Did China win the trade war?

Tyler Cowen has a new post entitled :

No, China did not win the trade war

He cites a recent study on the economic impact of the trade war:

This paper estimates that the trade war costs China $35.2 billion, or 0.29% GDP, costs US $15.6 billion, or 0.08% GDP, and benefits Vietnam by $402.8 million, or 0.18% GDP.

Does that indicate that China did not win the war? Look at the following data, and tell me who won the Civil War?

For 110 years, the numbers stood as gospel: 618,222 men died in the Civil War, 360,222 from the North and 258,000 from the South — by far the greatest toll of any war in American history.

This data has recently been challenged, but I think you get the point.

The primary objective for Trump and Navarro was a reduction in the US trade deficit. The deficit actually got larger, and the trade war also seemed to slow the growth of manufacturing jobs in the US. So it certainly looks like the US lost the war. Whether China won is another issue.

I’d say it’s too soon to draw any firm conclusions on who (if anyone) won the trade war. If Biden wins, I expect him to continue the recent cold war with China, mostly fought on issues ranging from technology to human rights. On the other hand, I’d expect Biden to wind down the trade war with China, for several reasons.

First, there’s a widespread view in the Democratic Party (and among economists) that the trade war was a failure. Second, polls suggest that Trump’s trade polices were not very popular among the general public—where support for free trade agreements has recently surged much higher. (You and I may not trust polls, but politicians do.) Third, the policy is associated with Trump, which makes it toxic in the Democratic Party. Fourth, if I’m right that Biden will continue the cold war with China, dumping the trade war is a convenient way to distinguish his policy from Trump’s.

If Trump wins, it’s anyone’s guess as to what the second term will look like.

My wife is currently in China, and says that things there are back to normal. She and her mother saw a movie where the theatre was so crowded that they couldn’t even sit together. The roads, the restaurants, the stores are all packed. In contrast, the US economy is horrible. If Biden abandons the trade war, a war that failed to reduce our trade deficit, it’s certainly going to look to most people like China won, even though the disparate economic performance is primarily due to Covid-19. If people want to say both sides lost, I’m fine with that claim.

Tyler commented on the trade war study as follows:

Those numbers should not come as a surprise, they do indicate that both countries are worse off, but they also show that a lot of the bargaining power does in fact reside on the side of the United States.

Sure, “a lot” of the power resides in the US. But it’s also likely true that “a lot” of power lies in the country ruled with an iron fist by a dictator for life who is negotiating with a democratic country containing a soft and spoiled electorate that is not used to the extreme sacrifices made by the Chinese at various times in their recent history.

I’m an anti-anti-anti-Trumper

Imagine a large rectangle, divided into two portions. On one side is written, “reduce interest rates”. On the other side is written “raise interest rates”. A turtle is placed right on the dividing line. Over time, it wanders into one of the two specified areas. If the turtle wandered into the area that expressed your personal views on monetary policy, would you say that the turtle in question is “right about monetary policy”?

I suppose you could make that claim, but in everyday use the phrase “being right about something” usually implies there’s been actual mental deliberation that led to a correct conclusion.

Trump is sort of like that turtle. He’s never actually considered what view on any issue is correct; rather he always considers which view is most beneficial to him. If you take 100 issues where there are binary choices, Trump may seem correct in about 50 cases. But that’s not really being “right” in any meaningful sense of the term.

Trump opposed low interest rates back in 2015, when we actually needed lower rates. Then he favored low interest rates after becoming President. That might have been correct in some sense (although the case for lower rates was weaker in 2018 than in 2015). But he was no more “right” in 2018 than the turtle that wandered into your preferred square.

Trump opposed more Covid testing because he thought it would make him look bad, and supported an accelerated push for a vaccine because he thought it would help him get re-elected. He was correct about the vaccine and incorrect about the testing. But let’s be honest, terms like ‘correct’ and ‘incorrect’ have no meaning when applied to Trump. Trump lies almost every day, and his statements on which policies he prefers are all about his personal interest. It makes no sense to even talk about whether Trump is “right” about what’s best for society as a whole. Trump’s never given the question any thought.

Here’s Matt Yglesias:

I have no problem with libertarians criticizing Nancy Pelosi on this issue. I have a big problem with libertarians taking an “anti-anti-Trump” stance, that is, libertarians claiming that anti-Trumpers are hysterically overreacting to the man. Hell no! Even anti-Trumpers like me are underreacting to the man.

Trump is so appallingly bad that his awfulness won’t actually be known until after he’s left office and we can start lifting up the rocks to find all the worms underneath. The only reason Trump is not a Nazi is that he doesn’t have enough power to impose Nazism. This is a man who encouraged Xi Jinping to put a million Muslims into concentration camps. He favors torture. He praises war criminals. I could name 100s of other examples. And there are many more that will be revealed once he’s lost power and it’s possible to investigate all his crimes, his abuse of power. (Crimes that he is currently covering up, often in violation of the law.) There’s no possible way any sane person could overdo their anti-Trump hysteria. Descriptions of his behavior by his own aides (off the record) read like something out of The Onion.

Some anti-anti-Trumpers make the fundamental mistake of looking at Trump as follows: “Hmmm, there are 347 issues where there are binary options. On how many of those issues do I agree with Trump?” You don’t agree with Trump on any other those issues, because Trump literally has no views on what’s best for the country.

In 2016 we were told by conservatives to focus on the “issues”, that Washington/Eisenhower-style competence and integrity only matter during a major crisis. Hmmm . . .

I predict that anti-anti-Trumpers will look just as discredited after Trump leaves office as Joe McCarthy supporters looked in the late 1950s. And that’s despite the fact that McCarthy was right that Soviet spies in the US were a problem. Don’t be lulled into thinking that just because Trump is “right” about this or that, he is anything other than the worst president in history.

BTW, just as McCarthy hurt the anti-communist cause, Trump will end up hurting the conservative cause.

PS. I’m not accusing all libertarians of being anti-anti-Trumpers. Many of those I’ve read agree with my overall view of Trump.

PPS. Despite being anti-Joe McCarthy, I’m actually an anti-anti-anti-communist. I’m no fan of anti-anti-communists like Noam Chomsky. The left has its own problems.

Trump’s performance while taking steroids shouldn’t count

When future historians decide whether Trump belongs in the Presidential Hall of Fame, his performance under the influence of steroids should not count.

Just look at Trump’s rapid and complete acceptance of Matt Yglesian fiscal policy:

No president could achieve that sort of head-spinning result without taking drugs. It would not be fair to compare Trump’s fiscal performance with Presidents like Obama and Bush, who did not use any artificial stimulants.

PS. Biden better start taking some stimulants or he might lose this thing.

PPS. Does his neck look thicker?

HT: David Beckworth

Tim Duy on new claims data

I recently praised a Tim Duy post on fiscal stimulus, albeit using my usual clumsy wording. This led to an amusing Duy tweet:

Ouch! BTW, my post was at Econlog.

Now Duy has another excellent post, this one discussing the puzzlingly high level of initial new claims for unemployment. Duy quotes from a Bloomberg article (in italics) on problems with new claims data, and then adds some comments:

The report came with the same major caveat as last week: The figures from California, the most populous state, used numbers identical to the previous week because the state temporarily halted acceptance of new applications for two weeks to improve its systems and address a backlog of filings.

We know that the states were completely unprepared for the wave of claims that hit this spring. We don’t know however how deeply that damaged the data. The overwhelmed systems were likely more vulnerable to fraud as well.

What really struck me this week was this red flag from the JOLTS report . . .

How can layoffs and discharges have collapsed to pre-pandemic levels despite the persistently high level of initial claims? 

The post contains lots of interesting graphs, and concludes as follows:

Bottom Line: I think we should be much more skeptical of the initial unemployment claims data. If you switch your analysis to the the layoffs and discharges series, the world looks very different. A lot of the conventional wisdom is tied to the claims data. The claims data lets you view the current environment as a repeat of the last recovery. If the claims data is deeply corrupted, the conventional wisdom is just plain wrong. I keep saying the same thing: This isn’t the 2007-09 recession or the 2009-2020 recovery. It’s something different. 

Men of my generation have trouble expressing their feelings. At the risk of making Duy uncomfortable, I can say that my feelings for him have now moved beyond non-hatred, up to somewhere above neutral but below bromance.

I expect a fast economic recovery after the vaccine is widely available. And if I’m wrong, then I will be very disappointed in the cowardly American people.

Election forecasts

In 2016, Hillary won the popular vote by 2.1%, and still lost the Electoral College (EC) by a fairly wide margin. She would have needed to win the popular vote by about 3% in order to win the EC.

Some argue that Trump got lucky, winning those rust belt states in a fashion similar to pulling an inside straight in poker. Or the way Toronto won the NBA title last year after Kawhi’s famous 4 bounce shot.

Actually, the EC is structurally tilted toward the GOP, and this year the tilt is likely to be even worse than in 2016. The reasons are complicated, but have to do with the fact that the Dems have been gradually gaining ground in red and blue states like California and Texas, while the GOP has been gradually gaining ground in purple states like Pennsylvania, Michigan and Wisconsin. So this year Biden needs at least a 3% margin in the popular vote, maybe more.

In addition, the polls in the US and UK have pretty consistently understated the support for unfashionable right wing populists. I noticed this with Brexit in 2016, but foolishly ignored this in my 2016 US forecast. Just as with Brexit, Trump did a couple points better in the popular vote than in the polls. This pattern repeated recently with Boris Johnson’s landslide win, and I expect a similar pattern here in November. Thus Biden needs to lead in the polls by about 5% on election day in order to win the popular vote by 3%. And that’s not even accounting for the high rate of invalid mail-in ballots, which some feel will hurt the Dems this year.

Furthermore, Clinton’s lead in the polls declined between mid-October and election day in 2016. Six weeks ago, when I forecast a Trump victory it was in the expectation that Biden’s lead (which was then 7%) would gradually shrink as we approached the election. I expected a feeble debate performance by Biden and lots of ginned up “October surprises” by Trump to control the narrative going down the stretch.

Obviously, things are not going as I expected—the lead has stretched to 9.5%. I did not expect the reports that Trump called US soldiers “losers” and “suckers”. I did not expect Trump to have paid almost no tax in 2016 and 2017. If he really is a billionaire, he could have easily told his tax people to pay a few hundred thousand so it wouldn’t look so bad. I did not expect him to make a fool of himself in the debate, preventing Biden from making a fool of himself. I did not expect him to get Covid-19. I did not expect America’s improving Covid situation to level off in recent weeks. I did not expect Trump to torpedo a new fiscal package that would have delivered unemployment compensation to millions of people, a fair number of whom voted for him. All this negative stuff came out in just the past 6 weeks!

I’m often a contrarian, but I’m not an idiot. I do understand that if the election were being held today then Trump would lose. Actually, one of Trump’s problems is that the election is being held today. Hundreds of thousands of people are voting by mail every single day.

Commenters keep asking me if I still think Trump will win. Why does anyone care what someone like me thinks? Rather than change my prediction as often as a weathervane, let me just say that my prediction is that Trump will win if the 538 polling average margin is below 5% on election day and he’ll lose if the polling margin is above 5%.

In other words, predictions are partly guesswork and partly scientific. My guesswork has been a disaster; Trump has screwed up far more in the past month than I expected. I cannot predict events. The “science” is my evaluation of EC bias and poll bias, which in my view add up to roughly 5%. I’m sticking with the science part of my forecast and completely giving up any pretensions as to forecasting events between now and election day.

I never bought Scott Adam’s claim that Trump was a brilliant politician, but perhaps I subconsciously assumed he was at least a fairly shrewd one. It’s starting to look like Trump was a one trick pony. Sort of like those forecasters who correctly predicted the 2008 economic crisis after falsely predicting earlier crises and also falsely predicting subsequent crises. Trump may have had the right strategy for that year and that opponent, but is unable to adjust his strategy to a world where he’s actually the incumbent and needs to defend his record. He’s not very smart, and you need some smarts when you face a complex crisis like Covid-19.

People underestimate how much random shocks can change the narrative. That Kawhi 4 bouncer didn’t just give Toronto the title; it also cost someone else the title (probably Milwaukee or Philly.) And that created a narrative that teams led by Giannis or Embiid/Simmons couldn’t win the title in an NBA that was increasingly focused on the 3-point shot. In fact, many of the recent stars of the NBA finals (Kawhi, LeBron, AD, Butler) have been unusually prolific midrange shooters. Milwaukee or Philly would have been mediocre champions if they had won last year, but so was Toronto. They were all good enough to win in a down year, with a few breaks.

Similarly, Trump’s 2016 win created the narrative that he was a good politician, and perhaps I was lulled into holding that view. But his win was lucky in the sense that he lost the popular vote by 3 million (against an unpopular Hillary), although it wasn’t luck if you view the current EC bias as in some sense “justified” or normal. In other words, the GOP is lucky to have an Electoral College, but given they have this institution the “luck” of 2016 is likely to be repeated this year if the popular vote is within 3%.

[Hopefully Trump will do as well in 2020 as Kawhi did against Denver. Hopefully 2016 was just a lucky 4 bouncer for Trump.]

PS. Think about the fact that Trump’s still at 35% in the betting markets despite a horrific month. Then maybe my earlier prediction of him winning might not seem so crazy.