Checking in on the Trade War

Earlier this week, economic data released from the Commerce and Agriculture Department revealed that U.S. consumers and businesses paid a whopping $7.1 billion in tariffs in the month of September alone. This set a new record, and it was largely due to President Trump’s continuing trade war with China.

Though the president continues to falsely insist that the tax revenue brought in from U.S. tariffs (over the past 20 months) has come from China, just about everyone understands by now that its Americans who’ve been flipping the bill all along. And that bill, since the beginning of the trade war, now sits as an estimated $38 billion.

But that’s only part of the story. Americans have been burdened by Trump’s trade escapades in ways that go well beyond taxation and rising consumer prices.

Retaliatory tariffs from China have closed off enough export markets to U.S. farmers that Trump has had to direct close to $30 billion in taxpayer-funded bailouts their way to help make up for just some of their losses. For some perspective, that amount is more than twice the $12 billion President Obama paid out to U.S. automakers in 2009 during the financial crisis — the intrusive government action that arguably spawned the Tea Party Movement.

In fact, almost 40% of the projected U.S. farm profits for 2019 will come from some form of trade aid. This includes government bailouts, government disaster funds, and insurance payments, and it equates to roughly $33 billion of $88 billion in income. At the same time, farm bankruptcies are at their highest level since 2011.

U.S. manufacturers have been taking it on the chin as well. Their sector has suffered through a recession (in an otherwise strong U.S. economy) for most of the year. The reason? Trump’s tariffs have made Chinese goods and parts (which are hard to find and afford elsewhere) increasingly expensive.

Additionally, the U.S. steel industry, which was supposed to be saved by Trump’s trade war (according to the president anyway), has actually incurred even tougher losses because of it.

As Don Lee of the Los Angeles Times reported last month, Trump’s tariffs in 2018 (along with the strengthening economy) initially got U.S. steel manufacturers pretty excited. So much so that many companies announced expansion plans and re-invested heavily to meet a perceived surge in the demand for U.S. steel.

Only, that surge never came.

Trump’s “on-again, off-again trade warfare,” as Lee puts it, “contributed to a general slowdown of the global economy” and a decline in foreign demand for U.S. goods.

Combined with overproduction in China, steel prices have fallen well below where they were at before Trump’s tariffs. To deal with the downturn, the U.S. steel industry has had to cut back on production, close mills, and send scores of steel workers home. Like the rest of the U.S. manufacturing sector, the steel industry is in recession.

So… Is there any good news on the horizon, in regard to the trade war with China? The numbers sure don’t suggest any, at least not here in the U.S. The Chinese economy has definitely taken a hit, and that’s no small thing from a leveraging perspective, but the situation has yet to improve our country’s trade woes.

Still, President Trump got some people pretty excited last month when he announced that he had achieved a “trade deal” with China. But the details of that preliminary deal (which won’t be further discussed until next month at the earliest) were pretty underwhelming. The “deal” was essentially a cease-fire on new tariffs (which will certainly grant some temporary relief to both sides), and China pledging to purchase U.S. agricultural products in the amount of $40-50 billion.

Unfortunately, a pledge isn’t worth a whole lot, especially when it comes from the Chinese government. And even if China does follow through with that purchase (and that’s a huge “if”), the amount falls well short of the over $60 billion U.S. farmers have lost as a result of the trade war.

Coming up on two years since President Trump assured us all that “trade wars are good, and easy to win,” we have next to nothing to show for this marathon-length, ill-advised venture…other than a lot of unnecessary economic burdens and hardships for Americans who should be enjoying the strength of the broader U.S. economy.

It’s amazing that the president’s loyal base still finds ways to romanticize this exercise in self-mutilation. Trump even receives big cheers when he brags at rallies about using our billions to bail out the farms that he, himself, has hurt. Ironically, a lot of those rally attendees are former Tea Partiers who loudly excoriated Obama’s bailouts, and now scream “socialism!” whenever Elizabeth Warren and Bernie Sanders promote similar methods of government intervention in the free market.

But unfortunately, that’s where we’re at in today’s politics. And if this tentative deal with China strikes out (a deal that Trump insists is the only deterrent to tariffs being placed on nearly all Chinese imports), don’t expect the strength of the Trump economy to continue making up for the losses.

Megyn Kelly, on John A. Daly’s new novel, Safeguard.




Off the Cuff: LeBron James and China

In a special Monday edition of my Off the Cuff audio commentary, I share some thoughts on LeBron James and his controversial comments regarding China.

You can listen to it by clicking on the play (arrow) button below.

 

Side note:  If you’re a Premium Interactive member (the $4 tier), and have a question for this Friday’s Q&A, make sure to get it to me this week by Tuesday at 5pm ET (this is earlier than usual, since I’ll be doing some traveling this week). You can use this form on my website to submit your question. Thanks!




Trump Saves Christmas… Again!

Back in the fall of 2015, in response to a column I had written on the chaos Donald Trump had brought to the Republican presidential race, a reader told me that he intended to vote for Trump in the primary because he (the reader) wanted to be able to say “Merry Christmas” again.

I figured the guy was joking — tossing out a sarcastic reference to Trump’s thoroughly mocked campaign promise recycled from the “War on Christmas” stories that Bill O’Reilly and others at Fox News had made popular years earlier (as far back as the Bush administration):

But the reader wasn’t joking, which I discovered after asking him why he needed Trump’s help to say something that I (along with countless other Christians in this country) had never stopped saying in the first place.

He explained that the American Left had stripped away our right to extend the seasonal Christian sentiment without fear of punishment. And he believed that Trump and only Trump was capable of changing that. He didn’t know exactly what Trump would do to achieve such change, and wipe the supposedly offensive “Happy Holidays” phrase from our cultural palette, but he was convinced that Trump would get it all straightened out. So Trump had his vote.

It was kind of disheartening to believe that someone would base a rather important decision on a decade-old media narrative, especially when the candidate who invoked it was only doing so for a cheap audience pop. I mean, even O’Reilly (the theme’s loudest prosecutor) had proudly declared the “War” to be over (the pro-Christmas forces having won) back when Obama was still president.

Yet, there are people who genuinely believe that Trump, in taking back the White House for the Republican Party, did in fact — somehow — save Christmas:

And the president himself is apparently one of those people:

Well, hold onto your jingle bells because he just did it again. Ho-ho-ho!

Last Tuesday, President Trump said that he’ll be “delaying” new tariffs that he had announced on Chinese goods, as a favor to U.S. Christmas shoppers who might be adversely affected by them.

How very thoughtful.

But if you’ve been listening at all to what our president (who nicknamed himself “Tariff Man” last summer) has been saying for many months about this trade war against China, one wouldn’t blame you for being a little confused. After all, according to Trump, our country has been benefiting greatly from these tariffs — “getting rich,” in fact, off of the billions and billions of dollars being paid directly to the U.S. Treasury by China:

So… if China’s paying us all of this tariff money, and making every day feel like Christmas here in the United States, how would relief from those tariffs be of benefit to U.S. consumers?

Is this some kind of reindeer game? Perhaps the Elf on the Shelf knows, but he’s saying nothin’.

The truth is that President Trump has finally admitted (albeit indirectly) that he’s been lying all along about who flips the dime for these tariffs. It’s not China, and never has been. It’s Americans — specifically U.S. importers who order these goods and materials from China, and then raise prices on American consumers to make up for the money they would otherwise lose. By definition, tariffs are taxes, and in Trump’s trade war, the payers of those taxes have been the American people.

This of course isn’t breaking news to anyone who has even a basic grasp of what tariffs are, and how they work. But a lot of people don’t know, nor would they otherwise have any reason to. And that’s exactly what Trump has been counting on.

One can certainly present the case that narrowing trade channels with China (by making items too expensive for U.S. importers) could potentially generate Chinese concessions that would be a net gain for the United States (an unlikely premise considering what is happening to lots of U.S. farmers and manufacturers, as well as some glaring geopolitical realities). But it doesn’t change the fact that Trump has been lying about the details of this trade war from the very beginning, and has established a pattern of billing Americans for ventures he has insisted will be paid for, or are being paid for, by other countries.

We often hear from loyal Trump supporters that we should assess the president by his deeds, and not his words (a grace never afforded to anyone else in his position). But when a political leader makes a public case, and builds public support, for a policy based on pure fabrications (while hoping the American people are stupid enough to fall for it), that in itself is a “deed” — and a despicable one at that.

At least, we on the right used to think so, back when President Obama was promising that we could keep our doctor and insurance plan.

Now, don’t get me wrong. I think it’s a very good thing that these new tariffs aren’t happening (at least for now). I wish the previous ones weren’t happening either, because too many Americans are being hurt by them. But we shouldn’t confuse this allowance by Trump for a Christmas present to Americans, nor should we confuse it with a Grinch-like story of redemption, where Christmas spirit suddenly grew the president’s heart three sizes.

This decision was much more likely brought on by the escalating trade war’s drag on the stock market, and growing fears of an economic recession, just as we head into an election year. Up until recently, what relatively little bad economic news we’ve had during the Trump presidency has come as a result of the president’s own trade policies: farm bankruptcies, agricultural bailouts, manufacturing plant shutdowns and relocations, rising consumer prices, etc.

Now, with the broader economy (including the world economy) possibly losing steam, the president can’t afford more unforced errors that would let his most effective political bragging right (and only bragging right, as far as half of the country is concerned) slip right through his fingers.

Because if the economy is looking weak in the months heading up to November of 2020, it really will take a Christmas miracle for Trump to remain in office for four more years.




The Worsening Trade War and Political Fealty


On Tuesday, Jonathan Swan of Axios reported that senior officials within the Trump administration have told him that they see no end in sight for the president’s trade war with China. According to one official, “the differences between the two sides are so profound” that there likely won’t be a resolution until next year.

You read that right: next year.

This is absolutely terrible news for multiple U.S. industries, especially the farming sector which has been hardest hit by the trade war. Closed off export markets have cost U.S. farmers (and U.S. taxpayers tapped to bail out the losses) billions.

Thus far, Trump’s rosy assurances of a favorable trade deal have proven fruitless, with his recent escalation of tariffs on $200 billion of Chinese goods last week being met with the Chinese government increasing the tariff rate on $60 billion of U.S. goods. More pain, no gain.

With family-farm bankruptcies on the rise, farmers are understandably distressed.

“The President of the United States owes farmers like myself some type of plan of action,” a soybean farmer in Virginia told CNN on Monday. “Farmers were his base. They helped elect this president … and now he’s turning his back on America’s farmers when we need him the most.”

U.S. soybean farmers have been dealing with the devastating effects of retaliatory tariffs from China for almost a year, and a poor crop is making matters worse.

“The economic consequences of this trade war are real,” an Illinois hog farmer told Fox News last week. He has seen a six-figure loss on the value of his hogs thanks to Trump’s trade policy.

A representative from JP Morgan said on Tuesday, in conjunction with a downgrade of John Deere’s stock, that the state of U.S. agriculture is “rapidly deteriorating,” and that the situation is a “perfect storm for U.S. farmers.”

Meanwhile, American consumers are also being pinched. The prices of goods from affected industries have risen sharply (well beyond the inflation rate), as a newly released chart from Goldman Sachs pretty clearly demonstrates:

Without a deescalation of the trade war, or some kind of trade deal, consumer prices will only continue to rise.

On Tuesday, President Trump tweeted that the U.S. farmers suffering from his trade policies are patriots, and that they will eventually be rewarded for their sacrifices — or at least be compensated for their losses by U.S. taxpayers.

Of course, the president framed things differently. He continues to push the narrative that the revenue our federal government brings in from tariffs is paid by other countries (like China). This, however, is a lie — one the president repeats often. The tariffs are being paid by U.S. importers and passed down to the consumer. Tariffs are taxes, and Americans are flipping the bill. Even Trump’s chief economic advisor Larry Kudlow admits this.

Those who follow fiscal conservatives on Twitter know this to be a regular gripe:

Notably, that last tweet was from Republican congressman Justin Amash, one of the few remaining GOPers in Washington who isn’t afraid to publicly speak out against Trump’s trade debacle. Most D.C. Republicans — after many initially voiced opposition to the president’s trade policy — have pretty much fallen silent in their dissent.

Why? It’s a good question considering that Republican politicians have traditionally defended the free market and opposed government bailouts. You’d think they’d have a hard time sitting on the sidelines and watching American producers and consumers suffer from a very costly, self-defeating trade policy that violates their long preached principles and policy positions.

But sitting on the sidelines is exactly what they’re doing, in large part because the Republican base insists that their representatives pledge allegiance to Trump, and support pretty much whatever the president wants.

This lockstep creed has become an enormous part of the modern GOP’s identity, taking precedence over the basic tenets of conservatism that used to define the party. Trump expects and demands loyalty (“fealty” is probably a better word for it), and the base has been conditioned (with the help of cable news and talk radio) to expect and demand it of their reps — even when it means siding with the likes of Bernie Sanders, Elizabeth Warren, and Chuck Schumer:

Even many of the farmers — whose livelihoods are in jeopardy because of Trump’s policies — subscribe to the loyalty doctrine, which puts an exclamation point on the political complexities faced by Republican lawmakers.

This is dangerous — not only because unconditional loyalty to a politician is unhealthy in a free society, but because members of the U.S. Congress have it within their power to amend or repeal a small number of Constitutional statues that would put trade-related decisions back in their hands. They could end this trade war rather quickly, but Republicans won’t even try to, because it would be seen as an act of disloyalty to Trump. And such a thing would be remembered when it comes time for constituents to vote in the next primary.

This is especially silly, considering that Trump would likely benefit politically from Congress taking the reins on trade. Ending the trade war would build back strength in a key economic sector as we head into an election season in which Trump has an otherwise strong U.S. economy to his advantage. The president would be saved from his own bad policy while landing in a position to blame the establishment for his inability to negotiate the kind of deal he promised to deliver.

But it won’t happen. Trump began this ill-advised venture unilaterally, and he’ll have to end it unilaterally.

Here’s where the president is right, in regard to the trade war: It does hurt China. It hurts China economically and  does so more than it hurts the United States (statistically, anyway). Simple logic would suggest that this would give us enough leverage to get what we want out of trade negotiations.

But there’s nothing simple about this situation, and there’s a key component (among several others) that Trump clearly missed when he based his trade policy off of the premise that trade wars are “are good, and easy to win…”

China operates under a very different system of government than we do. China is not a democracy. It’s ruled by an oppressive regime that is perfectly at ease with letting its citizens suffer through a long economic conflict with a foreign rival like the United States, if it’s in the regime’s best interest.

This gives China a big advantage over the United States, where free elections compel elected representatives to be far more responsive to the citizenry. It doesn’t always feel that way, but it’s true. As loyal as a lot of Americans are to President Trump, those individuals make up a clear minority of the electorate, and they do have limits on what they’re willing to tolerate and sacrifice — especially when their very way of life is on the line.

Eventually, Trump will have to cave in one form or another, and Americans will then have to decide if any of this undertaking was worth the the steep costs it has incurred. The safe bet is no.

In the meantime, the political cowardliness will continue, as will the domestic pain.

Pre-order Safeguard, by John A. Daly




Farming for a Sane Trade Policy

Those who’ve read my columns over the past few months know that I’m no fan of President Trump’s trade war. I view the ill-advised venture as a costly and self-defeating economic strategy, and I have little confidence that any deals that may eventually come from it will make up for the pain it has caused to our country (including our relationships with other countries).

Of course, it doesn’t help when the president keeps changing his explanation for why he imposed tariffs in the first place, while demonstrating little understanding of how international trade even works:

It goes without saying (though I’ll say it again) that the self-described conservatives who’ve been largely passive on this issue would have deemed such violations of the free market to be unacceptable and even un-American under the previous administration. And as multiple U.S. industries announce mass layoffs and domestic plant closures (due to the sharp rise in material costs), and the stock market continues to react adversely to the latest tweets from “Tariff Man”, the casualties that stick out to me the most — as a conservative — are U.S. farmers.

Farmers (most heavily in the soybean industry) have been losing billions of dollars due to China’s retaliatory response to Trump’s tariffs. This has contributed to the nearly one-hundred family farms that have filed for bankruptcy this year. And in an attempt to compensate the farmers who’ve hung in there, Trump has directed two rounds of tax-payer funded “emergency” bailouts their way.

In other words, Trump’s big-government intervention is removing billions from the U.S. private sector, and the administration is plugging the hole with billions more, paid for by you and me. And if that isn’t enough of a slap in the face of the free-market system, the president is publicly referring to these bailouts as “market facilitation payments.”

You can’t make this stuff up, folks.

To reiterate what all of us on the right would have understood and shouted from the hilltops during the Obama era, this isn’t market facilitation. It’s political facilitation.

But wait. There’s more…

As if the U.S. farmers caught up in the trade war needed more drama and uncertainty in their lives, those “market facilitation payments” — upon which President Trump has made them dependent — are at risk of drying up until after the government shutdown (which has no end in sight). Without a spending bill deal, the bailout funding can’t be authorized.

It’s a perfect storm of big-government overreach and dysfunction that was completely avoidable, brought to farmers by the leader of what is supposed to be the free-market, pro-business party.

Again, you can’t make this stuff up.