Trump and his team, led by trade czar Peter Navarro, are itching for trade wars with Mexico, China, and Germany, if not the whole world.
It’s all part of Trump’s “America First” proposal. But how will “America First” play out in practice?
Let’s investigate one way China might strike back.
Leeham News author Scott Hamilton writes Pontifications: Boeing’s risk if Trump goes wild.
Trump threatens a 45% tariff on Chinese imports and a 25% tariff on Mexican imports.
Why do Boeing officials probably have upset stomachs and flaming heartburn?
Because Boeing has more than 1,200 orders from countries that are in Trump’s crosshairs. Nearly 770 of them are 737s. More than 300 are 777s. Nearly 170 of them are 787s. And these are just the identified customers. There’s no telling how many of the 1,101 737s, 16 777s and 76 787s (at Dec. 31) were ordered by Trump’s target and potential target countries.
Iran, Iraq and more
LNC detailed the exposure Boeing has to Trump’s immigration “no-fly” list in our Jan. 30 post to Iran and Iraq.
Trump spokesman Sean Spicer said the immigration ban could be extended to other countries with terrorist activity. I put together the list of Boeing customers in these countries. It’s not small.
There are 1,242 orders that are on the identified customer list. This is twenty-one percent of Boeing’s backlog. The Middle East alone accounts for 560 orders from all the countries.
I’ve identified 250 known orders placed by customers from China on Boeing’s website. Boeing also reports that customers in China ordered 280 aircraft, so there are at least 30 Unidentified customer orders. There is a general belief the number is considerably higher.
“China Inc.” is Boeing’s largest single customer; no aircraft orders are placed in China without government approval.
Trump’s threatening China with tariffs is playing with fire. Boeing stands a very good chance of becoming collateral damage.
Trade Wars Unwinnable
Team Trump believes it can “win” trade wars. The fact remains, nobody wins trade wars.
Talk of “fair trade” is total nonsense. Free trade is fair trade.
Team Trump, academia, and “fair trade” advocates are all wet. Saving a handful of jobs as prices skyrocket is a horrific deal for all but the handful of people whose job is saved.
Imagine a 45% tax on imports from China. Everyone shopping at Walmart, Target, etc, pay more for almost everything. Those people have less money to spend on everything else (dining out, movies, travel, etc.) How many jobs are created or saved in the process? Any?
I would expect for jobs to be destroyed in the process.
“NAFTA has been a catastrophe for our country; it’s been a catastrophe for our workers and our jobs and our companies,” said Trump on February 2.
I discussed that fallacious notion in Disputing Trump’s “Catastrophe” of NAFTA with Pictures: What’s the True Source of Trade Imbalances?
Let’s investigate this allegedly catastrophic deal for the US with a set of pictures.
Trump and Navarro moan about NAFTA causing a loss of US manufacturing jobs. If anything, NAFTA stabilized or increased US manufacturing jobs for six or seven years thanks to increase in bilateral trade.
The demise in US manufacturing jobs started in June of 1979, long before anyone could blame either Mexico or China.
US Balance of Trade in Goods with Mexico
Goods Trade with Mexico
It’s impossible to make a realistic case that NAFTA hurt the US.
Explaining Balance of Trade
The seeds of trade imbalances were sewn in 1971 when Nixon closed the gold window. The trade deficit rose, then skyrocketed.
Total Credit Market Debt Owed
Following Nixon closing the gold window on August 15, 1971, credit soared out of sight to the benefit of the banks, CEOs, the already wealthy, and the politically connected.
- Trump blames Mexico and China.
- Larry Summers blames “Secular Stagnation”.
- Ben Bernanke blames a “Savings Glut”.
Scapegoating Mexico and China helped get Trump elected. Scapegoating also allows the Fed and central banks to blame anything and everything but lack of a gold standard.
“Our Currency but Your Problem”
The source of global trading imbalances, soaring debt, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% is Nixon closing the gold window.
At that time, Nixon’s treasury secretary John Connally famously told a group of European finance ministers worried about the export of American inflation that the “dollar is our currency, but your problem.”
Balance of trade issues, soaring debt, declining real wages, and the demise of the US middle class are now our problem.
The Fed, ECB, Larry Summers, Paul Krugman, Donald Trump, and economists in general, cannot figure out what caused the problem. Instead, Bernanke, proposes a “savings glut”, and Larry Summers proposes “secular stagnation”.
My challenge to the Secular Stagnation Theory of Summers has gone unanswered.
Fair Trade Nonsense
My inbox is filled with people telling me “China Doesn’t Play Fair“.
Fair to whom? If China is indeed giving US consumers a great deal, we should all be thankful.
Imagine for one second that China gave everyone in the world a free car. Of course, China could do no such thing. It would be bankrupt.
What if Toyota offered cars $3,000 cheaper. Yep, people would buy more Toyotas.
But those Toyota buyers would also have $3,000 more to spend on other things. And they would spend it on other things. Net-net, an increase in other activity would make up for the loss of US car production.
But can Toyota really offer cars $3,000 cheaper than it cost to make them? Not for long. Their car companies would quickly go bankrupt. Once again, this is all common sense.
US steel companies moan that China dumps steel. Let’s play a different game this time. Let’s assume China offered steel for free, and the entire world except for the US, slapped huge tariffs on steel to make up for the price differential.
US auto manufacturers would win big time. Our costs would collapse. US exports of cars would skyrocket as we could undercut everyone else in price.
Any losses on steel employment would be made up by increases in auto production, shipping, and countless other things. Of course, China cannot actually give steel away any more than it can give cars away.
- If China, Mexico, or Japan offers products cheaper than they can make them, then by definition, this is to the advantage of US consumers.
- If it’s good for consumers, it’s a good thing.
- Standards of living rise when the costs of goods decline.
If China or anyone else is “dumping goods”, then we should be happy as it is to our advantage!
How can getting more for your money ever be a bad thing? It cannot, except for employees in weak industries who could not otherwise compete.
- Reflections and Reader Comments on Free Trade: “China Doesn’t Play Fair!”
- Steen Jakobsen on “The Nixon Doctrine”, Trump, Equities, Gold
- Trump Accuses Germany of “Currency Exploitation”: Merkel vs. Trump, Is Either Side Telling the Truth?
- Navarro Nonsense and the Folly of Trump’s Proposed Tariffs
- Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold’s Honest Discipline Revisited
Microsoft founder Bill Gates said the US is “the biggest beneficiary by far” of globalization. He is an “Unabashed Pro-Free Trade Person“. So am I.
Trump and his protectionist team need to take a look at realities. So do all the misguided armchair “fair trade” activists.
Mike “Mish” Shedlock.