised was that NATO members needed to pay their fair share of the collective defense. Again, the press and elites portrayed the president as abandoning the entire NATO alliance, parsing every word in every speech. It turned out that nothing happened other than that our allies, especially the Germans, agreed to up their contributions.

Then, the president said he was going to move the U.S. embassy in Israel to, of all places, its capital. Every other recent president said he was going to do that, but didn’t. Elites and the media sounded the alarm, again, that the entire Mideast would be in flames in no time. Once again, nothing happened and the world moved on.

Now, this same president has suggested raising some tariffs on steel and aluminum. I can’t say whether, overall, it is a good or a bad policy, and the auto and aircraft industries are rightly concerned, but it is a policy meant to benefit workers in some of the hardest-hit areas of the country as opposed to big business, which just received hundreds of billions of dollars of tax breaks. In addition, it is well documented that China is dumping steel in America, costing us jobs here, and so we need a wedge to solve, not ignore, that problem.

Once again, the media and elites have the fire trucks rolling down the streets in full alarm, fearing trade wars, as though the U.S. has the weakest economy on the planet. The U.S. economy is the strongest it has been in more than a generation. The huge trade deficits we run with trading partners like China mean that it’s those countries which are dependent on America’s competitive weakness to create jobs, not the other way around.

Time and time again, the pattern is the same — America seems to be afraid to take on dictators, theocratic regimes, partners who take advantage of us and countries with beggar-thy-neighbor economic policies. The fear of challenging these losing arrangements is so high that, rather than support our country, elites wind up supporting dictators and others who have found America, in the last 25 years, to be an easy mark.

The country has gone through some incredibly sobering experiences, from the loss of the Vietnam war, the morass in Iraq and Afghanistan and the 2009 financial crisis, that have left our national consciousness scarred. Americans have always been a can-do people, and yet these events have so battered the national psyche that today’s reflexive reaction to advancing our interests seems to be fear rather than confidence.

We can’t let past failures prevent us from standing up for what is right, challenging the status quo or establishing bargaining chips to use to negotiate better deals. Regardless of who is president, we have got to stop the endless whining that reinforces a cycle of fear and paralysis. It’s a real world out there and we need to strengthen that part of our national character that has always enabled this country to stand tall and be the one reliable fighter and righter of wrongs in a world that is always producing the next dictator, the next moocher state, and the next ideology that threatens to plunge everything into chaos.

Mark Penn is chairman of the Harris Poll and was pollster and senior adviser to Bill Clinton and Hillary Clinton from 1995 to 2008.


Larry Summers: Next U.S. Recession Could Outlast Previous One

February 28, 2018


By Catherine Bosley

 Updated on 
  • ‘Already shot’ monetary, fiscal policy weapons, he says
  • Powell in ’balance’ between stimulating growth, inflation goal
Former U.S. Treasury Secretary Lawrence Summers suggests “in the next few years a recession will come.”

The next U.S. recession could drag on longer than the last one that stretched 18 months. That’s the assessment of former Treasury Secretary Larry Summers.

With the economy in its ninth year of expansion, even if one were to take a hawkish view of upcoming Federal Reserve tightening, it would be some time before the level of interest rates rates gets high enough to allow them to again be reduced by the 500 basis points typical for a U.S. recession, Summers said at a conference in Abu Dhabi.

“That suggests that in the next few years a recession will come and we will in a sense have already shot the monetary and fiscal policy cannons, and that suggests the next recession might be more protracted,” he said during a panel with Bloomberg Television’s Erik Schatzker on Wednesday.

Later in an interview with Bloomberg Television, Summers said the economic situation the new Federal Reserve Chairman Jerome Powell faces is “a difficult balance between the legitimate desire to stimulate the economy and to get as much employment and growth as possible, and certainly to assure that inflation gets back to 2 percent.”

“At the same time I think he has to worry about the financial foundation for recovery if you’re the Fed chair, so I think there’s a balance to be struck,” Summers said.

— With assistance by Lorenzo Totaro, and Kevin Costelloe

Fed Chair: US outlook strong, gradual rate hikes expected

February 27, 2018


© GETTY/AFP/File | Federal Reserve chairman Jerome Powell, seen here at his confirmation hearing in November, says the US economic outlook is strong

WASHINGTON (AFP) – The US economic outlook is strong and continued gradual increases in the key interest rate will help keep it on track, Federal Reserve Chairman Jerome Powell said in his debut congressional appearance Tuesday.Powell said inflation has been held down by temporary factors but is set to rise this year closer to the two percent goal, as wage gains also accelerate at long last.

In semi-annual testimony to the House Financial Services Committee, his first as Fed chairman, Powell said “the economic outlook remains strong” and “further gradual increases in the federal funds rate will best promote attainment of both of our objectives” of full employment and stable inflation.

The central bank’s preferred inflation measure rose only 1.5 percent last year, well short of the target, but Powell repeated the Fed’s view that it was held down partly by “transitory influences that we do not expect will repeat.”

The Fed raised the benchmark interest rate in December, and has indicated that three rate hikes are expected this year. However, that was before strong wage gains in the January employment report fueled fears the Fed will have to raise rates faster to head off inflation.

Many economists now expect four moves in 2018, with the first coming at the policy meeting in late March.

While Powell gave no hint in his testimony of the number of increases he expects, he was bullish on the outlook, noting that “some of the headwinds the US economy faced in previous years have turned into tailwinds.”

In particular, in the wake of the tax cuts Congress passed in December, “fiscal policy has become more stimulative” while demand for US exports has firmed given the “solid economic growth of our trading partners,” which is helping the manufacturing sector.

“In this environment, we anticipate that inflation on a 12-month basis will move up this year,” reaching the two percent goal in the medium term, he said. “Wages should increase at a faster pace as well.”

The Fed chief will take questions from lawmakers after his testimony, which could provide more details on his thinking.