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.
China
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 Catastrophe?
“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.
Manufacturing Employment
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.
Scapegoating
- 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.
Three Rules
- 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.
Related Articles
- 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.
Chinese products are inferior to US manufactured products Muke
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Assuming you are correct, what difference does it make if Chinese products are inferior?
People should buy what they want to buy shouldn’t they?
Or are you proposing an an agency that forces people to buy items deemed by you or the government to be of good enough quality?
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Remember in the late 60s and early 70s when the label, “made in Japan,” was believed to be synonymous with “crap?” We know where that went.
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Go price a Snap On tool, then a Kobalt tool. Both have a lifetime guarantee. One is Chinese and sells for a fraction of the cost of the other.
Many Chinese made tools I use are of better quality than US made ones. And certainly cost less, leaving me more money to buy tools to make me more efficient.
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It’s not whether products are superior or inferior – some from each country will fall into the inferior camp across all industries.
It’s rather the narrowing of the discussion so single variable when we fail to account for the costs of industries being hollowed out. So our fellow countrymen now have lower cost sneakers and no job and pay from welfare checks.
Furthermore Mish’s pearl clutching fails to address how so many other countries beginning with China are horribly protectionist yet thriving. I’m not seeing empirical evidence of the trap of having borders or protecting our industry let alone if it
Means either higher taxes to support unemployment benefits versus higher prices to support gainfully employed Americans .
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Boeing is getting ripped off by China They are too short term greedy at China will buy for a short time and then take the market.
Boeing is building in China in a partnership where China will steal designs, technolgy and know how and then later enter the market.
This is how China operates. It is just plain stupid to project our values and ethics onto China. It is a different culture and they will lie and cheat as he final result is all that matters to China.
Free and fair trade only works between countries that are similar in values, ethics, economic systems and regulatory systems.
Wake up from your free trade delusion.
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Instead of spewing total nonsense
Rebut what I said.
How are lower prices not good?
How many jobs will be saved if everyone pays 45% more for apparel and all other goods from Asia.
What’s plain stupid is to think China cancelling orders with Boeing is a good thing.
And its “plane” stupid to think the US can stop China from producing planes if it want to.
Actually competition from prices would be a great thing.
I gave examples, you hide behind “fair trade” stupidity
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Your theory only works as long as American wages do not decline as a result of job loss. The economy is complex, chicken and egg, but surely there must be some connection between our consumption and our jobs. I know you see automation as the driver to job loss, but I see automation as a response, just like foreign low cost labor or illegal immigration is a response to high wages. We saw a very slow increase in automation of wood shops in Texas because cheap labor was so prevalent, whereas in the north east, high costs of labor made automation costs seem reasonable. There is a reason why so much of our automation originated and still emanates from northern Europe….labor unions, which have kept labor costs high.
What level of unemployment do you see as sustainable, how much debt and wealth redistribution is reasonable to subsidize our job loss, regardless of what you might see as its cause? Or is debt a problem at all?
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“Mish’s” theory works because American wages do not decline as a result of job loss with China or with any other country. The only reason the people over there build nice things for us is to earn the dollars it takes to buy the things they want that we make here. Trade profits both traders otherwise nobody would trade. Sure, the guy who puts a bolt in a thing at a factory in the US for $35/hr lost his job to the guy over there who does it for much less. But now the guy over there has $ to spend on something we make here. A US exporter needs extra help to handle the demand and hires the guy who lost his job. Plus, the US consumer was made wealthier. His/her money goes farther so he has more money to spend. Trade makes everyone wealthier.
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There was once a wide old farmer with an impressive herd of cattle. As an enterprising entrepreneur, he came upon the idea of mixing a small amount of sawdust into his cattle’s feed in hopes of extending the feed budget and increasing his profit. After initially blending in about 20% sawdust to feed, he was happily surprised that the cattle seemed fine, none the less prime in appearance, Well this gave him pause to consider upping the quotient to 50% saw dust, just to see how it went. Well, he was so pleasantly surprised that while the cattle had not noticeably fattened, they had not lost weight either. This continued with ever more sawdust being added, and the farmer was bedside himself with his epiphany on feed, and finally took it to 100% sawdust….no feed at ALL. Evidence was that this was all completely possible, that he could feed his cows sawdust indefinitely until such time as he chose to take them to market, and add serious coinage to his pocket.
Well the day came to go to market, the hauler arrived only to find a lot full of dead cows, and the farmers response….those damned no good cows…just when I had them on 100% sawdust they simply up and died for no reason. After months of experimenting with altering his cattle’s feed, with no apparent ill side effects, he had no reason to assume that the cows died of anything whatsoever to do with sawdust.
I’m not economist. I’m a furniture maker. But it sure seems like there is a determined set of voices INSISTING that our dwindling jobs and manufacturing has absolutely NOTHING to do with our massive appetite for imports. I understand that it is complicated, but is it really that complicated? There have been endless wars over trade, so there must be something to this. If people could simply trade without consequence, why the war. I have lived long enough to “think” I know something about this. I majored in economics in college and have been largely self employed and have ran my own business for many years.
If I am wrong, I need someone to explain it to me. I may be ignorant, but I’m not stupid.
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Seriously, wages don’t decline here? In my business men were asking $12-$15/hr in 1979. Just today I had a phone call from an English speaking native asking $18/hr. that’s almost forty years and he got a 50% raise. You need to think about that.
Also, what American goods are Chinese buying????What is our trade deficit with China again? Pushing closer to $400 billion a year???
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Hi Mish,
Maybe you should link to Bastiat’s candlestick makers. Or use that great story to explain why complaining about China is stupid and how protectionism is making everyone less prosperous.
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Bastiat is indeed correct.
I have used the story of the candlemakers many times.
Madeshellowell. Lori, many other here are members of the candlemaker’s union for sure.
Yes, it is as simple as that.
Here’s a classic: In real life, Spain taxed the sun.
https://mishtalk.com/2013/07/26/spain-levies-consumption-tax-on-sunlight/
Thanks
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If we are “free” to trade with who we will and as we wish, wouldn’t freedom have some associated consequence? If we are to be free, then should we not be free to suffer the consequence of losing our job without expectations of the remaining workers subsidizing his unemployment with their pay?
I don’t like the idea of any interventions, and only bring up protectionism as a last ditch idea in a world dominated by big government. My feeling is we should be free, but informed as well. That would mean we are made aware of potential consequence prior to our actions, and then once those actions are taken, accept the consequence. If we are free to make good choices, we should enjoy the reward, and if we make bad choices, suffer the consequences….not impose them on others.
I will happily accept your “free trade” if you will accept my “no entitlements”.
It is apparent that there are many different opinions on the theories of economics (as well as everything else), but we should be willing to accept the consequences of those choices for ourselves, whereas, most want to impose policies that benefit some at the expense of others. Why not just impose upon one’s self?
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Mish, I have been reading your blog for several years and quite enjoy the comment section. I am amazed at the intelligent comments from your followers. However, as of late, the demeaning rhetoric from some, including yours, seems unnecessary. I’m not thinned skinned mind you, but don’t you think, you as the host, are setting a precedent for others to act in kind?
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Fair Trade? Free of .gov intervention? Like, producing a quality product at a competitive price? Heaven forbid 😮
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You mean like the engineers at Boeing “stole” algebra from the Arabs……
Learning how to do things is not “stealing.” OTOH, not learning how to do things just because remaining ignorant may benefit a caste of tax feeders and ambulance chasing leeches, is just stupid.
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Well, everything is in the definition of words right?
High speed rail goes to China, bids the project and BOOM, China has a high speed rail system. A company wants to manufacture in China, no problem, simply surrender your intellectual property to China. Boom! your new competitor.
No probably not stealing, but its not like they are innovators either. They have played hard to win, and they ARE winning. WE educate their engineers and provide a market for every product and in turn they place heavy tariffs on everything we attempt to import.
You’re right. Its not really stealing to simply take property away from a retard. I mean if they ain’t complaining, there is no crime.
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Amen
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Out of a billion+ Chinese, some are innovators, others are not. Back in the day, some Chinese dude literally invented gunpowder. Can’t get much more innovative than that.
As a general rule, if one is poor and backwards, it is infinitely more efficient to just try catching up with those who are less poor and backwards, than to spend ones limited resources on inventing something even the richest societies on earth haven’t discovered yet.
While, OTOH, if one is already a resident of a place that can already afford to “have everything”, one’s only option, is to invent something entirely new.
Hence, it’s perfectly rational for China to first try to reach parity with the West and Japan, before dedicating every resource to invent things neither of those two have yet. Japan acted the same way for decades, until they caught up technologically. And look at them now: Busy inventing stuff so far out that even Westerners can’t seem to make much sense of half of it.
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Resolving the Free Trade vs Fair Trade debate requires looking at the hidden costs in addition to the obvious ones. Mathew Marty only touches on the hidden costs. MISH even mentioned in prior blogs pollution in China is a cost to be paid later. The obvious advantage MISH identifies is immediate cost savings.
But the casualty nobody is addressing is DEMOCRACY. A country passes laws that reflect its values. When a company responds by making products in other countries that have fewer manufacturing, environmental, and labor laws, the company is engaging in legislative arbitrage. It undermines the intent of laws enacted at home. Democracy may become threatened when too few people have the technical skills to design and build defense goods, and other countries gain those skills. And let’s not forget that a country that becomes a monopoly in a major segment of the global economy also becomes a threat to world peace. That’s why “fair trade” is better than “free trade”.
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And if China doesn’t have “democracy” like you want it, we are supposed to do something about it?
Perhaps like we did In Iraq? Syria? Libya? anywhere else?
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There is a law against trading with countries that use slave labor.
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Just agree to disagree and stop trading with them. No military action is necessary.
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Mike American products last longer and save money and the environment in the long run. Last post mispelked Mike
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A Chinese company could sell products for less than they costs and not go bankrupt IF Chinese taxpayers make up the difference.
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Do Chinese taxpayers cover the difference now? It seems like it is all inclusive to their immense debt. The tax payers just don’t realize it is debt in their name yet.
I believe the Chinese do not have anything close to a large enough domestic market to keep their factories running, so they have no choice but to lower prices…to zero if needed, to keep exports going. If western economies slow down, we will be induced to buy by ever lower prices which will destroy most remaining US manufacturers. Of course that will not effect our employment numbers because all those displaced workers will be unpacking and installing all of the new order picking robots at Amazon.
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Which means other Chinese companies have to charge even more to make up for the added taxes required to sustain the transfer payment, vis a vis American competitors. Hence, a net loss for China and, again, a net gain for America.
Nobody aside from the leeches themselves, benefits from government meddling. While everyone the leeches have dominion over, loses. There is no “better” way than freedom, that somehow “beats” freedom in some childish football game world view of “the economy”.
You’re not “better” off because some other yahoo, orange haired or not, or “democratically elected” or not, decides what you can and cannot buy, and how much of your paycheck you are allowed to keep so that he can hand some of it to “companies” to compete.
Things just dont work that way. Never have, never will, because they can’t. No matter how many scary hobgoblin stories the loud man with the toupee, tells his misinformed, indoctrinated manchildren.
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Are you assuming that China has a balanced budget? My understanding is that they simply create lending to fund their industries. They do go bankrupt, but it’s pretty apparent they are doing all they can to prevent it. Most areas there have admitted to cooking the books to please party leaders, so reconciliation must not be a high priority.
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China’s budgets have nothing do do with it. If the Chinese government is going to be able to subsidize some industry, they have to dis-subsidize some other value adding industry. One way or the other, they have to obtain something of value, in order to have anything real to “subsidize” with. Just printing Mao’s face on toilet paper won’t do it. Nor will borrowing, unless the borrowing is done abroad. In which case, China would run a capital account surplus, hence a current account deficit.
Financial trickery never create any value at all. That whole “industry” is nothing more than an obfuscation racket that allows the well connected to steal from those who do create value. Nowhere in the world, are things any different than that. Hence, simply engaging in that, creates nothing with which one can subsidize anything else. So,if China is subsidizing one industry, despite running a current account surplus, it must by definition take from other industries in order to fund the subsidy. “Subsidizing everything” simply doesn’t work, unless one has the world’s reserve currency. And even then, only for as long as the rest of the world are willing to play patsy and buy ones empty promises.
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It’s interesting we bitch when Merck and Pfizer charge Canada less for drugs and make up for by charging us more, but also bitch when Chinese steel charge us less and make up for by charging Chinese companies more.
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The communist Chinese government already OWNS the Chinese market. They effectively shut everyone else out with high tariffs and impossible restrictions. They are communist. They are predatory. They want to OWN ALL markets, wherein they can SET their prices and dominate the world. They dump in other markets to destroy their competition. Why would they do that unless it was to OWN the market place? This is not individual Chinese companies vying for market share. This is a centrally controlled communist economy that will price support ANY industry that they desire dominance in, and that is pretty much ALL of them.
It was one thing when they had a poorly trained and educated work force and relied mostly on manual labor to compete. Today they send their engineers tot the best schools, they build the latest in technology manufacturing and can be set up in months to compete with any industry in the world. This isn’t “Nixon goes to China” anymore.
They are up in our grill and challenging us on every front…..and everyone still wants to defer. I challenge anyone to find a single item where China and America are at parity on trade barriers. But like Mish says, who cares, it’s cheap, silly them. Anything so difficult to explain, so complex as to not be apparent, leaves me dubious, but maybe, like Mish says, I’m just dumb.
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Please take away the IF. The Chinese are known to sell aluminium for $1,000 less than their costs. They can keep on doing it for years and years and put their competitors out of operations. Here in Australia I read about 3 years ago about how the main Australian manufacturer of Aluminium products had multi million dollar plants running at just a fraction of their capacity due to this very reason. About 6 months later I noticed that their plant near me had shut up shop and just recently it was demolished. That article mentioned a skilled worker at the plant took 2 years to train to make a quality product. Now where are those skills and plants when China decides to raise their prices as there are no longer any competitors left.
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China has built it’s own aircraft in the same class as Boeing 737, and so has Russian Irkuts, Canadian Bombardier, and Brasil’s Embraer. That major market segment will be drying up for Boeing, and Airbus no matter what.
China never played free or fair trade: it requires technology transfer.
Similar though not the same deal as the US has with Japanese car makers. That’s why the US still has an automotive industry.
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1) Dump X below US production cost.
2) Wait until the US shuts down X production capacity.
3) Raise prices.
Once production capacity is retired, bringing it back online is expensive. The capital investment to produce item X depends on what X is, but the cost is never zero. To get back into the market, the US firms face an uphill battle. Higher labor costs, higher capital costs (because of environmental and safety regulations), and higher risk because the dumping country could start dumping again.
Lose today so you can win more tomorrow. Hard to see how that is a net benefit for the US.
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Can you give one actual example of this? I can’t think of anything. Certainly industries have been knocked out by low priced competitors (foreign and domestic) but I’m waiting to see the rise in prices.
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Rare Earth’s?
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“Can you give one actual example of this? Certainly industries have been knocked out by low priced competitors (foreign and domestic) but I’m waiting to see the rise in prices.”
Exactly. If this was supposed to have happened? Why hasn’t it? Perhaps it has, and no one noticed. Take apparel. Very little made in the US any more. Does it matter?
Will paying 45% more for underwear and everything else bring 800 jobs? 1,000? 20,000? At what expense? And at what cost when consumers have to spend 45% more on clothes aty the expense of buying something else.
No one can ever attack this logic so they hide behind the idiocy of slogans that sound good “fair trade”
Mish
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I would suggest that every item except food and water has some price limit. Underwear costs get too high and the new style is commando. What we would need to know about any industry, say underwear, is who and where are the competitors. The other issue is one where the Chinese nor anyone else can absolutely own an industry as long as another country has the ability to construct a plant, so their challenge is to simply know that point at which they can maximize their income and pricing while keeping below the price that would induce a competitor from constructing a plant. For a country like America with high costs of initialization, NO ONE is going to build an underwear plant to compete with Asia, and Asia will never raise their prices above that which would make it possible. This is the same for any competitor, but the difference is that when one country has a completely different field from which to compete, their is no competition.
Increasingly, China’s ability to compete and dominate is not due to their low labor costs but their low initialization costs and regulatory overhead. It is well documented as to what it takes to get a plant off the ground in America today. Ideally that would be our first area to attack, and Trump indicates he is, but we can’t eliminate all regulation and overhead, and apparently China CAN, given their willingness to chew their air and water, and the incredible amount of credit they are willing to create to subsidize failing industries.
If we are not willing to poison ourselves and want to at least pretend we have any actuarial morals, how ARE we to deal with the issue? It has all the fairness of taking a knife to a gun fight. The cheap stuff is good for as long as it lasts, but what are the larger consequences?
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Once production capacity is retired, it will never come back unless through some backdoor in a different product. Not in a free market economy, anyways.
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Once production capacity is retired, it will never come back unless through some backdoor in a different product. Not in a free market economy, anyways.
How does business ever start if no one can take?
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Remember – remember that technology transfer is always bi-directional. Without the Chinese we wouldn’t have guns, paper, General Tso’s Chicken, compasses, etc.
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Yes, and lets just ignore all the crap that happened in the process. China was a great power….and then what? Many of the Asian nations had real issues with foreign trade as it didn’t always work out good for them.
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Yay trade!!
“[Ricardo] demonstrated that if two countries capable of producing two commodities engage in the free market, then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good,”
As long the $ is global reserve currency then producing and exporting $’s the only commodity the US need focus on
That will change some day and it might be messy transition.
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I don’t remember Trump telling us that he would put Boeing first.
Boeing is going to have to suck it up.
There’s a new sheriff in town and we can’t continue down the path of the status quo.
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Boeing et al will have to Innovate faster to make themselves the “go to”.
If their market doesn’t allow that then it is truly commoditised and it is down to price and delivery only and they will surely see their business decline over time anyway.
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If you manage to make yourself the “go to”, customers do go to you.
Not at all easy but not impossible.
At the heart of all this in future is EDUCATION.
Educational attainment of the future workforce is critical and the “go to” countries will be those with the best educated workforce.
No good fighting the last war, too late. Get ready for the next one.
Increase educational attainment. Again, not easy but not impossible.
Factory manual labour is not the future.
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When the demand for human involvement becomes less and less and the demand on those fewer humans for higher and higher skills grows, how will education serve the vast majority of people? And as it does serve the relatively few, how long will those benefits last as each subsequent generation of new age techies gets shorter in duration? What we have seen thus far is very small in comparison to what is coming, and if we attempt to offset it’s destructive effects with more debt and wealth redistribution, the implications would seem enormous.
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I think it is pretty apparent here for most of us that Boeing’s answer lies in self driving planes.
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BTW, I don’t expect the US to win the trade war. If we can just break even it would be a tremendous victory for America.
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QUOTE FROM ARTICLE: “The demise in US manufacturing jobs started in June of 1979, long before anyone could blame either Mexico or China.’
I’ve seen you state this numerous times & I always cringe b/c you overstate & misdirect.
In 1979, it was also long before much automation existed — Sure, in 1979 there were some but not many jobs lost to automation. You argue out of both sides of your mouth by laying out this argument that most jobs were lost to automation!!!
Additionally, why do you think all these countries are so against Trump on trade matters — b/c they want to protect all those supposed automation jobs (b/c. according to you there are not many not people jobs) — NO WAY JOSE (Pun Intended!) it’s the 100,000’s of people jobs they fear losing!!!!!!!!!!!!!!!!!!!!!
I negotiated deals over the years w/ the Chinese, Japanese, Koreans, etc., etc. and I know their tricks (which are many)! You need to be continually villigent to check them in check
Good thing most of your Readers don’t realize you are feeding them a bunch of B.S.!
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Sure, in 1979 there were some but not many jobs lost to automation.
Total nonsense. Productivity improvements have bee going of for decades.
https://fred.stlouisfed.org/graph/?graph_id=305290&rn=562
As with farmers – the number of manufacturers it takes to produce the same output keeps declining
There are numerous charts one could post that state the same thing.
It is you who is spewing bullshit.
China is losing jobs to automation now. Foxcon in the news all the time. Adidas figured out a way to automate shoes, Hundreds of thousands of jobs will vanish in China.
It is beyond idiotic to dispute this. But here you are disputing automation.
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Let’s not pretend that automation or technology will simply appear of its own accord, whether we need or want it or not. Automation is a direct response to the cost of labor. Those areas where automation is most dominant, are the same places where labor costs are the highest. China is losing jobs to automation, just like everyone else, but as a percentage of their population….I doubt it. China has massive numbers of low skilled super cheap labor so I would doubt that subsistence farmers in China are being replaced at the same rate as farmers in Germany.
Ultimately, in a globalist world, the lowest cost of labor, be it Mexican, Chinese, African or IBM will set the going rate. What we need to comprehend is how that impacts US.
This used to be a blue collar issue but increasingly is working its way up the job market. Manufacturing is dead if not dying. So how about design and engineering? Well we see the impact of H1b visas. How long before they don’t even bother coming here. It’s hard to imagine many of these companies building and maintaining large office facilities here in America for an entirely imported work force. Sales? Well, my persona experience has been that few phone sales have “sounded” American, so how long?
I can go on an on, but what is the story here? Where are the jobs going to come from? Amazon going to hire a hundred thousand….to do what? And for how long? This tend is NOT multiplying jobs, it deducting them.
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The missing facts in this discussion is that I seem to recall prime interest rates in 1979/80 were north of 15%.
There’s been a massive reduction in the cost of capital in the last 40 years.
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Great job Mish! Terrific review. Well laid out points. For these reason I hope President Trump listens to Ron Paul his son Rand Paul approach to stimulating the economy
1. Stop the Middle East War
2. Bring all the Troops home. All of them. Immediately.
Bring all troops home to USA to manage and guard our own boarders, rivers lakes water treatment plants , ports of entry including airports railroads, power grids precious metals and oil refinery’s . Train them all by computer guided simulators for military operations. They can maintain anew law an order system that punishes those who destroy our schools , streets neighborhoods etc
3. Support the UN ruling that Forces Isreal to negotiate a peaceful solution with Palestine people and Nation
4. Return to the Gold / Silver backed US DOLLAR currency before its too late.
5. Audit the Federal Reserve Immediately
6. Drop Mr Mnuchin cabinet selection he’s Goldman opperative.Drop Elliot Abrams a known neocrat and part of the Nixon swamp
7. Drop all unions in government work. Establish right to work and no collective bargaining at fed or. State government level.
8. Build that freekin wall as part of a public works project and total infrastructure rebuild of American roads bridges, water treatment facilities and air pollution control. Build new refineries to refine compressed natural gas for our own as well as export. Make all imports of steel product pipe, plate or structural useage such as bldg or bridge, ship or auto pass all current future ASTM and US ARMY CORP STANDARDS before acceptance and prior to use.
8. Legalize pot in all forms of use. Regulate and tax like liquor and Cigarettees tabbacco products. Let them pay for education and cost of incarceration.
9 stabilize social security and pay receiepients at true cost of living expense.
10 fix Obama care make it 100% healthcare for all Americans including congress senators and all government employees thruout the USA. Privatized sales across all states
11. Reimplement Glass Spiegal
12. Separate banks from investment, make Wall Street investment houses 100% liable for fiduciary advice.
13 revise and rewrite tort , common criminal and civil law to punish and eliminate
legal abuse Under false pretenses and futile expense.
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Ps. Going back to the gold standard alone will do more for the American worker than any trade tariff as it will stop currency manipulation and level the playing field. Bringing the troops home will reduce cost to support the world. I wish I had exact figures as too what it cost as a percentage. Of our military spending to house feed and support each of our troops I. Different parts of the world more especially the Middle East or Europe for that matter. And if we had our troops here at home what about the pay being spent in our towns and cities as the cash goes around. The money made available for better computers and software. Long range middles and ships to protect our own ports. Mish you have a handle on any of those cost?
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Latest news: It is not America First rather Trump First.
SOS – we are surrounded by amateurs and idiots
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Is it just me, or does she look like something right out of a trailer park?
Serious question.
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Maybe.
Post of photo of yourself and let us all vote on what you look like!
Personally, I look like I work in a trailer park.
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Grow up! People around Trump are tired of the continuous denigration and attack, especially against Trump’s family. Kellyanne simply was showing support. I’m tired of the petty bullshit.
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I am an advocate of free trade but free trade cannot work in a fiat based monetary system. I am NOT a gold bug but lets say we were still on the Gold Standard. A country that ran a surplus would drain the deficit country of it gold. At come point in theory the deficit country would “run out” of money to buy imports from the surplus country.
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“Team Trump believes it can “win” trade wars. The fact remains, nobody wins trade wars.”
Not true. China launched a trade war on US and won creating millions of jobs in the process and adding to its GDP growth. China’s protectionist, mercantile policies were highly successful. Trying to do “free trade” with somebody like China who doesn’t really do free trade is a losing proposition. It is kind of amazing the Mish does not see this. I guess he has good incentive not to see it.
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Trade war is not the right term to be used as it implies hostility.
Protectionism is closer, in fact I would say competition that damages but damages the other more, is closer to trade war.
So you see this in commodities for example. A producer could restrict production earning so much, or he could enter into competition, flood the market, and make slightly more but depleting his resource or reserve to a far greater degree per dollar earned.
The consumer wins in theory… or is he just tempted to arrange his reality to become dependent on max short term profit pursuit by others. If so, he should not be surprised if he himself becomes exploited in that way.
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It’s just dumb to act to protect one’s self. I don’t wear insect spray, sun blocker or bother with inoculations either.
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Reading the comments above makes me wonder why any of these readers even bother with Mish’s blog. They all claim to know much more than he does yet here they are. Which brings me to the futility of Mish’s endeavor. Most of his readers are Trump followers who are immune to persuasion and logic. They believe in their leader with a blind faith. Trump could rape and kill an entire Girl Scout troop and they would still follow him. In this way they remind me of the ISIS zealots who follow their own leader with the same kind of blind unquestioning faith in his infallibility.
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I have been attacked for being an Obama-lover and a Trump-lover
One person accused me of voting for Hillary and said I wrote more negative things about Trump in a week than Obama for years.
What a joke. I have written about Obamacare at least 5o times. His drone policy a dozen more. I only recall saying something good about Obama in regards to two things. One of them was in regards to talking with Iran. I do not recall the other, but I believe it happened.
It should be clear, but unfortunately it isn’t, that I do not care about political parties, I care about policies.
The party in power has a chance to do more things right or wrong. Had Hillary won, I am confident I would have been writing up a storm against her, amid charges that “Mish is a neocon”, or some other such nonsense.
Mish
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You need to step back, smell the coffee, and study a little history. As we are witnessing, it is always the far left that is the most intolerant and unabashedly led by propaganda because they are prone to living in Utopian bubbles.
Logic is dirty word in the emotional world of Collectivists, who exhibit their blind faith by mindlessly supporting anything govt sells. GloBull warming is a classic example. Even when NOAA whistleblowers prove the #’s are doctored and UN officials state it’s all about destroying capitalism, the establishment sheeple will continue to follow bureaucrats off a cliff, as long as virtue is signaled. Trump, Brexit, Le Pen and others are winning because globalist govt’s are failing their people. Yet, you and the Trump-haters, fail to learn from history, which has repeatedly taught us that socialist/big govt policies ALWAYS fall victim to corrupting power.
It was independent-thinking Republican’s that rejected all the establishment hacks that were aggressively sold to them by the presstitute media. What did the Dems do? They fell in line behind a war-mongering, globalist who was actually more repugnant than her rapist husband.
Wake up!
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I’m not saying I know more about anything than ANYONE. I do have an opinion and I will argue that opinion, but what I am looking for is reasoned debate…..which is exceedingly hard to come by. If you read any or many of my posts, the one thing you will notice is seldom a response or argument. Mish will reference one offhandedly but hardly ever argue any specific points. His is a progressive approach….no argument, simply that the post is ignorant or ill-founded…..but seldom counterpoint. I TRY. I post a LOT in hopes of a discussion, NOT to prove I’m right, but to prove to myself I’M WRONG with other’s rational contrary points. It’s harder to come by than an American made TV.
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Your comments generally stand by themselves, and often shine.
What is anyone to add to reason ?
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Facts?
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You need to put a much better argument to prove that the rise of China has not been good for the World’s economy. The increase in wealth has been spectacular but it could be argued it has gone to the wrong places.
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I can talk about one thing of which I have actual knowledge: Aftermarket electronic ignitions.
A particular manufacturer is having serious problems with Chinese companies – multiple companies, not just one – manufacturing imposter devices that look exactly like theirs but are made with far inferior components and wiring. The work is shoddy and sub-standard and the devices fail at an alarming rate.
They are branded and sold as real devices and furthermore, all the packaging and documentation is exact forgeries of the real documentation and what-not – so a customer rarely knows they have a “fake” device until it fails and they have to call the company only to be told that their device isn’t covered under warranty because it isn’t a device they built. The customer at that point is SOL because electronic ignition devices can’t be returned once installed.
To make matters worse, these devices are sold on a very popular online retailer’s site (not eBay). They are imported in bulk into the US which means the seller is based here – not China… And they are priced about 20% lower than the real devices – not low enough to raise flags, but low enough to make them tempting for potential buyers.
Many of the customers who buy them later complain and write reviews about this issue – AND the actual manufacturer whose device is being stolen and whose brand is being ruined complains constantly about the fake units being sold, but the retailer does nothing about it.
The actual manufacturer has – as an attempt to rescue itself – had to take the extraordinary step of buying the fakes and figuring out ways to let potential customers figure out the differences to ensure they’re not getting ripped off.
If they will go after someone in the small “aftermarket” of electronic ignitions, then I have to ask who else are they going after in this manner?
Will a trade war help? I have no idea.
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That’s just free trade.
We can’t have any encumbrances on it as that would be “fair trade” and that’s just bullshit.
We would have to pay 20% more and Americans deserve the cheapest!
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Funny thing is – I’m not that far off in agreement with Mish here. I do believe that either of two things crosses borders: products or soldiers. It may take a hundred years to move from one to the other, but eventually it happens. So free trade is a good thing.
However…
My question to him – and I think it is a fair one – is what does one do in a (real world) case like the one I summarized above?
The reality is that the aftermarket for electronic ignitions is a small one – no one is going to become a billionaire in it – but the owners of the company in question have worked very hard over the last four decades to build a reputation and a brand that’s now being ruined by companies blatantly and brazenly – without any fear of retaliation – manufacturing and importing not *competing* devices under a different brand, but actual *forgeries* – cheap copies that purport to be the real “branded” devices.
What is the real US-owned company supposed to do? Isn’t the primary function of government to ensure the safety and security of the governed? Wouldn’t that include interdiction in cases like this where a US-owned company is being slowly put out of business through fraud perpetrated by companies in another country – many of which are actually owned by the government of that same country? Does the US-owned company have to *sue* to prevent their brand being ruined? And what force would a court decision actually have? And how long would it take? My guess is that – even if instead of suing China they tried to sue the “popular online retailer” to stop them from allowing it to happen, they would go bankrupt simply trying long before they ever had a decision or any sort of relief.
And I’m nearly certain that this is happening in far more than just the aftermarket electronic ignition arena. It’s just the only one I happen to know anything about.
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Sorry reference here from Wikipedia (ex Forbes). Most of the top billionaires are in the USA of course so maybe you guys should do something about the system that caused that at home.
https://en.wikipedia.org/wiki/The_World%27s_Billionaires
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How many are selling Chinese or imported products or using H1b visa employees? How many are bankers who facilitate those other rich people’s endeavors?
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The USA has spent the last 20 years running trade deficits with China. China’s middle class is growing,while the US middle class is almost extinct. Good for China.
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Mish, your true colors are showing through when you use the globalist, and Davos & Bilderberg-regular, Bill Gates, as your advocate. The globalist policies that you and the other establishment defenders support have been increasingly implemented over the last 30+ years, which is why we are in this mess. Free market capitalism will naturally prevail with smaller govt, which can only exist when career politicians are made extinct.
You erroneously claim that our problems are due to going off the gold standard, when NOT ONE such standard has ever survived throughout history, for one simple reason – govt corruption does not give two sh*ts about standards or the rule of law. Globalism is all about absolute power, which you should know corrupts absolutely.
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It is not virtuous or admirable to exploit oppressed people anywhere in the world, and a 10% tax should more than compensate for the increasing US dollar, that not even Trump will be able to talk down. Like most, you ignore global capital flows and the invisible hand, that doesn’t care about fake news, blogs, or fake political promises. Reduced taxes, fees, thefts and faux inflation by govt will provide more than enough lost purchasing power to overcome the tax on foreign govt exploitation.
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You might have something there Blacklist – if Bill Gates and other billionaires don’t want to support their own Country and pay any tax maybe USA citizens should be buying direct from Alibaba (rather than Amazon for instance) and imposing a 10% tax on incoming product. Australia and Europe imposes similar VAT or GST though they find a problem managing it on small purchases. Personally I am for free trade but it has to be free and the proceeds benefitting corporations that are supported by the State need to distribute their gains instead of hoarding it in tax free locations. Consider that access to markets like the USA and other Countries have similar benefit compared to Corporate logos and monopoly rights that are priced into Company valuation as intangibles. Those intangible benefits are Capital gains that can be shared with the public that support the system – the politicians need to think like business people instead of free riding slugs.
We are no longer in the 1930s when corporations were patriots and paid taxes – so now tithes and tolls need not cause collapse because the existing system shifts wealth to a few globalists ripping off everybody for personal gain. What causes most damage, current corporate behaviour or making them pay a fair share of profit and income?
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Mish, there is one point that should be addressed. When the USA exports to many countries, including China, India, and Thailand where I am living since 1985, there are usually very high import duties accessed. For one example take California wines, that are charged 450% import tax on arrival in Thailand, plus 7.5% VAT. By the time a bottle of wine reaches the shelves of the stores a $2 bottle cost $35.
Try to send a bottle of Anacin to yourself in Thailand and deal with the local FDA.. It is insane.
Yes, a fair playing field for free trade is great, but it must be a two way street.
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Why “must” it be two-way?
If countries want to screw their citizens for the benefit of US consumers, should we argue?
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Because the “one way” route has ended up in Americans getting S C R E W E D. That’s why.
It is stupid to say that US consumers have benefited. All it has done is to get Americans deeper into debt even to buy the Chinese crap.
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“The seeds of trade imbalances were sewn in 1971 when Nixon closed the gold window.” “The demise in US manufacturing jobs started in June of 1979…”
Trade imbalances have always existed between countries. Not every country is economically big enough to produce everything they need, nor do they necessarily have the resources to. The U.S. was producer to the world after WW2, with a lot of factory capacity wiped out in certain countries. China went off line in 1949. Nixon went to China in 1972, which started the move toward filling a huge production vacuum. Mao died in 1975, which also brought about change.
June 1979, was just before the recession of 1980. The cycle of rising inflation was about to peak. A long era of disinflation was about to begin. A cycle reversed direction.
No gold standard has ever survived. All currency pegs are eventually broken. The Chinese cannot permanently peg their currency to the dollar, just as the Swiss could not peg their currency to the Euro. Roosevelt could not maintain the dollar peg to gold. The cost of maintaining a peg eventually becomes prohibitive.
Seeds of something are always being sewn, as a cycle moves one degree at a time toward a peak, then a trough. Globalism has sewn the seeds of nationalism and protectionism.
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Imagine how wealthy we’d all be if all goods and services purchased in the USA were from China!
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Three Rules
1. If China, Mexico, or Japan offers products cheaper than they can make them, then by definition, this is to the advantage of US consumers.
Yes. But there is a downside too. Say this ability of being able to offer products cheaper is accompanied by the loss of jobs, then it means some percentage of the population (consumers) has lost purchasing power. Imagine now this extends to a whole lot of industries, you end up with a huge percentage of population who have lost purchasing power. It creates inequality. Assume these people are on welfare and the payment comes from taxes. It means the consumers (to whose advantage this works) will pay more taxes.
2. If it’s good for consumers, it’s a good thing.
It may be good for the consumer but I am not sure whether it is good for the country. Job losses, loss of purchasing power, increase in taxes and welfare benefits, rise in inequality.
3. Standards of living rise when the costs of goods decline.
Again one cannot be sure. Cost is the benefit but what about the downside (highlighted above).
Free trade is not as hunky dory as it seems. We need free trade+.
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Free trade is not as hunky dory as it seems. We need free trade+.
Who gets to decide the + in free trade+?
You? Me? Public unions? GE? Monsanto?
Mish
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China is right, both sides lose from a trade war. Threats and bluster are one thing, actual tariffs are another. If the USA slaps on a 20% tariff, China can devalue its currency by an equal amount and stay competitive without punishing Boeing. It would make no sense for China to slap a tariff on Boeing, as the Chinese would be paying the tariff to themselves. Better for the Chinese to stop buying USA soybeans and grains, if they want to punish the USA.
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I think a more accurate scenario with respect to the steel dumping is this:
Big Car Co. has a factory in US. US signs Nafta. Big Car Co.closes US factory and lays off workers, opens new factory in Mexico. Production costs of car drops 30%, US retail price of cars drop 20%, Big Car Co. shareholders pocket 10% extra profit. Laid off workers find lower paying jobs.
China starts dumping steel. Big Steel Co. in US loses Mexican market share to China, goes bust and lays off workers, management pays itself a bonus. Competition with former Big Car workers drives wages for jobs further down. In Mexico, production costs for cars drop another 15%, US retail price drops 5%.Big Car shareholders pocket yet another 10% extra profit.
Winners: China, which has a steel industry based on cheap labor, Mexico, which has a car industry based on cheap labor and the shareholders of Big Car Co.
Losers: US workers and at some point Chinese tax payers.
How is this good for the US?
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If people buy cheap imports, they will have more money and buy other things. True, but the other things are mostly eating out or getting their nails done (low paying service jobs). Or they plow it back into financial instruments (higher assets values). Theoretically the displaced auto workers should find something else (more productive) to do, but such shifts take a lot of time (in practice), perhaps even a generation. There is a litmus test for the benefits of all this wage arbitration: Are American workers better off? Many would answer no.
There are African countries where the consumers benefit from cheap food imports, so much so that their own less productive agriculture sector whithers. This means that many consumers have more, better, and cheaper food, but for the displaced peasant farmers, it means that they can see cheap food being moved around as they starve to death. I’ve even seen documentaries where people claim they would rather starve in the city where they can see food than go back to their village where there is none to be seen.
The problem with these theoretical arguments is that gainful work for those with no productive assets does not necessarily materialize, leaving a dispossessed underclass of losers. Theoretically this should not happen, but in reality, it does.
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Well, “Corporatists First and America Last” hasn’t worked out very well for the American public, has it? It’s time to try “America First” now.
Of course, Mish and his band of corporatist stooges will, as always, try scare tactics about how this will make things worse. But as I said – it’s time to try “America First” now.
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Leaving out the fact that america can print debt (which I’m making the assumption can’t happen forever), explain to me this.
Goods from other countries = cheaper (regardless of due to environment or human wages arbitrage)
People buy from other countries = Net negative money flow out of the country
Less $ floating around the US = less jobs
Less jobs = ?!?!?!
I get that “cheaper goods” are good for consumers in the short run, but when no one has jobs that pay to buy these goods, then how does that make sense?!? Unless you are going to advocate for full automation and “minimum standard of living wages” for everyone, then i don’t know where we are going. Saying that “some people will want to work hard and have good jobs” while “others who aren’t so motivated will get by with less (ie min living wage)” is unacceptable because the people who make more will just end up getting destroyed by taxes to support the operation of our country. Roads and bridges don’t pay for themselves.
I refuse to believe that the continuous shipping of $ outside of this country has zero negative medium/long term effect. I’d love for someone to prove to me otherwise.
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Does it appear that no one has jobs?
The idea that all jobs will vanish is silly.
There are not that many manufacturing jobs to begin with.
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I understand the benefits of free trade, but if you could imagine that China is able to produce all needed goods cheaper than other, wouldn’t that mean costs (ie wages) would have to fall in other nations to compete, and thus standards of living would fall?
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If prices decline enough, why do wages have to rise?
The problem is we have an inflation-insisting Fed in a deflationary world
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Wages dont have to rise. But if they fall more than prices decline then it is a problem economically.
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I hope Trump can deal with the trade arrangments we have with other countries. We need changes in how we do business.
I can’t imagine what would happen in China if they lost the American market.
I think England need to be careful in their talk about our President. England, like so many others, needs our markets.
All of this will play out well. AND I don’t see it as a trade war.
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Mish you are absolutely right. Also trading partners can easily RETALIATE. This is worse than a zero sum game.
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