Forest Gump had a point. Anyone can make a stupid decision. And when they do they have, well, acted stupidly no matter who they are. Forest and Lieutenant Dan became businessmen who would have understood that starting a trade war believing trade wars “are good and easy to win,” would be, well, a very stupid thing to do. The reader might recall that Forest and Lieutenant Dan were pretty astute businessmen. They even invested some of the profit from their shrimping operation in that fruit company called Apple.
But we digress. We really are involved in a stupid trade war. As we wrote when President Trump launched this trade war, if it becomes a contest about which country and which People can stand the pain the longest, well, the Chinese are extremely well practiced in personal deprivation.
While the entire US economy is experiencing the effects of the trade dust-up, American farmers have taken the brunt of this easy-to-win war. Agricultural exports to China were more than halved from 2017 through 2018, and now China has encouraged a total suspension of all imports of American agricultural products. So far, the Trump administration has doled out nearly $30 billion in aid to American farmers, and more, much more, will probably be needed as farm exports to China dry up completely. The massive aid to farmers has, by and large, kept them pretty much in Trump’s corner for the time being, but they would rather be selling their produce then taking handouts from Washington.
Trump’s trade war has, so far, accomplished little more than to spook worldwide economic activity. In the United States investors are rushing into longer-term ten-year fixed-income government bonds, driving a continued inversion of the so-called yield curve—never a good sign. Growth has begun to slide and, we suspect, capital investment in plant expansion will contract as uncertainty about the stability of the economy increases. Concurrently, as might be expected, job growth has constricted as well. Economies in Europe are faltering too, which will reduce demand for manufacturing exports from America to Europe.
Data from Trump’s Department of Labor and Department of Commerce both demonstrate that consumer prices of tariffed goods have risen dramatically, and the independent and non-partisan National Bureau of Economic Research concluded in a recent report that the costs of the tariffs were nearly entirely paid for by American consumers.
Peter Navarro, President Trump’s Assistant for Trade and Manufacturing Policy made the lamest of attempts to convince Fox viewers during an interview with Chris Wallace Sunday that American consumers were not being impacted by the tariffs. It’s all being paid by the Chinese he insisted. But when Wallace confronted Navarro with the Administration’s own data showing the opposite was true, he simply dealt with the contradiction by asking how much the American consumer should be willing to pay to stop unfair Chinese trade practices. What a spectacle.
As might be expected, demand for the yuan has plummeted causing the Chinese currency to drop in value. China didn’t step in to prop up the yuan until it dropped below 7 yuan to the dollar. That isn’t currency manipulation as the Trump Administration claimed. It’s called supply and demand. China pegged its currency to reflect the weaker demand resulting from the tariff war.
We and many others wondered why in the world President Trump tore up the Trans-Pacific Partnership agreement which could have collectively aligned the Pacific rim economies as a bulwark against an overly aggressive Chinese export machine. We suspect President Trump was simply eager for a trade war with China to demonstrate his prowess at the bargaining table. Long before he became president he was singing the praises of tariffs. He has been the strongest advocate of tariffs since those titans of trade policy Senator Reed Smoot and Representative Willis Hawley, the architects of the disastrous Smoot-Hawley Tariff Act of 1930. Given that President Trump takes pride in the fact that he doesn’t read and, instead, takes his own counsel, he is probably the only President in nearly one-hundred years who never heard of messieurs Smoot and Hawley, one of the most depressing couples in history.
Trump picked a dubious time to play with economic fire. The ten-year economic recovery that commenced in June of 2009 is growing long in the tooth. His repatriation of corporate US dollars held abroad, his more competitive corporate tax rates, his reduction in many unnecessary and burdensome regulations were all good moves which served to bolster economic activity. He is squandering all of that with a trade war that serves no constructive purpose. It’s a shame.