Clueless

New York Times columnist Paul Krugman’s column from yesterday is astute, to-the-point, and well worth the few minutes it takes to read it.  He hits the nail on the head regarding Trump’s trade ‘negotiations’ with China.

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The Art of the Imaginary Deal

On trade, Trump is a rebel without a clue

Are we going to have a full-blown trade war with China, and maybe the rest of the world? Nobody knows — because it all depends on the whims of one man. And Tariff Man is ignorant, volatile and delusional.

Why do I say that it’s all about one man? After all, after the 2016 U.S. election and the Brexit vote in Britain, there was a lot of talk about a broad popular backlash against globalization. Over the past two years, however, it has become clear that this backlash was both smaller and shallower than advertised.

Where, after all, is the major constituency supporting Donald Trump’s tariffs and threats to exit international agreements? Big business hates the prospect of a trade war, and stocks plunge whenever that prospect becomes more likely. Labor hasn’t rallied behind Trumpist protectionism either.

Meanwhile, the percentage of Americans believing that foreign trade is good for the economy is near a record high. Even those who criticize trade seem to be motivated by loyalty to Trump, not by deep policy convictions: During the 2016 campaign self-identified Republicans swung wildly from the view that trade agreements are good to the view that they’re bad, then swung back again once Trump seemed to be negotiating agreements of his own. (We have always been in a trade war with Eastasia.)

But if there’s no strong constituency for protectionism, why are we teetering on the brink of a trade war? Blame U.S. trade law.

Once upon a time, Congress used to write detailed tariff bills that were stuffed full of giveaways to special interests, with destructive effects on both the economy and American diplomacy. So in the 1930s F.D.R. established a new system in which the executive branch negotiates trade deals with other countries, and Congress simply votes these deals up or down. The U.S. system then became the template for global negotiations that culminated in the creation of the World Trade Organization.

The creators of the U.S. trade policy system realized, however, that it couldn’t be too rigid or it would shatter in times of stress; there had to be ways to relieve pressure when necessary. So trade law gives the executive the right to impose tariffs without new legislation under certain circumstances, mainly to protect national security, to retaliate against unfair foreign practices, or to give industries facing sudden surges in foreign competition time to adjust.

In other words, U.S. trade law gives the president a lot of discretionary power over trade, as part of a system that curbs the destructive influence of corrupt, irresponsible members of Congress. And that setup worked very well for more than 80 years.

Unfortunately, it wasn’t intended to handle the problem of a corrupt, irresponsible president. Trump is pretty much all alone in lusting for a trade war, but he has virtually dictatorial authority over trade.

What’s he doing with that power? He’s trying to negotiate deals. Unfortunately, he really, really doesn’t know what he’s doing. On trade, he’s a rebel without a clue.

Even as he declared himself Tariff Man, Trump revealed that he doesn’t understand how tariffs work. No, they aren’t taxes on foreigners, they’re taxes on our own consumers.

When trying to make deals, he seems to care only about whether he can claim a “win,” not about substance. He has been touting the “U.S. Mexico Canada Trade Agreement” as a repudiation of NAFTA, when it’s actually just a fairly minor modification. (Nancy Pelosi calls it “the trade agreement formerly known as Prince.”)

Most important, his inability to do international diplomacy, which we’ve seen on many fronts, carries over to trade talks. Remember, he claimed to have “solved” the North Korean nuclear crisis, but Kim Jong-un is still expanding his ballistic missile capacity. Well, last weekend he claimed to have reached a major trade understanding with China; but as J.P. Morgan soon reported in a note to its clients, his claims “seem if not completely fabricated then grossly exaggerated.”

Markets plunged earlier this week as investors realized that they’d been had. As I said, business really doesn’t want a trade war.

Let’s be clear: China is not a good actor in the world economy. It engages in real misbehavior, especially with regard to intellectual property: The Chinese essentially rip off technology. So there is a case for toughening our stance on trade.

But that toughening should be undertaken in concert with other nations that also suffer from Chinese misbehavior, and it should have clear objectives. The last person you want to play hardball here is someone who doesn’t grasp the basics of trade policy, who directs his aggressiveness at everyone — tariffs on Canadian aluminum to protect our national security? Really? — and who can’t even give an honest account of what went down in a meeting.

Unfortunately, that’s the person who’s now in charge, and it’s hard to see how he can be restrained. So the future of world trade, with all it implies for the world economy, now hinges largely on Donald Trump’s mental processes. That is not a comforting thought.Text dividers

Who Knows What Tomorrow Brings?

The stock market is more fragile than a newborn baby or a piece of fine china.  A word, a look can cause market fluctuations, sending analysts to their desks to … well, analyze.  The most recent example is the roller coaster ride the market took this week (and it’s only Wednesday, folks).  Volatility is the buzz word of the week on Wall Street.

Last weekend, during his trip to participate in the G20 in Buenos Aires, Argentina, Trump announced that he and China’s President Xi Jinping had reached an agreement of sorts.  My own thoughts were that it wasn’t anything more than smoke and mirrors, Trump’s attempt to make it appear as if he had at least done something to justify the cost of himself, his wife, daughter, and son-in-law travelling all that distance on our dime.  The agreement seemed to be a non-agreement, for the only thing they actually agreed to was to try to come to some agreement on trade and tariffs within the following 90-day period.  Big deal.  Whoopee.  They could have done that without announcing that they agreed to do it.  Oh yeah, and Trump also said he told Xi that he wouldn’t add any new or additional tariffs on China during the 90 days.  No doubt that had Xi wiping the sweat off his brow.

Some people are apparently not as cynical about these things as I am, for they took great joy in calling their brokers and saying, “BUY, BUY, BUY!!!”  And thus, the stock market climbed on Monday, enough to wipe out the losses of the previous few weeks … losses that had wiped out the gains from the entire year.

But then, Trump appeared to waffle about the “agreement” with a Tuesday morning tweet …Trump tariff manAnd those same people who called their brokers on Monday, placed yet another call saying, “SELL, SELL, SELL!!!”  And thus was born an all new level of volatility in the S&P, the Dow Jones, and Nasdaq, with two-day losses thus far, more than wiping out Monday’s gains and then some.  You know those playground things, basically a board on a fulcrum that are called teeter-totters, or see-saws?  They go up-down-up-down …teeter-totterThat is what the U.S. economy is on.  Market fluctuations based on anticipation of economic or political events are not unusual.  However, rarely are they as significant and immediate based on naught more than a word or a tweet from a madman!  If … IF Donald Trump were a mentally and emotionally stable leader, one might understand why such a remark would set the wheels in motion for a market tumble.  But, given his rarely-coherent state of mind, his lies and reversals, I cannot imagine why anybody would base financial decisions on one of his multitude of daily tweets.

The internet is having great fun with Trump’s new nickname, Tariff Man …Tariff Mantweet-1

tweet-2tweet-3Once again, Trump has made himself, and by extension all of us, a laughingstock.  But it goes deeper than that.  He is playing a game, the rules of which he is ignorant.  And the stakes, for the average person like you and I, are our 401(k)s, our pensions and retirement plans.  On an even larger scale, he is playing with the economic well-being of not only the U.S., but global economies as well.

Our nation is going through enough turbulence at the moment without the person who should be reliable and steadfast creating so much chaos that the major indicator of our economy is swinging on a pendulum.  I am reminded of a line from a song, Up Where We Belong by Joe Cocker and Jennifer Warnes:  Who knows what tomorrow brings?