Asia Is Bonding, Opposite Of Trump's Hope

I wrote an article recently about how Scott Sumner, of the Mercatus Center, destroyed the FT over China. It appears that the Mainstream Media is really trying hard to plant articles showing how great tariffs are, how great "Made in America" is, to the point of propaganda. 

I am not accusing Noah Smith of propaganda, but Dr. Sumner took him to task. PhD thinkers may not have all the answers. But they do have most of the logic! 

Noah Smith is a professor as well (Sumner is retired), and is not saying that Trump will win a trade war. But he did say this as quoted by Sumner:

There’s no way to measure the amount of state interference that China is using to shut out foreign companies. And IP theft, by definition, happens in secret and is thus difficult to detect or to prove. China’s entire economy is centered around pervasive state intervention and skullduggery — even if it made some moves to change that model, the U.S. couldn’t verify that changes had really been made.

Of course, Scott Sumner found fault with the reasoning:

If it can’t be measured, how can we be confident that China’s entire economy is centered around this intervention and “skullduggery”?  You might say, “it’s obvious”.  No, it’s obvious that these things happen pretty often in China, but it’s not obvious how big a problem it is.  If it were, then Smith would be wrong in claiming we can’t measure it.  How do we know that the “center” of their economy is not growing rice, or building subways, or selling life insurance?  For instance, China’s goods imports are about 15% of their GDP.  The same is true of the US, but because the US figure is for both goods and services, I presume China’s total imports are actually a larger share of GDP than in the US.  So how important are their barriers to imports? Who knows?

And: 

 I am not claiming that China has fewer trade barriers than the US, indeed I believe the opposite is true; my point is that the data doesn’t provide any way of knowing how much of this is anecdotal, and the extent to which China really is much more closed than other countries like the US.  Let’s not forget that the US also does lots of “skullduggery”, like “Buy America”.

If Noah Smith is contributing to the propaganda war of words, even if it is not deliberate, in an effort to boost America's buy in to a tariff war, that would be a shame. 

I agree with Noah Smith that Trump's trade war is probably less bad than it was because of the New NAFTA. However, there is one caveat. The Canadians and Mexicans were forced to submit to a limitation of their sovereignty, needing to inform the other nations in the agreement of a free trade agreement with any command economy, ie. China. 

Of course, the Canadians have said they will ignore that provision, or at least Trudeau did. I listened to Canadian finance minister Bill Morneau evade the issue. But he did say that informing the USA was a "practical reality" in the business world. In other words, Morneau is confident that any deal Canada would make with China would not offend the USA. With Trump as president of the United States, surely this cannot be taken for granted.

Even China has voiced disapproval of this provision.

This is what the provision in the new NAFTA limiting Canadian and Mexican sovereignty does:

Chapter 32 of the USMCA includes an article on "non-market country" free-trade agreements. It states that the signatories are required to give notice to the other countries in the deal, if they intend to negotiate a free trade agreement with a “non-market” country that is not already in a free trade agreement with one of the UMSCA countries.
The other two countries in USMCA would then have time to review the full text of whatever agreement is reached to assess what impact it would have on the USMCA, and allow for a country in the deal to trigger the six-month pullout mechanism to withdraw from the USMAC if they don’t like the new deal their partner is making.

This is, obviously, an effort on the part of Trump to form an invincible block against China. This is an effort to do what Noah Smith advocates, a focused trade war against China, not a world trade war. 

But in order for this to really work, this submission of sovereignty would have to be imposed upon Europe and Japan. And then it still may not work. 

The unification of purpose of China, India and Russia, a rise of Asia as the world's largest trading block will be a negative result for the United States, the opposite of what POTUS wanted! The only weakness in this alliance is Pakistan and India relations. It would seem that this would have to be patched up. 

Just as Russia announced the sale of the S-400 missile system, China announced drone sales to Pakistan! It should be noted that China is Pakistan's largest arms supplier. 

In August, India, China, Russia, Pakistan, and others took part in a military drill in Russia. The YouTube report is not in English, but point is, it was recorded by Zee News. This can't be what Donald Trump wants. He is losing trust, economic clout, trade prosperity, and is fusing those four nations. 

Any goodwill the USA has in Asia is toast. Surely, we comprehend that the USA makes up only 4.4 percent of the world population. This is insignificant in the grand scheme of things. We need Asian customers, almost 4.5 billion of them. 

Add to these developments, the harsh words between finance minister Wang of China and Trump adviser Mike Pompeo, and we have a destruction of trust. Trump has hurt world prosperity, potential prosperity, for nothing. 

This is what minister Wang said to Pompeo. He accused the United States of descending into "conflict and confrontation". He went on to say: 

 

These actions have affected the mutual trust between both sides, and has cast a shadow over the prospect of China-US relations, which completely go against the interest of our two peoples. We require that the US stop such misguided actions.

The United States is making an enemy of the largest nation in the world, a nation that still wants cordial relations. Americans will pay dearly, in their wallets and maybe with their lives unless somehow, cooler heads prevail. 

Noah Smith needs to seriously reconsider being one of a number of spokesmen for this Trump folly. It is clear that the United States is not only behaving badly, but it is on the path of isolation. Look at it this way. China is growing. India is growing. But our block, Europe and Japan, are not growing as fast. North America is not growing anywhere near the rate of China, according to the IMF.

The FT reports that the combination of tighter monetary policy, slowing growth, and tariffs are a danger to credit based economies. Head IMF economist, Maurice Obstfeld said:

Conflict could intensify if fiscal policies in the United States drive its trade deficit higher without action in Europe and Asia to reduce surpluses.

And he said that heavy deficits would do little to reduce America's account deficit, (not speaking to the trade deficit), because Americans spend beyond their earnings.  

Events could cause the IMF to revise downward yet again. This is a very dark time in world affairs. There is a small window to patch the damage Donald Trump has already caused. But it could close quickly. 

To show the insidious nature of the steel tariffs, Ford is planning on layoffs after losing a billion dollars, even though the company sources 95 percent of its steel from the USA. In other words, tariffs has caused a price rise for steel across the board, not just for imported steel. 

This sort of thing is a financial disaster which could be repeated across the United States in many industries that rely on steel. The lack of competitive steel could affect up to 6.5 million workers while the tariffs that cause the inefficiency saves a few hundred thousand jobs. Those numbers spell potential disaster for many American workers and hundreds of millions of US consumers.   

Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Gary Anderson 3 years ago Author's comment

Update: The weak link in Asian cooperation remains India and Pakistan. If those nations would think globally, and some in both nations have, instead of being at each other's throats over terrorism, Asia could move forward at a faster pace towards a comprehensive growth. Asia's strength is in its potential for massive growth and prosperity.

PreferredStockTrader 4 years ago Contributor's comment

The U.S. does not think about the long term, but only about having every country bow to its wishes and maintaining and growing its empire and domination. You don't make friends by bullying (including economic sanctions and outright military force) countries that are not looking to be your enemy ( ala Russia, China, Iran, Venezuela, Syria, Libya). To quote the title of a Noam Chomsky book on the USA, "What We Say Goes". That is the extent of U.S. foreign policy thinking.

Gary Anderson 4 years ago Author's comment

It is surprising to me, Trader, that America does not think more about the nation's long term economic future when formulating foreign policy.