Fighting a trade war with a nation whose PPP had been larger than US since 2014?
Besides, "Trade Imbalance" is a devious term. Every single trade is balanced at the transaction - Goods vs Money Exchanged. Unless a gun is pointed to another's head, which also happened historically.
The real reason there is a trade imbalance with China is they save more and we consume more. Blaming China is an easy sell.
Six graders vote six grader.
How does moving materials and goods all around the world constantly factor into green house gas emissions and global warming?
Maybe that model needs revision.
And what about constant economic growth and the emissions that go with that? Any problems?
2
Those FTAs, MFNs and PNTRs that were created in the last 20 years by Democratic and Republican presidents economically required all US businesses to use foreign labor, environmental compliance and tax costs when those foreign costs are less than US costs because the US consumer will not pay anything extra for US made products.
Why don't you blame the US government for creating NAFTA, MFN/PNTR for Communist China, all the other subsequent Free Trade Agreements, and the other anti-business laws that allowed and also economically required that US businesses to move as many as possible of their US factories and those associated jobs for US citizens overseas in order to reduce manufacturing labor costs.
President Clinton is solely to blame for creating NAFTA, MFN/PNTR for Communist China, various other Free Trade Agreements, and other anti-business laws that allowed and economically required that US businesses to move as many of their US factories and those associated jobs for US citizens overseas in order to reduce manufacturing costs if US workers refuse to work for third world wages.
1
And what about the industry lobbyists who drove the US government to create the trade agreements you deride? Didn’t they have a role?
1
Trump's "trade war" is like all his other initiatives: an irrational, indeed insane, person governing by fits and starts as the Roman emperor Caligula did. In this, the China trade issue is no different than the wall he wants to build at the US-Mexico border, ill-conceived and irrational. Trump is no genius and has no notion of how the law, the economy or the government really work. Just watch "I, Claudius" and see John Hurt's brilliant portrayal of the mad Caligula and then think about how much it reminds one of our current misrule under 45.
3
The USA did win WWII and create many good jobs in the USA for a few of the decades following WWII when STEM was the primary goal of the US college education systems.
The USA is no longer the World Technology leader that the USA was until maybe the early 1970's.
Asian countries are now are the world technology leaders.
The best and brightest students in the USA are mow pursuing the more financially rewarding non-scientific careers, instead of educations that might have created technically innovative products that people in foreign countries might purchase.
1
well...what this makes me wonder is the even more basic Q- why is the $ so high when we have 30 unbroken years of shipping more out, with a trend that accelerates over the time period.
The first course Econ class (1A at UCD) text, as I recall, had a pretty simple equation for that situation, a big trade imbalance stabilizes by devaluation of the currency. Current examples abound, beyond the politically driven events now with Mexico & Turkey.
So...why not the $? While the "anti-gravity" energy provided by (US military in many countries leading to friendly governments) absorption in "financial products (ie. by buying chips at Wall St casinos...which may turn out like Hotel CA, or the roach motel...you can never leave)" and the extortion factor (you sell, everyone sells, and your stash evaporates overnight) at some point the $ will fall back to earth.
That fall back could occur if their is another Wall St crisis due irrational bets, at almost any time now...
How will T and GOP deal with that to 2021? Good bet...check Hoover and Mellon...
1
The freshly printed paper “Sovereign Issued” US Treasury bonds and other US securities denominated in US dollars that the US government periodically prints on paper and then sells at public auction to (Communist Chinese and other wealth creating industrialist individuals in the taxable wealth creating BRIC nations in return for foreigner's US Dollars they got by manufacturing and selling their products to US citizens) raise funds to pay for various taxable wealth consuming US government activities actually have absolutely NO VALUE at all.
These financial instruments are however easily and quickly redeemed by foreigners for (when they purchase) title to privately owned businesses, movie houses, factories, casinos, hotels, farms, land, ports, refineries, forests, ports, breweries, distilleries, and other privately owned national wealth and other assets located in the USA that do have value and were created by previous productive US generations prior to the USA de-industrializing (instead of Gold from Ft. Knox or the NYC federal reserve bank).
After the USA has sold all of the privately owned national wealth and other assets located in the USA to mortgage and/or redeem our US currency and our freshly printed paper “Sovereign Issued” US Treasury Bonds, foreigners will then stop buying any of our freshly printed paper US Treasury Bonds, and then the value of the US Dollar will approach the value of monopoly money, toilet paper and/or Bitcoins.
1
Would Jeff Session ever allow the FBI to investigate the bribery angle? Not a chance. Look at what happened with ZTE last week when NYT reported that China gave a Trump resort 1/2Billion$ three days before he reversed the earlier ZTE decision (in order, he said, 'to save Chinese jobs'). Not a peep from Congress. Have to wonder if Chinese bribery goes deep into the GOP-controlled Congress. (Or, in the case of Nunes, Russian bribery as well).
1
And Paul Krugman is still trying to describe/model a stochastic system with some type of certainty. ...and people continue to think he is a seer. Please add a long term weather forecast to your columns.
How about 5.
5) Trump is slowly getting what he wants without starting a trade war.
"Trump keeps backing down, ignominiously."
He has lots of enemies, you for instance and most of the readers of this newspaper.
When half the Americans hate their own president, he is of necessity going to be handicapped when he negotiates with a foreign power.
I will bet anything that you and a lot of NYT readers are praying that peace does NOT come to Korea. Because peace in Korea is bad news for Democrats in November and they prefer good news for themselves and bad news for the world.
Hoping that Trump fails even in his pro-America ventures is a natural wish for Democrats. But whoever said that it is not a corrupt wish?
1
Tape? What does Krugman mean by tape?
Here's the way to understand Trump's trade flaws: suppose I import 2 tons of marijuana monthly, at $32,000 a ton, total $64,000. (Prices are roughly accurate.) That's a deficit. Those 2 tons are distributed and redistributed, sold for a total $44,800, a total of $89,600 for 2 tons. The $25,600 profit does not show up as an import or export, but adds to GDP.
Lots of imports add to GDP, producing jobs with higher wages. A trade deficit does not mean the economy is losing money. Imports are generate new revenue and jobs, despite appearing negative on the balance sheet.
The trade balance sheet does not give an accurate representation of economic activity or the impact of imports and exports on jobs and GDP growth. Trump oversimplifies trade because he has executive authority and can impose tariffs and fiat pricing. He can falsely frame trade balances as good and bad based on the numbers and use executive power to claim a win. Actually, he makes things worse, by raising costs, lowering demand, and killing growth.
1
The fact that China is the assembly center for the whole world, they ship finished products, and as Dr Krugman indicated, take credit for the whole price, even if their contribution to this price is just little more than assembly and packaging. Therefore the trade deficit is just reflection of general interconnectivity of commerce and manufacturing.
I wonder if anyone has done detail research on the manufacturing of components, their movement, their prices, and assembly sites. Probably a monumental task particularly that negotiated component prices in different countries are rarely disclosed.
1
Krugman is refusing to say this straight but it here is the truth: it is the American companies manufacturing in China that are mostly responsible for American trade deficit. This is what makes reducing trade deficit so difficult. American multinationals and American companies manufacturing or dependent on their products from China are using their political muscle in the US to fight for globalization. To win the war these interests would have to attacked at home, not in Beijing. With so much money flowing from these special interests to our politicians, there's no way to win this. The only way to win is to destroy the connection between money and politicians, and we know the chance that fight would have. I am very optimistic, certainly not the way the way our political system operates. A good example would be "tax reform" which is mostly "tax deform". Donors threatened to cut donations to politicians who voted against it. Anyway, Trump is trying to demonstrate that he's on the ball, but he's most flailing around, bouncing off different topics every day, each day brings new tariffs. His heart is not in the fight, tough, because he's part of the swamp.
1
You are over-thinking it. Both China and the EU were looking to retaliate with tariffs meant to hurt Trump voters.
What went around would surely come around.
Figuring out the net-net of who wins and loses in a large-scale trade world or trade-war can be pretty complicated, but losing Ohio, Wisconsin, or Pennsylvania -- even Trump understands that.
2
The idea that the United States could win a trade war with China is so funny that it has got "joke quality". China is the #1 player in world trade. Its prices are low and leading in the Internet market place.
Besides, China has bought up so called "key industries", for instance here in Germany as The Spiegel reported last Saturday. These companies are the forerunners of industrial progress. A very intelligent and forward looking scoop.
So, if you buy your next Mercedes: it is 9,5 per cent Chinese.
What a fine thing a well-oiled brain is !
In those Trump-addled days, one is tempted to think such delights are gone, but fortunately M.Krugman reminds us that not all is lost and there are still intelligent people around.
1
Could we cut down the wonkishness rating on these articles. We are not children.
1
Donald Trump neither has the nerves nor the intellect required to understand the basics of international economy. Of course he got bribed......international community is fully aware that the current US administration is corrupt and full of crooks. Most of the countries in the world such as China, Russia, India, Middle East etc. are up to their neck in corruption. Its normal in these countries to bribe for favor and therefore they know how to deal with Trump, his family and the current administration Its almost certain that if the Republicans allow this to continue, the US will reach a point of no return. But then what difference it makes....rest of the world is corrupt.
2
My retired academic uncle in China recently sent me his views about how Trump is perceived in Beijing among Chinese trade and foreign policy officials.
The gist of his note is most of his peers think Trump is like a brash unschooled village chief from a backward province who's been elevated by cynical party elders to be a lightening rod that draws attention away from their own corruption.
Early expectations of Trump as a shrewd, practical business-man have given way to the realization that he's a thin-skinned stooge easily manipulated by his handlers who're busy harvesting their own corruption.
Chinese officials are in a quandary about who's really in charge while a parade of American poseurs traipse through Beijing claiming to be Trump's puppet masters. We saw this recently with Mnuchin openly feuding with Trump trade advisor Navarro while negotiating in Beijing.
Uncle says the elaborate Chinese response on trade -- including a seminar analyzing its position for American media and businesses -- was a ploy to see who's in charge, whose buck it is and where it stops.
The Chinese worry that Trump and his handlers are so inept, they'll sign a really bad deal just to look good and China will face more conflict down the road.
Obama impressed the Chinese with his dignity and stature as a leader and with his scholarly insights about China. They trusted Obama not to be stupid.
Uncle says Trump thinks he's a bull in a china shop but it's really an abattoir.
61
Best comment yet on China's view. Great insights on China's thinking and actions, their purpose, issues, and concerns. Thanks!
8
It seems that they still can’t comprehend that Trump was elected not by crazy party elders but by crazy Americans steered by crazy propaganda that funded by billionaires.
3
@Yuri Asian
I am willing to pitch in to bring your Uncle to present his thoughts on this subject to any amount of middle class Americans of all political stripes we can find. He is very perceptive and has nailed Trump and his Congressional "handlers" perfectly.
Maybe he knew this already but Trump has also enriched himself immensely and is probably on his way to being an actual dollar billionaire.
I mean, seriously, who believed he was a billionaire when he buys used jets from a real multi- billionaire and trots out "Trump" products like Trump Steaks and other garbage that have ceased to be and gone to dead product heaven (stealing from Monty Python parrot sketch.) But the media and his followers ate it up.
Even his fake presentation on how he had "recused" himself from his businesses. I fell over laughing when I saw those reams of just bought (maybe borrowed) blank paper and pretending it was some documents he signed.
I don't even want to write about all the tax breaks he handed over to people and companies that don't need it but want it. We are a poorer nation for it.
Bring you Uncle over, use one of those crowd sourcing sites, I'll look for it.
4
What you conveniently fail to mention Paul is that China's economy was built off the back of America and is sustained by it today. It's certainly not the Chinese who's buying all the goods it produces, we've got the trade deficit to prove that. Unless China's making product to be sold to America they're on the road back to being a third world agrarian country. You, I and they know that. Trump's made it clear that we're no longer going to give away our intellectual property and if China doesn't start playing fair bad things will happen to their economy. Xi's made concessions and that's a first step. As much as you'd like to think it's over Paul, it's not.
Kurt,
China was built off corporate greed. Today the corporate greed is far bigger and nothing will happen that will seriously improve trade deficit. Trump is direct personification of corporate greed and will not allow anyone to stop it. Moneyed interests run this country and Trumps is making sure that won’t change.
Besides, our economy is built around consumption and around exporting agricultural products and commodities. We are set to have deficits because we do not manufacture enough consumer products and machinery at competitive prices. Worse yet, we do not manufacture high tech precision machinery that would replace other low tech loses in manufacturing potential. And we will not do that until we invest in high tech education and invest in in these industries big time. Did you know that we have about 1 million od unfilled jobs in hight tech manufacturing and services?
I just wish that I could buy things that aren't made in China. A pair of scissors, a pair of binoculars, a backpack, a bicycle, what else. All labeled made in China. If something is assembled in China from components made elsewhere, label it so. Then I might believe what Paul K. Says about the apparent trade imbalance.
Trade balance numbers are dysfunctional statistics ratio. The root source of the data is significantly imbalanced.
The value of imported goods is derived from highly precise and well documented processes administered by US Customs. Customs agents wear guns, are one of the most empowered police units in the US, and not declaring your imports can land you in jail - that’s called smuggling.
The process to collect the value of exports is considerably different. It was optional up until a few years ago. It’s a simple line value on an Export Declaration that requires no supporting evidence such as a Commercial Invoice and Packing List. And it’s administered by The Department of Census. No declaring or inaccurately declaring he value of the goods your exporting has little or no consequence.
So, why are we so consumed with this non-factual comparison?
Professor Krugman, I would like you to answer a couple of questions. Overall, is the U.S. an effective bargainer in trade negotiations? If not what should we do differently and what are the barriers to doing so? Finally, is there a good, authoritative book summarizing and discussing our trade policy?
Free trade always benefits the trading countries.
However, it benefits each country as a whole.
Each country chooses which sector of its population is going to benefit from free trade.
China chose to take hundreds of millions of its population off from poverty. It also chose to spend the profits on infrastructure.
We chose to allow our corporations to keep their US profits abroad awaiting a tax holiday such as the one in the recent tax cut. We are the only advanced country without a Value Added Tax.
We chose to undermine our unions with “right-to-work” laws.
We chose to not implement effectively the “Trade Adjustment Assistance Program” of 1962.
The result of our policies was entirely predictable.
1
Hello Dr. Krugman,
While Trump folds to the Chinese, he's apparently willing to mess up the NAFTA "partners". Twenty-five percent tax on "imported cars"--is that what Canada and Mexico thought they were getting when signing the North America FREE TRADE Agreement?
Trump has been teaching the rest of the world that US's word is worth--zilch. Useless. There is no point making agreements of any sort with Trump--he'll just pull out the rug the next year if he thinks his beloved "base" will like it.
Canada and Mexico may manage to survive this one--will Trump back off again? Or they may have to start learning now how to deal with the rest of the world and let Trump and Americans discover what happens to their living standard absent those parts of trade with Mexico and Canada that they use.
If there is a world economy after Trump, how long will it be before nations can place any faith in U.S. agreements?
Sadly, Andrew Biemiller
1
Notwithstanding the negative impact of international trade on some sectors of the economy, the focus on the trade deficit with China seems misplaced for another reason. Would we rather have a 40% portion of a large trade figure or 60% of a much smaller figure? “Winning” may have greater costs depending how it is defined.
3
A simple solution to America's trade deficit. Impose a universal 2% tariff on all imports to the USA starting in January of 2019. Increase that tariff to 4% the next year and continue to increase it annually until trade balances. When the trade balance becomes positive reduce the tariff by 1 % annually until it balances. Impose a 10% penalty tariff on countries which fail to protect American intellectual property rights. Don't target specific industries or countries; treat bananas, steel, textiles, and computers equally.
1
Given that U.S. intelligentsia have made very consensual that we have—as Michelle Goldberg notes, 5/21—an "idiot" for president; and given that global leaders keep up with intelligent U.S. opinion, we might presume that China is in a holding pattern, awaiting the disappearance of the golf club king, whom is VERY EASY TO PLAY. This is the key to dealing with narcissists: They are easy to play, because emperors are so clueless about their nudity.
Ergo: option 3 in Krugman’s list (which also gels with option 4).
The Donald’s secret nightmare is that China’s increased interest in collaboration with Europe causes both regions to play Trump for a sucker together. Anyone following U.S. news can recognize that Trump has really accomplished nothing beyond the margins of U.S. politics which soothe his electoral base (which is actually a minority of the Republican electorate, let alone the whole). The salesman who had a ghostwriter produce _The Art of the Deal_ is to be tolerated until he disappears. He’s harmless, as long as he’s contained—now contained by his Secretaries of Treasury, State, Defense, and Homeland Security.
We have to live as if we have no president, in the wake of Obama years which haven’t really been harmed. The Great Recession is gradually healing at the same rate it was healing in 2016. November elections will constrain Trump even more. The Chinese know it. And they’ll ensure that Trump gets no kudos for his egoistic outreach to North Korea.
The real reason a trade war is not 'easy to win' is the same reason we have high legal immigration quotas of functional illiterates and no enforcement of immigration laws! Because our top few percent rich and powerful pay off and control the major media and their economics propagandists like Krugman who routinely commit treason against the interests of the majority of Americans. Our 1-10% who fill their bank accounts with trillions gained from using no-rights slave labor from China, Mexico, et al and then sell the junk in 1st world markets. The same elites that get 100s' of unearned billions more per year by importing desperate, uneducated, used to being abused and living in abject poverty foreigners into the US to work in their low-wage plantation businesses, and as low wage nannies, house servants and gardeners and cheap sex workers absolutely do not want the status quo changed and so they will sabotage anything Trump or anyone else tries to do! Of course with the help of all the narrative fantasies that paid off, 'tell the rich what they want to hear' economists like Krugman can make up. Is it really so hard to figure out that the dismal profession that earns most of its money not from college prof salaries, but rather from speaking fees in front of Wall Street and from writings supporting "free trade" and the kind of organized investment crime that collapsed the economy in 2008 keep coming up with cherry-picked data and arguments in support of the status quo?
2
Whether trade is good or bad is irrelevant. It's going to happen in any case if there's a profit to be had. We might as well argue about whether the tide is a good or a bad thing.
I happen to believe that trade is generally good, so long as it's conducted fairly with protections for likely victims: mostly workers and the environment.
But Trump tore up the only protections those entities have with respect to Chinese trade, the TPP. So we're back to the wild west.
And I'm not saying that 2 and 4 aren't also correct, but the Chinese pretty directly bribed Trump with an investment in a Trump Indonesian real estate venture.
3
Fascinating comments, from which I learned a great deal. I am so pleased.
2
The United States has run a trade deficit since 1980. Since 2000, we have moved our industrial base -- over 800,000 factories overseas.
This is a problem -- because our standard of living is ARTIFICIALLY high due to cheap foreign debt. When that money stops coming in, we may find ourselves living a lot poorer, now that the factories are gone.
I have travelled. Countries that don't have factories have a terrible standard of living. They are called Africa, or China pre-1979. Welcome to the world our leaders are creating. Trump, fortunately understands this economics. Krugman does not.
4
Yeah, he was bribed. If there is a tape, it is only a copy of the Russian one, not a Chinese original, so that contribution to the Trump backdown should be appropriately discounted.
1
Western countries need to agree on baseline goals for twenty first century, global employment standards. These should include, maximum work week, minimum benefits and baseline equivalent wages. Negotiations between countries can then proceed from a point of common reference. This needs to include so called “high tech” jobs, where we are burning out twenty year olds with ninety hour work weeks and excluding fifty year olds.
2
On the evidence, I go with Prof. Krugman's ## 2 and 3. There is actual evidence of a kind of bribe, and we know bullies fold when stood up to effectively.
3
I go for option 3 because if Krugman's line of thinking was accurate he would drop off his tough trade talks with Nafta or imposing sanctions on our European patterns that do business with Iran. Unless Trump is just throwing the extortion line to see who bites.
1
I go for the bribe also, after all where does someone get the money to build all those beautiful golf courses, casinos, condos etc. after declaring bankruptcy six times?
Not from a western bank.
3
American manufacturing created China many years ago chasing cheaper labor as a means to destroy unions. In turn, China bought our debt and now is an active investor in our economic future. American consumers seem happy to pay lower prices at retail stores that still exist, for now. Prices should go lower still as Amazon, and it's "would be's'' complete the spiral downward.
I agree with Dr. PK... China paid the bribe and has a tape too. Now it's up to those American corporations who b(r)ought us this fine mess to set the guy with flaming hair and pants straight as to why rescinding past trade policy is such a bad idea.
Now that we are officially and globally known as the Corporate States of America, it is time to leave all these complications and quagmires to saner smarter people who have a lot of skin in the game. If anybody's skin needs saving it is exclusively theirs.
I've heard war is a good economic/financial solution to suffering economies. The problem we face is the people that are suffering in America are relegated to not mattering and invisible. Yet, the supposed consenting governed continue to elect such clowns. War will be an easy no brainer for a lobotomized electorate.
1
I'm all in for "3". Trump is about Trump, and the Presidency was always about milking it. He would be the perfect Third World president.
2
Possibly the answer to all this trade war stuff is what is the purpose of exporting goods, after all China does this really well. The answer is it keep people from marching in the streets because they have no jobs. So, labor is cheap, and thus bottom line western eyes love cheap products. Along the way China learns how to do things it took western nations years to invent, develope, etc. and China produces it cheaper too. Manufacturing is complex, and after you give it up to another country suddenly people like Trump wonder why we import far more than China imports. You don't have to have an economics degree to figure out who will wind up on top. What Trump should be asking is why the gov't gives tax breaks to companies that move their operations out of America. Trump can't have it both ways. Ultimately, who pays, the middle class. They subsidize the upper wealthy class, and pay for the welfare programs to the lower income class..
1
Short term, innovation in the US is implemented in China - the iPhone is just one example of this. Long term China will also innovate and continue to implement (manufacture) - and then control all the levers of the process.
Reading that Trump was pushing for exports of raw goods - food and energy - envisions a future where China is the leader and US is the supplier of their raw materials.
That is my concern - that the US have control of both the innovation and implementation assets for that innovation. That will be essential to compete with China in the long term.
There was a time, really not so long ago, that the US produced much of what we consumed.
Industries produced high-quality items and provided Americans with good jobs with good wages.
Most of what we consume nowadays from China is of poorer quality compared to what the US produced only 30 to 40 years ago.
The cost savings of the items that are more cheaply produced in China does not carry over that much to the US consumer - it is mostly stockholders and the CEOs who are benefitting from this model, not the average middle-class Americans.
Also, in former times, we consumed less, and subsequently threw away less.
If Trump can revitalize some industries and return at least some of the skilled blue collar jobs that were offshored to China, by restructuring trade with China, it will be a step in the right direction.
This should be a bi-partisan goal, to get a win for American workers. But Trump's critics would rather see Trump fail than America gain.
2
Thanks Paul,
Lets not forget Trump is now aware that China buys much of our soybeans, corn, and pork, and farmers vote!
6
There is a reason #5: Trump used the Trade War talk/tweets to manipulate the stock market, and, profited from the ups and downs of the resulting market swings. The present state of conciliation with China is only a phase where he wants to see to market go up. It will soon come another time when he starts to talk the market down. Just watch.
5
We can fix inequality after-taxes; no need to re-work the trade system to miraculously create millions of full-time, high wage jobs while somehow avoiding cost increases.
A much more realistic and practical solution is to simply raise taxes on the rich and use the funds to pay for college/trade school and healthcare for those left behind. Just eliminating tax breaks for the top 1% nets us around $300 billion. If you eliminate them for the next 19%, that's another $550 billion. Removing the cap on the social security tax, raising marginal rates on income over $500,000 and taxing stock buybacks are other good options.
This way, we maximize wealth while using levers we control (tax policy) as opposed to those we do not (what other countries do). And bring the deficit down too.
4
The rich don't earn money. They receive dividends or have capital gains. There is no Social Security tax on this income.
1
Hence the point about eliminating their tax breaks. The largest one is the preferential rates on capital gains and dividends, about $160 billion per year just for the top 1%.
In business, the parties to a trading relationship usually judge the quality of the relationship by comparing their cost to the value they receive. In many situations, perhaps most, the flow of goods is one-way. A two-way flow of goods is not necessary for a good relationship, in fact it may be undesirable, it may complicate it. Given the negotiating skills of American businesses, America's cost of goods supplied by China is likely less than the cost of obtaining the same goods from any other source and is no doubt just a tiny fraction of the cost of producing the same goods domestically. This makes the relationship a huge economic advantage for the US.
Trump ignores the economic realities and claims that the trading relationship with China is bad simply because America buys more from China than China buys from the US. A smart business would not criticize its best supplier on this basis. Trump is much more likely to change the relationship for the worse than for the better with this approach.
1
Well, this is some wonkish stuff that I think I actually understand. In any case, it shows that we live in an extremely interdependent world, and that dog-breath nationalism is no substitute for serious argument about international economics. Thanks to Dr. Krugman, again.
10
Number 3 is most likely and 1 only applies to the businesses and trademarks he already got before his inauguration.
The trade wars are simply a money grabbing scheme for trump with his son in law Heying fist dibs at the loot and bribes for the family business with no oversight - look at the solo meetings Jared has with the power players. Qatar learned the hard way what happens when you do not play ball. China learned well and so invested lots into trump associated businesses.
3
Apologize for typo on small iScreen - "Heying fist" should be "Having first" dibs at the loot ...
In sum, a trade war with China IS EASY for trump. It's just a matter of how much the targeted country or industry will have to pay the trumps.
1
I agree the bribery is the most likely but I can propose there maybe another reason - distraction. The liar-in-chief is out of tricks from his bags. So he distracts, from Mueller's investigation to whatever else he does not like.
Hence the steel and aluminum tariff one day to a suspension another. Hence the China trade war talk one day and the "save ZTE" the next. Hence the Obama bug me and the FBI "infiltrated" my campaign when there is an Mueller news.
1
"Overall, it’s still probably true that China would be hurt worse than the U.S. in an all-out trade war."
It's also still probably true that the Chinese populace can take a lot more economic punishment than the U.S.'
Can you finance trade wars with deficits like with real wars? Yes, but you still get rationing and price inflation.
1
"...Trump dimly recognized the reality (that it wouldn't only be China that experiences pain in a trade war), or at least noticed that his beloved stock market really doesn’t like trade war talk."
Tump is too dumb to recognize anything except a lie he can tell that brings him momentary adulation from people too ignorant to comprehend the real facts & nuances of this world.
Trade wars harm most people across the country as a result of retaliatory tariffs or other supply related costs that raise prices on many goods.
And for the few that initially directly benefit (that are in industries targeted for protection) at most a small number benefit for a short time...generally within a year or two rising costs for products they need or reverse tariffs cancel any initial so called benefits.
Who knew it was so complicated.
There are many important & legitimate issues with China that need addressing: theft of intellectual property, subsidies and low interest loans that benefit state-owned enterprises, extensive research subsidies (solar panels for ex), guaranteeing large markets in China for Chinese businesses, their requirement that to access their markets US automakers transfer electric-car technology to their local Chinese partners (and that many other high tech US companies do the same whatever the industry),etc.
Yes, serious negotiations that include the European Union & at times WTO filings will be needed. There are no simple answers, but retaliatory tariffs are not it.
1
", it’s looking as if Trump’s tough talk on China trade will turn out to be as empty as his tough talk on.."
Today's NY Times Headline:
China Cuts Car Tariffs
https://www.nytimes.com/2018/05/22/business/china-cuts-auto-tariffs.html
It's looking like tough talk gets results, n'est ce pas ?
1
I usually don't read you, Mr. Krugman, when you label a column wonkish -- but as this one only warned, "slightly wonkish," I took a chance that I, a poli sci major and a lawyer with little education or 'innate' skills in the art and science of economics, might get something from a reading of this one.
I did. Indeed, I followed fully and easily, and found the column both interesting and enlightening.
As well, I am sure "the tRUMP 'Answer" to your multiple-choice wondering is #2 and/or #3 and/or #4. And I am surer still that, while even I found easy understanding 'there,' the tRUMP Answer is not, and cannot be #1 -- if not in consequence of a substandard intellect, then certainly in consequence of tRUMP's inability/refusal to listen, work and learn (or care?).
1
I’ve always been curious about the economic value of making things in China. For instance, if Nike can build sneakers in China for $3.00/pair, transport them to the US for $1.00/pr and sell them here for $100/pair, there is a $4.00/pair trade deficit. But there is an net economic value to the US company of $96/pair. I may have bought thousands of dollars of products from China over the years, but many are branded in the US or Japan. The major profits are probably staying right here.
5
Until the recent tax cut, the profits were kept off-shore to avoid American taxation. It is unclear if the tax cut will result in that money being repatriated to the United States.
https://twitter.com/DeanBaker13/status/998624271856472064
Dean Baker @DeanBaker13
Why China might be winning its trade battles with Trump (other than bribes)
http://cepr.net/blogs/beat-the-press/china-as-number-one-the-relative-si...
China as Number One: The Relative Size of the U.S. and Chinese Economies
10:59 AM - 21 May 2018
Im not buying that China would be hurt more in an all out trade war.
Mostly, becuase they do and can plan for deprivations (across platforms) that the US cannot. We have no long term planning, especially with whirlwind Trump. Hes not making plans, not seeking real input from industry leaders (unless its see what regulations they want rolled back) hes not watching trends, analysing markets, looking for alternatives for our industries. Or even truly supporting domestic trends or markets to see where the slack is and if it can be lessened.
Plus, how much stuff do US companies rely on that the Chinese do for them, that should those services abruptly end...the company has no alternatives, and no domestic means to fill in the void. Take pork and chicken processing...a great deal of that is now done in China. What happens to the food supply for both commercial and individual consumption?
Add the fact that the Chinese population knows deprivation really well, and how to survive it. How bad is a dip in soybean imports gonna be compared to Americans suddenly seeing pork and chicken prices jump thru the roof? The Chinese will weather it, while Americans will not, and demand a fix.
Americans are not ready or much able to withstand deprivations.
6
Good explanation that Peter Navarro, president's
trade advisor, should read. In all discussion
of trade wars between US and china, there is
no mention of China holding $1.3T loan to
US. What China would do? If it dumps all
those treasury papers, market will be in
turmoil. Would this war also carry over into
military, diplomatic and other spheres?
3
China holds a lot of USA treasury debt. But if China "dumped it" whatever that means, it'd have a bigger problem: no money. In addition to global trading market turmoil.
The USA is China's single largest trading partner accounting for close to $600B annually.
Think about the old saying:
If a man owes a bank $1000 and cannot repay the money, the man has a problem.
But if a man owes a bank $10,000,000 and cannot replay the bank, the bank has a BIG problem.
6
You miss the point. Thanks to Congress' irresponsibility, the US Treasury often has new sales of bonds. If China decides to sit out these sales, US interest rates will go up materially, harming a lot of individuals and businesses here.
We owe China over a trillion but they owe American institutions hundreds of billions also. The USA debt is 20 Trillion Dollars. China's debt is over 5 Trillion Dollars. If China sells our debt, what are they going to buy with the money? The problems of a trade war work both ways but I bet there are more people in Africa who want to assemble I Phones for us for cash than there are people in Africa who want to buy Chinese clothing. It will be easier for the USA to replace China than for China to replace the USA.
'Trade war' is a term that the free trade lobby uses to scare people. What is needed is not a war but a forced adjustment in trade flows. Incentives have to be put in place to reduce our deficit. It takes 3 to 5 years to rebuild supply chains, so the incentives will need time to work. When other countries respond, we should remember two things. First, there is nothing a foreign country can do that can prevent us from balancing our trade at zero. Second, there is no need for immediate response to foreign moves. We should wait and see how the trade deficit evolves, and then adjust accordingly.
At one time, economists like Krugman and Samuelson claimed that trade flows were self balancing in the long run. Experience has shown that that isn't true. What tends to happen is that when a country runs an excessive trade deficit for too long their economy blows up in a financial crisis. They wind up as debt slaves to their creditors. See Greece and Germany for an example. Dr Krugman has never talked about the long run consequences for the US of endless trade deficits.
Dr Krugman is simply unable to admit that our present system of trade is fundamentally unstable and needs to be managed to ensure that it works in our interests.
Dr Krugman is right in saying that China is not the whole problem. Most of Asia runs excessive trade surpluses with the US, and in time those countries will have to be dealt with too.
5
You've missed the point entirely.
Trade deficits are not themselves bad things. Your premise is built on whataboutery and using the Greece/Germany dynamic, which due to the eurozone and the euro single market currency, has no applicability to the USA which has its own currency (and just so happens to be the world's currency). Dr. K and others have written about this extensively and why that fear is both wrong and overblown.
10
"I guess, that Trump dimly recognized that reality, or at least noticed that his beloved stock market really doesn’t like trade war talk. Actually, I’m still betting that it’s a bribe and/or some kind of tape. But worth talking through, anyway."
Good choice.
Walking through the economics of trade is certainly more pleasant than trying to imagine what kind of bribe or tape would actually impact the 40% of Americans who have already "priced in" Trump's corruption, dishonesty, adultery, and sexual harassment into their support.
"Slightly Wonkish" is a nice break from Utterly Wretched
4
Not so sure that it is a bribe. Although it's easy to see why it appears so since a certain someone did not divest his interests. Trump is all abut the marketing and not the reality. In other words, the reality doesn't matter. He blows hard about something, such as trade and how awful it is. It's the noise that counts and not the end result. And his supporters won't look to hard at the end result either. The problem with American politics is that more votes than all of the thinking voters is required. Maybe this will have Mussolini style ending and raise revenues to pay off the deficit by charging for a swing at the corpse.
3
Mr. Trump seems almost proud of the fact that he won't/can't read more than a one page summary with photos on any subject. He obviously has no knowledge of history, economics, how government works etc. His all but total ignorance is overwhelming and frightening. He is without question the worst president, we can only hope he isn't the last.
6
Today's New York Times Headline
"China Cuts Car Tariffs"
https://www.nytimes.com/2018/05/22/business/china-cuts-auto-tariffs.html
Numbers
1. China will reduce import tax on US made cars from 25% to 15 percent
2. China will cut import tax on parts , currently between 6 and 25% depinding on parts, to uniformly 6%
3. US import tax on Chinese made cars ( that includes Buick Envision, Cadillac Hybrids sold in US by GM without a sticker of origin) , minivans and SUVs is 2.5%
4. US import tax on Pickup Trucks is 25%
5. https://www.cnbc.com/2018/04/26/ford-is-basically-giving-up-on-us-car-bu...
Economy 101 from 3,4,5 : US car companies are being put out of business by countries where people are willing to work for less, except in products protected by 25% tariffs.
The solution is either, tariffs, or a "trade war" that the US will win (even Krugman concedes it).
And today's headline indicates that the Chinese realize it.
6
You really should've read the entire article before you try to hang Dr. K on it. For example:
"Chinese tariffs will still be relatively high, however, and the change is unlikely to motivate automakers to shift production away from China."
And, "The drop “is a significant reduction, but it really won’t have much of an effect” on where automakers assemble vehicles, said James Chao, the chief Asia auto analyst at IHS Markit."
And, "By cutting the tariff on imported car parts more than on imported cars, China may actually strengthen its role as the world’s largest car-assembling nation."
Indeed.
3
Interesting observation, Mr. Krugman: Trump (and his voting block) love to go after the helpless. Winning is easy then. But, he does not stand up to powerful, moneyed interests (and allows himself to be co-opted, and bought off by those interests).
7
There is a much simpler answer to the question implicit in the headline.
The Chinese aren't stupid, and they can fight back.
7
All the evidence points to bribery. That Indonesia deal was quite a significant chunk of change into Trumpco's pocket.
6
Trump ran because Xi flicked his finger.
Xi merely slowed the Chinese purchase of US debt (in January), which shocked the world economy.
If Xi decides to sell, China has plenty of cushion ($3.1 Trillion) to ride out a dollar devaluation - the US does not.
Xi showed Trump that China is the world's only superpower, and that the US is China's poodle.
1
Perhaps for President Trump a simpler approach similar to my grade one reader would help and it could be “look look see, see. see that cotton in the field in the southern United States. It has been picked it is going to go on a journey! it will stop in many Asian countries. See the countries! See the changes. Oh, Oh. Soon it will return to be a suit in your local Men’s Wearhouse. Tax Tax!”
See the shoppers at the Wearhouse. They see price increase. Bad Bad.
2
My reading of the issue over the years, indicates that while we were trying to drill our way into fueling our world, China was busy creating massive manufacturing facilities for panels, etc., and Germany was actively locking up all the patents on new technology. However, America does have a large market for installation, even if we're pretty much iced out of the manufacturing/design action. This is the market that will ultimately suffer because of Trump's embargoes on those products from China.
1
Professor Krugman can slice or dice international trade any way he wishes, and he can disparage people like Trump and Sanders any way he wishes, but the facts still remain that the US had a $565 Billion global trade deficit last year and a deficit of $375 Billion with China. China also does all it can to restrict access to its internal markets contrary to WTO guidelines. Maybe Paul will change his tune if China figures out a way to capture the market for economists and sells cheap, inferior economists to MIT and Harvard.
1
i am not an economist but I do work with numbers (not dollars) every day.
If you look at what China imports and from whom versus what it exports and to whom, they don't look all that vulnerable.
China's two largest imports are integrated circuits and petroleum.
China imports about 2.25 times more in dollar value from South Korea and Japan than from the U.S. Both south Korea and Japan are certainly capable of supplying much, if not all, of China's integrated circuit needs.
For more fun with numbers about China and any other country visit:
https://atlas.media.mit.edu/en/profile/country/chn/
4
Is it not inconsistent to criticize Mr. Trump for starting a trade war, and then to criticize him when he fails at starting a trade war? Consistency is one of the core principles of propositional writing.
To paraphrase a great writer: I come not to praise Mr. Trump; I come to bury poor writing skills.
2
Your analysis clears the Trumpian miasma a bit, Paul. I'd check #3, were this on the economics GRE, mainly by the process of elimination and knowing that Trump doesn't have a rational bone in his body. But the Chinese could have recordings.
Lacking rational bone structure leaves Trump little expertise in negotiating trade deals. It's all about how he feels that day, which means that it's all about how he thinks a deal will make him look... to himself, not his followers. His followers will, uh, follow him anywhere.
So in the end, Trump finds what other, far more capable presidents have found, that there is the compromise that is based on actual fact, which you illuminate here, Paul, and reason.
But the Trump pseudo process is a bit scary, because we don't know what its goals are. It's exceedingly naïve to declare simply that a result will be that more people in the U.S. will have jobs, especially with an unemployment rate of under 4%. In fact, it makes no sense. It would mean that Trump would have to support an immigration policy to fill those new jobs.
I guess a goal would simply be to sell more to China. If that requires China to change some of its cultural mores in the form of its laws to support importing more U.S. goods, then a trade deal is less economic than it is social engineering. Trumpian insults and threats definitely do not work in that case.
Let me know how I did on the GRE question, Paul. But I'm not going to apply to Trumanomics at Liberty U.
First a tariff, then no tariff. The stock market is being manipulated and someone is getting very rich.
5
Not mentioned but probably most important is the fact that China is a very important buyer and holder of US Treasury paper. As such they have huge leverage. A trade war which escalates and has Chinese retaliation in the form of not buying any more paper and/ or selling existing holdings, would be extremely bad for the US economy.
2
Yes, because China is holding our debt, it can manipulate our currency at will. As the currency goes, so goes the economy and the politics.
The US has lost its superpower status and is now a vassal state of China. China has been quietly pulling the strings from behind the curtain and investing around the world while the US blusters and stumbles, all show and no substance, wasting resources and political influence with non-productive foreign adventurism.
Xi is ranked by Forbes in 2018 as the most powerful person in the world, not the President of the United States.
While we were spending borrowed money, China was steadily investing. China surpassed us while we were sleeping and has now secured the future. There is no catching up.
China's political leadership are engineers each of which has steadily advanced through a stringent political meritocracy by successfully governing provinces far larger than New York.
The best we can do for our future is elect someone competent at repositioning this country as a distant number two. Someone other than Trump.
So that would be the crude 'marketisation-of-everything' Chicago school of economics. Trouble is at some point economics must be about the efficient means of production, not endless production of new markets. China is still a closed market. Your statement: " . . . to engineer a kind of enlightened mercantilism that vastly expanded world trade" should read 'vastly expanded world manufacturing'. There's a difference that is conveniently ignored here. We need a new economics.
Winning a trade war with China is not just a matter of Trump outsmarting or outnegotiating Xi and other Chinese representatives, which would already be a no-contest, but of somehow defeating or ignoring the US corporate interests which benefit from the trade. Did he really think he was going to do this? It is hard to tell how much Trump actually thinks rather than just reacting, but taking an ostensibly hard line against China and then pivoting to relatively minor agreements which supposedly benefit both sides could be a winning political strategy, as pleasing the base by taking action against the foreign "enemy", while not really cutting down on opportunity for corporate profits.
3
"Everybody says" and "people have told me" that there is some kind of tape out there. Investiigate!
3
Trade with China is good. The TPP would have been a great deal, NAFTA has been very good for the US.
Trade is good. We are at full employment, our population is only growing because we import labor in the form of immigrants, legal and illegal. We import more than we export because we spend more than we save and produce less than we use.
We have amazing choices and price points on all kinds of products that Americans want to purchase. Our shelves are full of food, clothing, cars, electronics and all kinds of products and services that people want. Energy and food is plentiful and relatively cheap.
We overspend on weapons, we have wasted trillions of dollars on wars of choice. We have killed and injured 10's of thousands of US young men and women who are no longer productive and have to be cared for. We have underspent on public education, health care and infrastructure.
Trade and immigration are not a problem, they are what's going right with the USA. Fake President, fake problems.
111
Einstein's definition of insanity is doing the same thing over again hoping for a different result. Fact: science changes, Buddhism changes, markets change, regimes change, people change, even electrons change; but not economics. Once more with markets and equilibrium; everything is fine. Just ignore rising populism. Trouble is the Chinese don't believe in open markets.
2
Meanwhile, while you're feeling wonkish, we're feeling peckish.
Time to eat the rich! :)
All true. What is not mentioned is the fact China is much more dependent on trade than is the u.s.. when we combine that fact with the other ongoing phenomenon which is slow a rosian of jobs in manufacturing we see the China has a much more vulnerable long-term position.
1
Dear Mr. Krugman, I’d like to see you write about the link between globalism (defined as the international push towards free trade since the war) and income inequality, if any. It seems to me that this is the bigger issue underlying Trump’s protectionist stance: his purported trade war with China is a nativist, America-First stance to please his base, many of of whom feel that jobs going overseas have hurt them. You’ve described why a trade war would not benefit the US. But I would love to see you explain what the future of free trade and economic liberalism should look like in a world where many feel that this model has left them behind.
5
There is also an added "bonus" of all this trade war talk and renegotiations of treaties: the reputation as a fair player in international trade. The loss of soft power in the world and trust from our allies, because everything this sitting president has done, cannot be underestimated.
3
Trade wars are as dumb as real wars. They're outdated and obsolete relics of a failed past. They're examples of not learning from history's mistakes, and doing our darnedest not to repeat them.
But with Trumpy and his gang that couldn't shoot straight running the big show, ya' think any of these dunderheads are capable of learning anything? When a nation allows itself to be led by a semi-literate unhinged nincompoop and a bunch of incompetents what do you think its chances the actions they take will turn out well?
Don't bother answering, obviously the question's rhetorical.
DD
Manhattan
25
Agree; trade wars by definition counter-productive inflicting seismic damage all round: Depressions?
If someone fortunate enough buys Mercedes-Benz in California he is not alone. That decision by the discerning buyer based on his personal preferences and by considering the resale value? He may wish to impress the neighbors? Perhaps a fetish for luxury; an irrational desire for European design? To make matters worse he then buys some quality sports shoes made in China. So now we discover the American consumer the culprit as the guilty party? Of course US government takes a cut on those sales through taxes?
2
One of the very real factors not accounted for by economic theory is that the US has sent most manufacture of low tech goods overseas. Over the years we have lost the ability manufacture these items. The skills are gone; the supply chain is gone. This fact leaves the US vulnerable in a trade war. How long will Americans put up with shelves empty of consumer goods?
The Chinese government's long term strategy is to develop a much longer internal market. During a trade war, the central planners may choose debt to partially offset lost sales to the US and support the Chinese internal market.
4
Perhaps Trump is just an extremely stupid person who really does not understand what is going on around him, much less how international trade works. Also, China completely stopping buying US products (e.g. apparently soybeans) may have caused some usual supporters to have second thoughts?
3
Your reference to American soybean producers having second thoughts about supporting Trump is extremely stupid. The world produces a limited supply of soybeans every year. China is going to purchase the same amount of soybeans. If they buy more soybeans from Brazil, Brazil will either have to buy soybeans on the commodities markets to meet China's demands, or they will have to cut sales to their other customers. Those other customers will then have to turn to other producing countries, like the US, to buy their soybeans. The net result is that the limited supply of soybeans will all be purchased on the global market. US producers will not be impacted, but Chinese consumers will pay more for soybeans to cover the additional transaction costs. The US breaks even, the Chinese lose.
Prof. K. writes: "China would be hurt worse than the U.S. in an all-out trade war."
For 20+ years China has been moving throughout the world buying up resources, outbidding Western post-colonial interests in doing so, and lending money to 3rd world countries. Thus China breaks its dependence on foreign raw materials. Likewise, they are now flooding those markets with good, cheap products, not just those we buy at Walmart and Amazon, but appliances, all-Chinese smartphones & computers, and lots of things we taught them how to make. Thus they break their dependence on foreign profiting on Chinese manufacture (Prof. K's Apple example) and their dependence on US/Euro markets.
Maybe someone explained to Trump that this trade war IS easy to win - if you are China. So we tariff-boycott Chinese goods? OK, they lose the US market while we suffer a self-induced inflation. But China continues to sell to the rest of the world at even deeper discounts while Apple et al. try to figure out where to build new plants. Thus they lock in new markets, while we, Through the Looking Glass, run as fast as we can just to stay in place.
We need China and her Asian neighbors more than they need us.
56
What amazed me is the way he simply keeled over (look at ZTE), giving his own trade specialists and negotiators a whiplash.
20
And of course Trump wants China’s help with any sort of North Korea deal.
7
Have concluded this is the most ignorant President about economics in my lifetime.
10
5. The US-Sino / NK relationship that Trump inherited was untenable economically, geologically, and militarily. The improved economic relationship was subsequent to a geopolitical atmosphere that is 180° from the nuclear abyss. Consequently, the military situation in Korea is drastically improved.
Amazing how some basic facts can change a position. It is really too bad Trump doesn't believe in facts until they slap him in the face (experts, who needs experts?). Here's hoping we survive his learning curve.
3
With Kudlow, Navarro, and Ross reprising the roles of Larry, Curly, and Moe as economic advisors, we can definitely rule out reason number 1.
80
If one reads the Times, Trump has badly bunged his dealings with China. If one watches the official Chinese propaganda channel, CGTN, China is slashing many of its tariffs, and has agreed to buy $100s of billions of new imports of US raw materials.
Read the entire Krugman column … he never mentions the displaced workers, the 60,000 factories ripped from America’s industrial heartland, or that $500 Billion in Chinese imports displaces over a million U.S. workers.
And the “income” he mentions is Apple’s corporate income generated by monopoly power used to overcharge American consumers. At the margins, use of my cell phone features hit cost/benefit optimality years ago, and yet, if we don’t upgrade every few years to a new phone, we face all kinds of glitches.
Krugman has been wrong about China for so long, it hardly worth reading more of his propaganda.
1
Why is it the demagogues always bring up the "factories that were ripped from the Heartland"? What about those created on the coasts? Does he bleed for the construction workers displaced due to immigrant labor brought in by big business? (notice how I pinned it on business, not the immigrant)Or is it just those totems like the "great" factories of the upper Midwest we long to bring back? You sound like a chapter from Atlas Shrugged and a bad one at that. The boat to save the "great factories of the Heartland" sailed long ago.
5
Who would you blame for displased workers in late 1920-early 1930s? Well, we just had automation revolution far more affecting ripped from the countryside. Trade had little effect on that and was beneficial for the country as a whole. Now, leave the capitalism unregulated and you will get more of the same, particularly that we now have a second wave of automation based on AI.
We have around 1 millions high paying jobs unfilled because hearland people don't believe in higher education and won't move to urban areas where the economic action is.
2
...and what are we to do when countries with trade imbalances approach the US demanding mitigation? The US runs trade surpluses with many more countries than deficits. And since our main exports include agricultural products and raw materials this is not like iphones. The reduction in US exports would directly harm the US and not a myriad of countries.
Addressing chronic trade imbalances deriving from illegal subsidies, patent infringement, tariffs, currency manipulation and bureaucratic impediments is always a good thing. Importing more than we export can also be a good thing, especially if imports include cheaper inputs to our products and hold down domestic costs of production.
Krugman points out once again why gut management (Trump porkbelly...) of trade is inappropriate, harmful and stupid. As in so many other cases the solution is to remove Trump, vested interests and politics from the dialogue and let the professionals do it. That's the easiest, only way to win....
4
What is truly tragic is the fact that we rarely have the luxury of looking at this issue or any other on the facts and merits . Instead, the Trump Presidency compels us to look at important economic issues through the lens of DJT's ego, motivations, biases and moods. It's like living as a child in an abusive household where you hope that you can avoid Mom's next bad mood or Dad's next angry temper tantrum.
21
Professor, your 4 simple explanations are enough while the "over thinking" is helpful as well. I'm rarely in disagreement with your pieces but think this title is misleading - It is easy to win a trade war - just ask China
10
Er, I think the trade war has already been started, and at this point it's not just a matter of walking back some threats. We may be in the Phony War phase of a global conflict, and it appears Trump isn't man enough to finish the fight he started. But make no mistake about it, actions have consequences (and announcing tariffs is an act, as much as implementing them is). We are in a conflict.
The whole idea that wars have to start with violent sneak attacks, or the delivery of ultimatums, or formal declarations is so early-20th century. It's far more modern to surreptitiously pursue your strategy until you've obtained at least an initial victory. Consider recent history. The Russians did not run around making public announcements/crafting a narrative for general consumption in their subversion efforts of the American electoral process, and that's a textbook example of brilliant asymmetrical warfare. The One Percent (the Billionaires, the American oligarchs, call them what you will) have prosecuted a class war on the American middle class for a generation, and so bamboozled the commentariat that their lackeys and toadies are the ones make the accusations of fomenting class war on any fool naive enough to attempt to defend the public interest (if that concept even means anything any more) against billionaire predators.
Nah, our leader, our elected billionaire, is a master of the surface gesture in an era of subterranean manoeuvre.
9
Thank you, Dr. K. Always felt like there was something fishy in the trade imbalance accointing.
1
Trump's recent actions with respect to tariffs and North Korea demonstrate how little he knows about governing and the workings of global politics, policy, and diplomacy. I shudder to think what would have happened had he been in office during WWII.
4
Trump was a chaos businessman and now is a chaos president. Disruption is easy, withdrawing from agreements is easy, insults by tweets are easy, but what next. He just hopes that chips may fall to his advantage and everyone folds. Pretty naive and will eventully cause his downfall.
2
I’m not an economist. But sometimes I cannot resist the thought that Globalization actually did more harm than good to the globe. It almost exclusively exported poverty and corruption. It helps building global corporate monsters, which used to be restricted in fewer countries and those countries were more law-abiding to control those monsters. But not anymore.
Now many of these huge companies are far too powerful to undermine national Govt in many countries, including USA.
Only a tiny fraction of people are benefitted in almost every country since it started in early 1990s. Wealth accumulation worsened in almost every country. And those who are benefitted made sure that the level playing field is oven more skewed in their favor. Then they try to ensure the same (or more) privilages for subsequent generations, as described in this week issue of TIME- “My generation was supposed to level America's playing field. Instead, we rigged it for ourselves”- http://time.com/5280446/baby-boomer-generation-america-steve-brill/
Poorer countries are worst affected. We produced a monster but never gave same effort to develop ways to control it.
11
Unless you consider that there are more middle class people in the world than at any time in human history. There is less starvation, more potable water, more decent shelter, infrastructure, etc., etc., etc.
The biggest problems in the world are mostly a result of wars of choice and the exporting of weapons and weapons training mostly by the US and Russia.
US military adventures have come at a huge expense to infrastructure, health care and education. That's discounting the productive young people killed or injured who are not only no longer productive many of them need care for the rest of their lives.
There is more overall wealth, food, clothing, clean water and shelter in the world and than at any point in human history. There are less people starving to death than at almost any point in human history.
That doesn't mean there aren't lots of problems. It also doesn't mean we can fix them by focusing on fake problems.
13
Let’s start with your first point-less starvation- It’s not true in most countries, including US. The percentage of Americans who now starve has reached about 17%, or 1 in 6 people. That was happened since great depression.
Then consider a typical third world country which is believed to be a poster child of globalization- India. Now India is 5th or 7th (depending on year and source you quote) richest country in the world in GDP. India has the third highest number of billionaires in the world.
India has no, I repeat no, dollar billionaire before 1980s. Now hunger and malnutrition in India is worse than all sub-saran African countries combined together. Now keep in mind that hunger and malnutrition in those sub-Saharan African countries are now worse than it was 10 years ago.
Previously, India was poor, but not that poor and had far better income & social equality.
India has better income equality than even USA before 1980s. Now it has very low gini coefficient, 2nd worst income inequality (only after Russia) in the world; far lower than USA, even though we all know situation in USA deteriorated in last few decades. India’s top 1% enjoys a whopping 73% of national wealth.
Now every $4 wealth created, $3 goes to top 1%. Whatever prosperity we see among working class people are achieved by that $1 while we used resources worth $4 for that. It has huge consequences for our future development in terms of resource management, besides socio-political issues that it generates.
Agreed; but in my view entirely beside the point of PK's typically instructive and entertaining piece. The comment has no bearing on the progress of consequences of a threatened trade war.
1
Dr. Krugman's column today highlights the need for better public understanding of economic values and relationships between peoples who share our planet and who trade with each other.
The Apple iphone example shows us that traditional ledgers and accounting methods do not reflect the wealth and profits from international business activities.
Apple transferred its intellectual property rights to low tax Ireland for its non-US sales and profits to avoid US taxes even though no one in Ireland ever developed a single smartphone. Apple's accountants were and are more "creative" than traditional economists in understanding economic advantages of what real estate people have known forever, namely that value is based on "location, location, location."
The ideological arguments over trade, "trade imbalances," "free trade," and "fair trade" call for a new and shared method of accounting that would correctly and honestly ascribe the values of goods that cross and crisscross international boundaries from intellectual properties to life cycles from raw materials, energy to produce, transportation, marketing and sales, use and eventual disposal.
Smartphones, which no one needed before 1992, but which everybody needs every hour of every day today, are excellent examples of the large value attached by people to small physical objects embedded with software programs produced by other people that amplify the value of these objects.
Settle these arguments with new and better math.
2
Is it more economically advantageous to a country to export or import?
The American public was sold in part on the idea that if we jettison millions of American jobs to low wage countries like china, we would be better off as consumers who can shop at Wal-Mart and Dollar Tree to buy cheaper products. It also meant that we could get large screen TVs and other electronics cheaper.
The consumer found cheaper products was not better than having a job with a decent living wage. As a result, millions of Americans are no longer employed even though we're told there is now less than 4% unemployment rate. But, if you consider the unemployment rate coupled with 63% of Americans who are eligible to work but are still unemployed,it was not a good idea.
So who gained the most from importing cheaper goods? It certainly wasn't middle class workers. Instead, it was American multinational corporations that soaked up most of the profits from importing goods.
The fact that multinational corporations could outsource American jobs to low wage countries to increase their profitability and then bring them back for sale to middle class Americans who no longer have jobs that pay a decent living wage was an abomination and a theft that has never been remedied.
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And the credit card explosion to buy all of those TVs, electronics, & cheap merch. Our primary role in the USA, it seems, is to be mindless consumers.
5
While I agree that U.S. manufacturers have offshore some manufacturing jobs to low wage countries, this is not the biggest reason for the loss of manufacturing jobs in our country. The big problem is technology with robotics, etc, replacing workers.
In 30 years since 1987, nominal manufacturing output has more than doubled with real output adjusted for inflation has increased by over 60%. At the same time we have seen job losses of over 30% in this sector.
Maybe its time to tax the robots and use it to help American workers.
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Latest academic research shows that the often cited cause that robotics and automation are the main cause is wrong. The entry of China to WTO was the single biggest driver of loss of American jobs.
Analysis based on one particular item, the I-phone, can be misleading. I am certain that Trump's trade war against China maybe just a show for his base. On the other hand, in total Chinese export to US, how much is the pure Chinese content?
We need to start facing the fact that since at least 1980s there has been a steady increase in all capitalist forms of globalization and a steady erosion of any predominantly nationalist view of economies in this world, at least as far as the international, borderless plutocracy of financiers and big corporations are concerned. Essentially we have moved to a place where American plutocrats/kleptocrats and, say, Russian plutocrats/kleptocrats have more in common with each other than they have with the middle- and working-classes of their own societies. With no global trade unions -- indeed, unions have been increasingly weakened even within most nation-states, including the USA -- it's unprotected and impotent workers like those who cheer Putin in Russia and who voted for Trump and his GOP in America who will continue to suffer the most.
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Almost none of the iPhone's parts are made in the U.S. Most are made in South Korea, Taiwan, Japan, and China itself. So an iPhone's wholesale cost is almost a 100% U.S. import. A tariff on iPhones, besides hurting Apple and U.S. consumers, would also hurt China and a bunch of other Asian countries. I'm guessing that Trump would be happy with this. But it would take a very large tariff to get Apple to consider moving iPhone assembly to the U.S.
Furthermore, the foreign parts imported into China to make the iPhone are counted as imports to China, one reason why China's trade surplus is very very slim. Overall, I think this notion of value added is overblown by Krugman. China is not an entrepot.
I'm going with the bribe. Trump made money off buildings where he had to make deals with government to ahead of his competition. And, as Trump has said many times, that consists of negotiations with political contributions attached. That is Trump's only understanding of how government works. Use Trump's hotel or one of his resorts, if you want a favor. If China helps Trump, he will help them at our expense. Qatar got embargoed when it didn't help Jared. Nobody can compete with Trump when it comes to being corrupt.
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Is a trade war with China easy to win?
Yes because the Chinese position is much weaker than realized. Real unemployment is larger than reported officially. Chinese cities are filled with millions of rural migrants from the country side, without a hokuo (a permit required to live in the city that allows access to schools and social services). Largely unskilled, they see there jobs disappearing.
Why ?
Click here, to see for yourself
https://www.francetvinfo.fr/economie/industrie/ethiopie-la-nouvelle-usin...
(Ethiopia , the new factory of China)
Ethiopia is the new place for the factories of China. 741 acres are covered in Hawassa by mostly Chinese factories. Salaries in the Chinese owned textile plant shown are 30 Euros ($ 35) per month , 1/20 of those of China as the Chinese owner explains. That is 1/20 !!
What the proud Chinese owner does NOT explain is that he laid off his textile workers in China when he moving the factory to Ethiopia.
It is a race to the bottom. Stagnant wages by outsourcing production to those willing to work for least, has reached China.
Economists such as Krugman who promoted globalization (In Praise of Cheap Labor) failed to see that political unrest (e.g. Brexit, Trump ) follows.
It does, and that is becoming a headache for the Chinese leadership, who is well aware of it.
China can ill afford a trade war with the US, that would further accelerate that development
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Because we have a consumer economy totally dependent on imports, and agriculture totally dependent on exports, we may even less afford trade war. A double whammy.
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After understanding few facts of trade/business and considering real life data, it seems to me that the problem is not China or where a product is actually manufactured or assembled.
The main problem with the whole issue is mainly American policy to protect and promote many, mainly the big and powerful, corporate interests who consider & advertise themselves as 'American' and force American government to protect and promote its profit- at home and abroad. They had huge army of political lobbyists which enable these companies to pay very low tax in US, hardly invest in developing local manpower, refuse to provide market rate salaries for employees (instead, start shouting of 'talent shortage' to import cheaper and easily exploitable manpower from abroad) and so many other tactics. These same companies also exploit or coerce US Government to arm twist Foreign Governments like in China, India, Brazil, EU and many more, to force them to adopt similar ‘pro-business’ policies and laws to boost the profit. And everything is packaged as a ‘trade imbalance’ only for gullible native people in the USA.
I would not care much if Walmart or Apple or any such global company make their staff in China or Uganda or Bangladesh- so long they pay their fair share of their taxes and play by the same rule as others (particularly when they think ‘corporations are people’) and Government ensure a stable society, supply of quality manpower, competitive ability to innovate/invent and such issues.
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Trump will win it using the strategy proposed to win Vietnam. He will declare victory and leave no matter, no matter how bad the situation is.
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I am not sure we have the upper hand. Look at retailers from Walmart to Dollar stores. Most of their merchandise is from China. What will happen to them in case of trade war? They will all collapse,
Imports keep the cost low and check inflated price.
1
The problem occurs when $in do not balance $out. Right now they do not, and chronically, because we spend so much more on import purchases than we earn back in export sales. That is not YET causing a surplus of US$ in exchange markets because the US$ is hoarded elsewhere to use as an international currency in trade between other nations. That will end one day, as it has for every other single country country currency used in that way in the past.
When the US $ is replaced by some other international unit of exchange, those hoarded foreign holdings of US $ will be dumped on currency exchange markets.
The dollar then likely will crash in value against other major currencies. US $ denominated bonds likely will be dumped by foreign holders, causing a rapidly rising interest rate here and triggering a severe US recession. As the dollar crashes in exchange value vs. other currencies, the price of those imported goods, on which we have become so dependent, suddenly will skyocket at a time when US consumers can least afford it.
That is why many of us are alarmed at our current trade imbalance and feel that it needs to be curbed. Like dependence on "feel good" dope, it can have disastrous effects later on.
5
Walmart has done more to destroy working class America than almost any single entity, mostly for the obscene benefit of one family. Their failure is the country's gain.
We are only exceptional at believing we are exceptional.
Billion President, trade policies that benefit some at the expense of many others, gig economy, a shrinking middle class, a growing underclass, an out of touch upper class, corruption legalized by the Supreme Court, clueless economists, tax cuts for the wealthy, cuts to social programs for everyone else, stagnant wages, shrinking employment benefits, endless war, rising suicide rates, decreasing life expectancy which correlates with lack of income, drug addiction epidemic, the most expensive health care system in the world that still does not cover everyone, a growing threat of nuclear war, climate change denial, …
An exceptional people and nation would never allow, yet alone tolerate, any of these conditions. But hey, our salvation appears possible with iPhones for everyone.
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Bread and circuses for the masses.
11
Well said.
6
Unlike Europeans Americans don't travel often to other countries. We don't speak the languages of the countries around us because we're so large. We don't have much incentive to visit France, Great Britain, Spain, Greece, Germany, the Baltic countries. We haven't had our entire economy and infrastructure ruined by repeated wars. We are a very isolationist nation and ignorant of how other nations solve their social problems. We don't even want to admit that other nations might do better at solving certain problems than we.
We are a very superstitious nation. We are not especially tolerant of others whether or not they are immigrants. We talk a good line about how sacred life is yet the only life we truly support is prenatal, the rich, and those who are celebrities. The average American is totally disregarded when it comes to most things. We treat our pets better than we treat people.
We're exceptional all right: in the degree of our cruelty, our willingness to execute innocent people and guilty people, our disinterest in creating and continuing programs that can truly help people when they need it.
America is no longer a middle class country. It's a country run by and for the uber rich.
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