Trade War: Advantage Trump

Trade War: Advantage Trump

The politicizing of the criminal justice system aside – trade war: advantage Trump.

We have discussed trade several times over the last few months (read more here, here, and here), as well as the pros and cons of the confrontational approach the President has taken towards trade.  While President Trump’s communication and style may not be what we are used to, and pundits can fall on either side of an issue, trade is one area of policy where the advantage is decisively with the United States.  Can we blow a great hand that we have been dealt?

Sure.  But not so far.

Who is losing the trade war if America is winning, and should we be cautious in how we manage the “Trump Trade Policies?”

Who is losing, badly, in the Trump Trade Response?

1.“Turkey, Iran and those not playing nice in the Middle East”:  Cozying up with NATO enemy Russia … not letting our planes fly from Incirlik during the Iraq War … purchasing Russian S400 SAM systems … and, to top it off, imprisoning a US pastor.  Not the best way to endear yourself to Trump.  Iran has had US sanctions slapped back on after withdrawing from the Joint Comprehensive Plan of Action Iran deal and their currency the rial has collapsed in value compared to the dollar.  Both countries can continue to defy America and probably survive, but it won’t be fun or pretty on the streets for their citizens.

2.“Our friend Europe is also feeling the squeeze”:  Euro is down against the dollar … Germans fearful of trade negotiations hurting their primary industry – automobiles … Europeans wanted to prove they could go it alone and stay in the Iran deal – until ALL of their major corporations said it is more important to do business with America.  Having saved Europe from two world wars, rebuilt them after the war on our dime, protected them from communism for almost 50 years on our dime, allowed their corporations and industries to have free access to our market – while allowing them to protect theirs from US competition so they would not be weakened next to their Russian neighbor … the only position for the EU to take should be one of thanks.

3.“China finds global doors closing fast”:  European companies have cancelled multiple projects with China this past year – part of a security review that is tightening access to Western technology.  While China so far has responded tit-for-tat to Trump tariffs, their currency is down against the dollar and their economy has been slowing.  Trump banned Huawei’s attempt at purchasing Qualcomm to prevent further gains for China’s 5G research and development efforts.   China’s “Belt and Road” initiative looks to link supply chains around the globe – only so far it has been debt riddled with investment in non-productive regions … much like the Soviet Union’s investment in the far reaches of Siberia.  Mal-investment in China has led to hundreds of ghost cities – literally vacant cities which no one lives in.  The trade war can be a costly game if this keeps going, but costlier for China than the US.

Trade War: Advantage Trump

What could go wrong for America in this current global trade conflict?

1.“What goes up always comes down – so can King Dollar”:  While the dollar has been up against major currencies during the Trump Presidency, and it remains the only currency which can be used in all global transactions, it does not have to stay that way.  The dollars usage has actually increased during the last 2 years from 61% to 63.9% of all global transactions.  That is still lower than the high of 84% in 2009 (not counting the early post-war period when the dollar was one of the few currencies even in print).  Nonetheless, countries can and could in the near future require trade to occur in other forms of currency.

2.“The response could be asymmetric”:  Turkey doesn’t have to care about trade – they could leave NATO and join the Russian-Iranian axis … Iran has Hezbollah sleeper cells in Latin America and it is believed in the US ready to strike … Russia could continue to tamper with elections … everyone could join China in dumping US treasuries (although that would hurt them as much or more) … the Chinese already steal intellectual property and could ramp up espionage in the US … bottom line – the response to losing a trade war to the US could be very expensive for US interests over the long term if not confronted head on.

3.“Economic downturn would change the calculus”:   Trade conflicts helped exacerbate the great Depression.  There is little doubt that you should not increasing barriers to competition during an economic downturn, so a recession or modest dip in the GDP would not be a good time for picking fights.  But right now the United States is simply trying to level the playing field that has been unbalanced against us for decades.  There is not mush risk in the current policy of trying to make current trade fair trade.

Trade conflict is not welcome, but we didn’t start it.  For decades countries have taken advantage of easy access to US markets, while being hostile to American access to their home own markets.  Trump is simply leveling the field.  Everyone can lose in a trade war, but if there is a winner, it will be America.

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