Archive for October 2019

 
 

The US is losing the trade war, and that’s good

If the US were fighting a trade war over human rights, I’d have doubts about whether it was the right way to address the issue. Nonetheless, I’d certainly root for us to succeed. But this trade war is being fought over economic issues, and thus I hope we lose.

Most of the commentary about the mini-agreement has been along these lines:

“I’m skeptical that there is anything that could be objectively called a deal,” said Scott Kennedy, an expert on the U.S.-China economic relationship at the Center for Strategic and International Studies in Washington. “It appears that the U.S. was looking to find a way to avoid raising tariffs in the next couple months and reassure financial markets, and so it was willing to accept only an oral agreement on a narrow range of issues to take this step. Xi Jinping has to be quite satisfied with this outcome.”

It will be some time before we know the details of the agreement, but China has made vague commitments in the past that haven’t ended up meaning very much.  Why should they?  The US doesn’t adhere to our trade agreements either.

Of course Trump’s got lots of other problems to deal with.  The Dems are trying to impeach him (and perhaps send another of his lawyers to jail), and the GOP is angry that he stabbed the Kurds in the back.  The last thing Trump wants right now is an escalating trade war driving the US into recession.  (Yes, a recession would technically be the Fed’s fault, but Trump would be blamed.)

So this nearly meaningless deal is actually good news, as it puts off even more damaging steps and gets us closer to the election.  Next year, Trump probably would hold off from further escalation and declare “victory”.

Some argue that a President Warren would be even tougher on China.  That’s hard to say, as the party out of power always claims to be tougher on China and then never is (until Trump.)  But even if she is, she’d likely put a bit more weight on human rights and a bit less weight on making Mark Zuckerburg even richer than he already is.

A warning for Democrats

Just a year before the next election, polls show that roughly half of voters believe that Trump should be impeached and removed from office.

That should be great news for Democrats, right? Even if he survives impeachment (which seems likely), the polls show that he’s quite unpopular. Unfortunately, betting markets show that if Trump gets the nomination then he is likely to be re-elected.

This is not because Trump is popular; rather the betting markets anticipate that the Dems will pick an extremely weak candidate, someone like Elizabeth Warren. If Democratic voters had the best interest of the country at heart then they’d pick someone who would be electable. I fear they have other goals in mind.

BTW, this caught my eye:

In August, President Donald Trump’s eldest son, Donald Jr., flew to Jakarta to help kick-start sales at a pair of Trump-branded luxury resorts planned for Indonesia. He appeared at a private event with wealthy prospective buyers and joined his politically connected billionaire Indonesian business partner at a news conference.

And last year, Donald Jr. visited India to sell condos at future Trump-branded towers, appearing at an event that also featured India’s prime minister. . . .

When the Trump Organization tangled with the majority owner of a property in Panama, for example, its local lawyers at one point called on the Panamanian president for an assist.

In Indonesia, the government is helping to build a major new highway that will make a new Trump development more accessible.

Yes, Indian Prime Ministers normally show up at condo sales events. Of course we know from the Ukraine phone call that foreign leaders are not at all willing to kowtow to Trump and assist his business interests, right? So what does Donald Trump Jr. think of all this?

“At the VERY LEAST, there’s the appearance of impropriety,” Donald Trump Jr. wrote on Twitter. “A clear conflict of interest.”

Oh wait, that comment was referring to Hunter Biden’s business dealings. Sorry.

It seems that in the Trump family the apple does not fall far from the tree.

The low interest rate century

During the Great Recession, I argued that low interest rates were the new normal and that during the 21st century people would be constantly complaining about “bubbles”. But even I never envisioned rates being this low.

Ten-year bond yields are still 20 basis points above the 2016 lows, while 30-year bond yields have been hitting all-time record lows. Why the difference?

In my view, the 10-year yield is a bit more influenced by cyclical factors, and the economy was a bit weaker in 2016 than it is today. In contrast, the sharp fall in the 30-year bond yield reflects the market gradually realizing that low rates are not just a passing fad, but rather are the new normal.

I thought we’d cycle between 0% and 3% over the business cycle, now it looks more like a 0% to 2% cycle might be the new normal. This cannot be explained by inflation, which isn’t much different from what it was in the late 1990s.

What do you say now?

Back in 2016, I pushed back against the conventional wisdom that Americans were opposed to trade and that this explained the rise of Trump. Even then the polls didn’t show that. Of course I was viewed as naive—the zeitgeist was all about the China shock, deindustrialization in the Rust Belt, the rise of populism, etc. Didn’t I know that neoliberalism was passé, it had failed us? OK, so how do things look today?

So do you guys still believe that Trump’s views on trade (“trade wars are good, and easy to win”) represents the wave of the future? Am I just an old foggy who doesn’t understand how bad globalization has been for average people?

BTW, Tyler Cowen linked to a new study of the China trade shock:

The estimates imply that trade with China increased U.S. consumer surplus by about $400,000 per displaced job, and that product categories catering to low-income consumers experienced larger price declines. [emphasis added]

I bolded the low income part, because if trade is good for efficiency then equity is the only issue at stake here.

PS. I notice that the current zeitgeist is all about “progressive” ideas like wealth taxes and fiscal stimulus. Unlike certain publications, I don’t swing with the political winds. Taxes on capital income always have been evil, and always will be. All taxes are consumption taxes. The only difference is that some consumption taxes tax future consumption at higher rates than current consumption. Those bad consumption taxes are called “income taxes”, “capital gains taxes”, “wealth taxes”, etc. Instead we should tax higher levels of consumption at higher rates. That’s a truly progressive agenda.

Stick to your principles when the rest of the world is losing its head. In the long run, they’ll come back to you. Stable NGDP growth, free markets, free speech, free trade, progressive consumption taxes, externality taxes. Those principles aren’t going to change.

HT: Noah Smith, David Beckworth

Trump wants a deal, but does China?

How do I know that? Because Trump said so:

President Donald Trump said in a Twitter post that he plans to meet with Liu on Friday, adding that it’s a “big day of negotiations with China. They want to make a deal, but do I?”

Wait, isn’t that the exact opposite? Yes it is. But Trump always says the exact opposite of what’s true. A perfect phone call is a disastrous phone call. A traitor is a patriot. The man who respects women more than any guy other actually respects them less than any other guy. The wisest leader is the least wise.  I could go on and on.

You have to know how to read Trump, then it’s as easy as reading the mood of a 4-year old child.