You Ain’t Seen Nothing Yet

Taxes announced, proposed, on Chinese imported goods. Or, shoot yourself in the foot edition.


Source: Hatzius, et al. “The Trade War: Bigger Numbers, Same Conclusion,” GS 5 Oct 2018.

With Vice President Pence’s speech, I’m confident that the Trump administration will push forward in implementing fully the programs of imposing tariffs on China sourced imported goods (while still failing to sanction ZTE, …FFS).

What are the likely macro impacts. On output, minor, unless stock markets take a dive. On the other hand, consumers will almost certainly face price increases, either relative or general.


Source: Hatzius, et al. “The Trade War: Bigger Numbers, Same Conclusion,” GS 5 Oct 2018.

On a separate matter, I am compelled to note several inaccuracies and omissions (!) in Mr. Pence’s panegyric:

When China suffered through indignities and exploitations during her so-called “Century of Humiliation,” America refused to join in, and advocated the “Open Door” policy, so that we could have freer trade with China, and preserve their sovereignty.

I am tempted to extend my remarks, but I will restrain myself, and merely refer people to this book, among many others. Mr. Pence also omits mention of the Exclusion Laws despite the similarities to the administration’s current immigration control framework.

Don’t get me wrong. I believe we are in a multi-faceted competition with China, but tariffs are an ineffective means of countering Chinese economic misbehavior. Nor is rescinding sanctions on ZTE. Nor are tax cuts when we need to fund a military buildup in the Pacific. In other, it’s not clear the Trump administration really has an intent to oppose China, but rather to whip up xenophobic and other less-than admirable inclinations in the electorate.

71 thoughts on “You Ain’t Seen Nothing Yet

  1. joseph

    “Nor are tax cuts when we need to fund a military buildup in the Pacific.”

    What? We need a military buildup in the Pacific? Since when has that worked out well? The U.S. and Europe still haven’t recovered from the chaos caused by the military buildup in the Middle East.

    Oh, well. As they say, this time is different.

    Reply
    1. Moses Herzog

      Did you wanna see Taiwan lose their democratic right to vote??? And Southeast Asia nations like Vietnam become even more of a proxy for China than they are now (like North Korea regularly gets moved around as a chess piece)?? Because make no doubt about it—that is where ALL of this is headed. Nevermind internationally illegal annexing of land on the North India border. And Chinese military ports in Malaysia.

      Learn to read please. You and Neville Chamberlain are worried about the “ensuing chaos”, the rest of us would rather not go the way of World War 2 Poland, France etc ad nauseam.

      Reply
  2. Moses Herzog

    I really hate Pence. In fact, to be blunt, I cannot really decide who I hate more, Orange Excrement or limp-wristed FAKE “Christian” Pence.
    https://www.washingtonpost.com/politics/mike-pence-used-campaign-funds-to-pay-his-mortgage–and-it-cost-him-an-election/2016/07/15/90858964-49ed-11e6-bdb9-701687974517_story.html

    https://www.indystar.com/story/news/politics/2018/01/17/pence-pays-over-200-000-leftover-campaign-funds-law-firm-handling-governor-emails/1038526001/

    https://www.ibtimes.com/political-capital/donald-trump-vp-mike-pence-pledged-limit-gaming-then-helped-casinos-after-campaign

    https://thinkprogress.org/mike-pence-cigarette-truther-4b89e9304759/

    https://www.politico.com/story/2016/08/under-pences-leadership-response-to-heroin-epidemic-criticized-as-ineffective-226759

    Pence is a shallow and gutless man, with zero real appreciation of history, aside from its value as dogma and a manipulative device for the type who get all their “news” from FOX and Alex Jones. I wonder how many of Pence’s contributors were informed they were paying for Pence’s personal house mortgage and his personal legal bills?? Pence is a walking piece of crap.

    Related to Schwendinger’s book, I am a cheap bastard and have requested my local public library to get the book, and the library has been very generous and kind (as many public librarians tend to be) in the past on getting the books and films I request, so I would put it at 80% this book will be “on order” and in my sweaty palms in the very near future. I am also a lazy SOB with many things on my reading list, but out of principle will try to put Schwendinger’s books somewhere near to the top of my reading list.

    Addendum: I wish Menzie would not hold his tongue or exercise restraint. I would relish Menzie “extending his remarks”. Now more than ever we need people of high character speaking out and letting things be known. If Menzie feels it more “subjective” he can put it as a separate/isolated post clearly labeled EDITORIAL and that it’s not his University’s or Jim Hamilton’s opinion on it—as long as it is labeled as an editorial, there is no sin in it and he has that right. It’s also good for the mental health I might add. I hope Menzie rips loose and scolds those who I feel 99.99% sure in my mind, before Menzie says a single word, fully deserve what he is holding back on.

    Reply
  3. dilbert dogbert

    MMMMMM???? Military Buildup??? How many more nuke powered aircraft carrier battle groups will be needed beyond the 10 we have? Yes at any one time 5 are in port and 5 are on station.
    I wonder at just what military action is anticipated? Are our ships going to play bumper boats with the Chinese Navies boats? The World Wonders.

    Reply
    1. noneconomist

      Now, now dilbert. As it is we spend “only” 3X more on the military than China, 9X more than Russia, and 32X more than Israel.

      Reply
      1. Moses Herzog

        Honestly curious, does your 32X include all the military equipment given at a steal price from U.S. and U.S. military funding?? Because last time I checked (admittedly it’s been awhile since I looked at the numbers) we were giving Israel a damned boatload of money. Which, I’m not totally against, but if it’s not included in that 32X (because my guess is it would make a pretty damned big difference in that ratio) your 32X number is a little skewed.

        Reply
        1. dilbert dogbert

          Back in the day, mid 90’s the Wall Street Urinal had an article on how much was bailed over to Israel from our treasury. I think it was 2 to 4 billion then.
          I am sure the Jewish community bails a significant amount too.
          A lot of the money is labeled “loans”.
          Before someone starts kicking my ass as anti Semitic, please remember I am of the generation that saw the photo package brought home by my older brother of the death camps. One of my late friends had the tattoo.
          I understand the intensity of feelings that the Jewish community has for Israel. I worry that that intensity will turn Israel into something the founders would hate.

          Reply
      2. Moses Herzog

        $38 Billion in a 10 year deal is the number from late 2016, so that’s $3.8 Billion per year, and slightly over $10 million per day going to Israel from the USA in military “aid”. If my numbers are right, Israel spends about $15.5 Billion per year on military. One number said $15.5 Billion, another number said $21.6 Billion.
        https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures
        So $3.8 that the USA gives would be a significant portion of that $15.5 Billion or $21.6 Billion even if you assumed Israel would fork up that extra $3.8 Billion on their own if it wasn’t handed to them.

        Some conservative Israelis will no doubt “chime in” (whine) on the blog here that there are “conditions tied” to that $3.8 Billion, that Israel “has to” “purchase” the $3.8 Billion in military hardware from the USA. So you know, it’s “super rough going” for the Israeli gov to take money we just gave them, and then hand it back to us to buy the best military equipment in the world. See if you can get Macy’s Dept Stores or Rolex to hand you thousands in free money and then “require” you to buy a Rolex watch or Macy’s luxury items with the money Rolex or Macy’s accounting dept gave you for FREE. It’s such a tough deal for the Israelis, Netanyahu and the conservative Israelis cry themselves to sleep every night.

        Reply
          1. Moses Herzog

            @ baffling
            I respectfully disagree. I don’t think that is the core intention. You can make a strong case it’s a “happy by-product” for the U.S. military contractors.

            I think your argument is the argument Israelis make when they know some Americans aren’t dumb to the fact of their lobbying federal level legislators and getting for free from the illiterate US taxpayer what Israelis would pay for themselves anyway, if the U.S. taxpayer wasn’t dumb enough to give it to them for FREE.

            Israel is our ally and I’m not against cohesive ties and cohesive policies. What I am tired of is Israel having an “open-checkbook” from America and “duping” us, which they do on a regular basis—otherwise known as taking advantage of friends. It’s stuff like this that feeds the paranoia and the conspiracy theorists as it relates to Israel. “J Street” etc. It’s not 1967. Israel is no longer a “fledgling” outfit. They can pay for their own damned defense.

  4. Benlu

    If it is merely trades, I think perhaps one solution is for both US and China to negotiate for agreement to wind down trades between the two countries in an orderly manner according to agreed time schedule, rather than the currently confrontational and mutually hurting fashion and the fruitless negotiations to change China’s development, economic and trade policies.

    Reply
    1. Not Trampis

      I think you are saying this should go to the WTO.

      Yes that is what a Conservative would do but Trump is no conservative

      Reply
      1. Benlu

        If the trade war between US and China is about disputes over rules of the game(trade), then doing away with the game(trade) makes the disputes irrelevant and it follows risk of escalating into hot war could be avoided. The underlying assumption is having no trades is better than having major destructive wars. In some situations a divorce could be more preferable.

        Reply
        1. baffling

          benlu, the current administrations position against china has rather little to do with trade. moreso, it creates another situation where trump can generate an “enemy” at which he can spout his rage and fire up his base. please notice, he is not looking for solutions-other than complete capitulation from which he can claim “winning” a battle he created to begin with.

          Reply
          1. Benlu

            What is worrying is how far trump is prepared to go. I seemed to sense some prelude of Nazis or am I dreaming?

        2. Steven Kopits

          I think you are being too pessimistic, Benlu.

          We have seen now twice that Trump in practice has proved more moderate than Trump in theory. USMCA is really more TPP-like than Trump-like. Similarly, the administration is now considering waivers for Iran oil exports. So aggressive rhetoric and posturing is devolving into more traditional Republican — or even presidential — politics.

          I am no fan of how we are treating China. As always, I believe the US should stand for rule of law, honoring of international obligations and property rights, and individual and human rights domestically within China. In addition, we should push China to open its markets gradually consistent with its state of development. Chinese leadership — and even more importantly, the Chinese people — should have faith in US intentions, even if these push China into some uncomfortable introspection.

          I think we are far from there now.

          Nevertheless, I would counsel the Chinese to be patient. This, too, will pass.

          Reply
          1. Menzie Chinn Post author

            Steven Kopits: Trump in practice is more moderate than Trump in theory? Wonder about those folks mouldering away in tent camps on the US-Mexico border… Nafta 0.8 is TTP-like? What about those auto rules of origin? And I think Trump in theory is pretty close to allowing more radiation exposure and more mercury emissions. Geez.

          2. Benlu

            Some of the biggest mistakes were made due to complete lack of pessimism and corresponding counter measures. China so far has been acting in very calibrated manner in response to any escalations. How US China relation moves forward is very much in the hands of US.

          3. Steven Kopits

            So, Menzie, let’s take part two first.

            As I wrote in a recent note, August southwest border apprehensions were at a high for the decade. Best I can tell, US net wages for undocumented migrants are now above the Relocation Wage (the price worth it to sneak across the border) and therefore we should expect materially higher border crossings in the coming months until the next recession. So that’s going to be bad for Trump.

            https://www.princetonpolicy.com/ppa-blog/2018/9/13/here-they-come-border-crossings-surge

            As for USMCA, it really seems more of a jumbled technical agreement than some new revolutionary breakthrough. To quote Slugs: “USMCA is just NAFTA 1.01 and something that could have been agreed to months ago without all of the pain.” That is my understanding as well.

            We similarly see that the administration is seeking waivers on Iranian crude exports, because they are afraid of high oil prices heading into the election (and again something I had a note on months ago).

            Thus, we see a number of topics on which the administration has been belligerent, but which tend to devolve into technical negotiations over time. In these, expertise matters and is slowly beginning to reassert itself more generally.

            This is especially true for China. If you want to negotiate with the Chinese, you need to know what they want, what they can reasonably offer, what they are going to lie about, and what is simply off the table. For example, we could have Beijing promise to convert to Mormonism and buy only Fords as police cars. And the Chinese might promise to convert upon the second coming of Christ and to issue a notice to local municipalities to buy Fords (which they will of course ignore). There is little point is pushing the Chinese on topics which they will not or cannot comply.

            Further, we need to know what we want. In an earlier comment, I linked Navarro’s laundry list and asked Peak to pick the three most important issues from his perspective and sketch out how he would see them implemented. I don’t believe he has replied to date.

            Thus, again, we see that expertise is needed in the China negotiations, and over time will creep into them, if by no other means than the protracted education of the administration’s negotiating team.

            If China were my client, I would probably counsel them to stay cool and ride it out, confident that the internal contradictions — or perhaps visible lack of coherence — of US trade initiatives will over time cause them to implode. It’s not fun, but sooner or later, the experts will reassert themselves.

      2. Moses Herzog

        @ Not Trampis
        That’s so strange because I seem to remember donald trump the great wealth inheritor ran on the Republican ticket nomination, and last time I checked Mitch “frog neck” McConnell, Lindsey “Country Bumpkin Lawyer” Graham, and Chucky “early dementia” Grassley and other Republicans seemed to go along with most everything trump the great inheritor suggests. trump is a self-made inheritor, so….. did you mean donald trump the great inheritor “is not a conservative” in the sense that he’s on his 3rd wife, cheated on his 3rd wife, and he digs molesting women’s genitals without consent??? I know “family values” are so important to “conservatives” and “evangelicals”, and “Christians” such as Mike Pence.
        https://www.youtube.com/watch?v=2rgisVZW0_Q

        https://www.youtube.com/watch?v=3nJUIqNt5qQ

        https://www.youtube.com/watch?v=k4O2Ob1gVRU

        Wow, that really leaves me baffled and perplexed.

        Reply
        1. Not Trampis

          This is an aside but as an evangelical, albeit a biblical literate one, I am dismayed at how much so called evangelicals in the USA have embraced secular values and in this area politics.
          It makes bring people to Christ very hard moreso when people make statements clearly at odds with what is in the bible.

          Every time I read Tim Keller I swear I can see him tearing his hair out whilst writing

          Reply
          1. dilbert dogbert

            There are “evangelicals” who follow the money and those that follow Jesus. Wonder what the proportions are. Funny how they turned Jesus’ advice to the rich man (Give it all up and follow me) to Show Me The Cash. Or, In Glod We Trust But Not In You, Cash Only.

  5. Moses Herzog

    I guess it’s of very low importance. But was just randomly curious if Mr Schwendinger has ever spent time around Maritime University in Dalian China?? I never worked there, but used to stomp around the area there semi-often. In fact, I feel silly not knowing if many coastal cities in China have a “Maritime” university or if that was particular to Dalian?? I know it wasn’t “the best” school of that city (which seemed to be Dalian University of Technology). But I do know “Maritime University” seemed to have some regional respect there and seemed to do some amount of research. My understanding was the best Uni in that province was Northeastern University of Shenyang. But that may have been the bias of one of my closer friends who got her BS there, and I think she teaches there now, though I don’t keep contact. I can’t remember if I ever walked the campus of Dalian Maritime, but there was hardly a campus of that city I didn’t, so I wager that I did.

    Reply
    1. baffling

      the provisions in those trade pacts will have the consequence of further polarizing the world stage. it creates an “us” vs “them” mentality in trade. not sure that will be beneficial for long term economic growth.

      Reply
  6. pgl

    A particular offensive paragraph in Pence’s speech began with:

    “Over the past 17 years, China’s GDP has grown nine-fold; it’s become the second-largest economy in the world. Much of this success was driven by American investment in China.”

    He then goes to list the economic policies of China where they did not bow down to their American masters. Yes U.S. multinationals invested in Chinese affiliates, which brought them some decent profits. But Pence acts like this investment gives the U.S. to treat China like one of our colonies.

    Reply
  7. pgl

    I am not usually inclined to cite Ludwig van Moses but this makes a salient point:

    https://www.capitalismmagazine.com/2003/05/foreign-investment-a-great-historical-event-of-the-19th-century-2-of-5/

    A lot of the investment in the U.S. railroad system and industrial base that occurred during the 19th century was foreign direct investment aka British capital. But guess what – Pence’s own party imposed all sorts of trade restrictions during the 19th century.

    Pence lectures the Chinese for doing the same thing but I do not see where he blasted 19th century Republican protectionism. Then again – Pence has always been a complete hypocrite.

    Reply
  8. dwb

    “On the other hand, consumers will almost certainly face price increases, either relative or general.”

    To the extent this pushes up the PCE inflation index and The FOMC reacts accordingly with faster than expected rate hikes, it will have an indirect macro impact stronger than the direct effect of higher import prices alone (higher rates = higher borrowing costs, for example).

    “Trade War” is bad, and while I hear a lot of complaining about it (most of which I agree with), I am still not clear what the alternative is to get China to heel its “economic misbehavior. ”

    We all are aware of the downside. But a bad plan beats no plan every time.

    Reply
  9. Bruce Hall

    Menzie,

    “Don’t get me wrong. I believe we are in a multi-faceted competition with China, but tariffs are an ineffective means of countering Chinese economic misbehavior. Nor is rescinding sanctions on ZTE. Nor are tax cuts when we need to fund a military buildup in the Pacific.”
    • Ineffective… doesn’t that remain to be seen?
    • Rescinding sanctions… agreed.
    • Tax cuts… now here’s the rub: if the proposed $900 billion of tariffs are implemented at 25%, doesn’t that work out to about $225 billion? That would seem to be sufficient to cover a military buildup in the Pacific. It may be sneaky (as are excise and sales taxes which tend to be ignored) and it is definitely slight of hand (cut income taxes while taxing imported products… paid by the consumer).

    Reply
    1. 2slugbaits

      doesn’t that work out to about $225 billion?

      If you mean $225B in govt revenues, then no. Not even close.

      Ineffective… doesn’t that remain to be seen?

      No. We know that because the cost to the Chinese of the tariffs would be far less than the costs that you believe the Chinese are willing to pay for their expansionist policies. I’m pretty sure that the Chinese are smart enough to understand the transitive property of preferences.

      Reply
    2. CoRev

      Bruce, i have been thinking the same thing, a back door tax, without using the T$$ word, and meeting or reaching towards a 2nd goal of fairer trade. BTW, how many times have these good folks here told us that raising taxes was the thing to do in good economic times. Or perhaps more often lowering taxes was the wrong thing to do.

      I agree, slight of hand, while pursuing multiple goals.

      Reply
      1. 2slugbaits

        CoRev I believe both you and Bruce meant to say “sleight of hand”.

        First, tariffs do not lead to “fairer trade”, whatever that means. Tariffs simply lead to less and more expensive trade. Tariffs do not balance out some kind of fairness scales. You’re trying to reason from a metaphor and it just doesn’t work. Second, backdoor taxes are always less efficient than direct taxes because they lead to distortions and deadweight loss. If you could be bothered to read a micro text you would have known this. Third, what you’re proposing isn’t just an increase in taxes, it’s an increase in “tax” revenues and an increase in defense spending by that same amount. That’s called a balanced budget multiplier and it’s not something you would want to do in good economic times when the economy is at full employment. If you could be bothered to read a basic macro text you would have known that. Finally, building up a military presence in the region without also building up diplomatic and economic relationships with our allies makes no sense whatsoever. If you have any friends or family members who are high ranking career diplomats, then you might want to sit down and ask them how things work in the real world and not some imagined game of “Risk” played by a bunch of aging retirees.

        Reply
        1. CoRev

          2slugs, thanks for the English correction. Of course you are correct.

          “First, tariffs do not lead to “fairer trade”, whatever that means.” Correct again, but the whole argument about tariffs is to closer to “free trade” with our allies and to show a more consistent/common face to China getting China to negotiate a better closer to “free trade” trade agreements. Moreover, another goal of the Chinese tariffs is change the way they treat foreign investment.

          “Second, backdoor taxes are always less efficient than direct taxes because they lead to distortions and deadweight loss.” Yup again! You forget the political background within which the administration is working. No matter what he does it will be blasted by folks, some like you, for not adhering to traditional party values.

          “Third, what you’re proposing isn’t just an increase in taxes, it’s an increase in “tax” revenues and an” increase in defense spending by that same amount.” That’s an absurd opinion. although NOT increasing revenues is the basis for many of your prior complaints. A littler consistency goes a long way to improve positions.

          “building up a military presence in the region without also building up diplomatic and economic relationships with our allies makes no sense whatsoever.” Perhaps you forgot about the USMCA and S. Korea agreements plus the ongoing Korea peninsula denuclearization negotiations. under way. We are currently in other ongoing negotiations with our allies. It takes time for these negotiations to settle on win/win positions.

          What’s amazing is watching the angst from the aging liberal radicals since the election and watching them realize, like the rest of the deplorables, how easy it could have been making us all better off earlier if Obama had followed the same economic path as Trump.

          Reply
          1. 2slugbaits

            CoRev So you’re gullible enough to believe that Trump wants to increase tariffs in order to lower them. Novel theory. Of course, it flies in the face of 40 years of Trump claiming that free trade was for suckers. He has a long history of loving tariffs…almost as much as he loves debt.

            No matter what he does it will be blasted by folks, some like you, for not adhering to traditional party values.

            Well, we could put that theory to the test. All Trump would have to do is announce his support for some program that the Democrats would agree with. Oh wait, they did that and gave kudos to Trump. Remember those gun control comments he made that had Nancy Pelosi grinning and Mitch McConnell grimacing? Of course, it only took a few hours for Trump to reverse himself, but the point is that the Democrats did support Trump on his initial comments. And I’m pretty sure that the Democrats would support a bill that would raise taxes on the rich and increase the inheritance tax. OTHO, when Obama was President it was Republican policy to oppose anything Obama did even when the GOP agreed with Obama. As Sen. McConnell once scolded a GOP senator during the Obamacare debate when that senator offered a helpful amendment, the objective wasn’t to improve healthcare with constructive ideas, the point was to make Obama a one term President.

            That’s an absurd opinion.

            Well, that seemed to be what Bruce Hall was saying and you seemed to express agreement with him.

            although NOT increasing revenues is the basis for many of your prior complaints. A littler consistency goes a long way to improve positions.

            Consistency in macroeconomics means adopting the right policy mix for the right set of conditions. When the economy is at full employment and inflation is an emerging threat, then the correct policy is raise taxes and/or cut spending and/or raise interest rates. When the economy is in recession the correct policy is to lower taxes and/or increase spending and/or lower interest rates. It’s called countercyclical policy, or “leaning against the wind.” Pretty basic macro 101 stuff. Take the time to learn some macroeconomics.

            Perhaps you forgot about the USMCA and S. Korea agreements plus the ongoing Korea peninsula denuclearization negotiations. under way. We are currently in other ongoing negotiations with our allies.

            Perhaps you forgot that USMCA is just NAFTA 1.01 and something that could have been agreed to months ago without all of the pain. And you forgot that South Korea is the one who took the lead in talking with Kim because South Korea and Japan became alarmed at Trump’s craziness. And don’t forget that “denuclearization” as understood by Kim means that the US denuclearizes, not just North Korea. As to “ongoing negotiations with our allies,” you should ask our resident Ozzie Not Trampis how that’s working out in the south Pacific. And did you forgot what Bob Woodward told us about how Trump’s team had to steal documents from Trump’s desk because of his insane plans for South Korea? You should tune into NHK broadcasts if you think Trump is well regarded in Japan. As to our NATO allies, ask France and Germany about Trump’s walking away from the Iran nuke agreement. Like I said before, if you have any close friends or family members who are senior career diplomats, then you might want to ask them about Trump’s reputation with our allies.

        2. Bruce Hall

          2slug,

          Good gotcha on the spelling.

          • I’d venture that the direct impact of tariffs is less than the message that is being sent: “dial back dealings with China”.

          • As far as the amount of tariffs collected, I simply said that if the rate on $900 billion was 25%, then the amount going to the treasury would be $225 billion. https://www.cbsnews.com/news/what-are-tariffs-and-how-would-they-work-trump-2018-06-02/. Now you can argue that there won’t be anything close to that amount in tariffs and I’d say to that, “Fine, then the impact on the American consumer and business will be less”.

          • As to your supposition that the cost of the tariffs would be far less than the cost the Chinese are willing to pay for their expansionist efforts, I’d agree with you and say, “That’s fine; let’s not help them out.”

          • As to the point that we need strong diplomatic ties with other Asian countries while we create obstacles to China’s expansionist efforts, I’d agree and say that those are going on. The U.S. has been working to neutralize China’s proxy, North Korea. The U.S. has been more aggressive in support of Taiwan. Then there is the restarting of the Quadrilateral Security Dialogue. https://www.ft.com/content/5355ee2a-c869-11e7-ab18-7a9fb7d6163e

          Regardless, it will be difficult to disengage from China economically and to stop it militarily. Those options were minimized once Nixon and corporate America thought China would abandon its communist and dictatorial government because it became a “trading partner” and eventually a member of the WTO. However, to say that we should simply cave to all that is China is like saying, “You’re going to die sometime, so why bother to ever see a doctor?”

          Reply
          1. Menzie Chinn Post author

            Bruce Hall: Who says we should cave to the Chinese? I think we’re just arguing for smarter, less counterproductive approaches to constraining Chinese expansion. Even you must agree unilateral tariffs are just about the stupidest way of going about this.

            As for tariff revenue…I have just three words for you (two phrases), neither of which are “plastic”: “elasticities”, and “deadweight loss”.

    3. dwb

      “That would seem to be sufficient to cover a military buildup in the Pacific.” I am actually very surprised to see people advocating for a conventional military buildup. A conventional military buildup is dubious for containing China. A war with China will be fought in cyberspace. Or maybe it already is. Would not be too difficult to create some civil unrest with targeted hacking. That some rouge group has not done it yet is a testament to how hard agencies like NSA work to keep the power grid and internet servers safe.

      Reply
      1. baffling

        we already saw a cyberattack from russia. it resulted in a president trump. cyberattacks can be rather debilitating to a nation.

        Reply
  10. sherparick

    With unemployment already low, this will encourage the FED to raise interest rates even further to start “tapping” the brakes on inflation. Higher U.S. interest rates will lead to a stronger dollar over the next 18 months, which will lead to a stronger trade deficit and the U.S., which I expect to lead to more Trump unilateral moves to try to command the tide to go back.

    Reply
    1. pgl

      These “libertarians” want to pretend that Trump is playing a game of poker that will eventually lead to freer trade. It is sort of like the fool playing poker down thousands of dollars so far claiming he is about to go on some big winning streak. The other players at the table just smile and keep taking the fool’s money!

      Reply
      1. dwb

        If you have a bazooka, and people know you are crazy enough to use it, then you may not have to use it. That is the magic of deterrence.

        Put somewhat differently, for a threat to be credible, people must believe you are not bluffing and will follow through. In terms of tariffs, Trump has carefully cultivated the image that he is not afraid to impose tariffs. It could be a bluff, but I think not.

        The question is not whether he will follow through or not. The question is whether it will harm the Chinese economy enough to get them to the negotiating table, what the USA adjustment costs are, and whether the new deal “if any” is better than the old deal.

        I don’t think people are “pretending,” I think people are willing to give it a chance and are willing to bear the adjustment costs, because the current situation is untenable. If it doesn’t work, I think people will move on to try something else. In the words of FDR: try something, if it doesn’t work, try something else.

        What is the alternative plan, exactly? A conventional military buildup in the pacific is going to somehow make trade freer and get China to improve intellectual property rights protections? really- people think a real war is preferable to a trade war??

        I hear a lot of complaining, but I still have not yet heard another idea. Bad plan beats no plan every single time!

        Reply
        1. baffling

          trump feels it is a privilege for other nations to trade with the us, and negotiates spoils accordingly. perhaps china feels the same way, that it is a privilege to access their domestic market, and those that do must pay spoils accordingly. nobody forced the hand of those tech companies trading away their IP rights for access to the chinese market. i find it fascinating that we put all this faith in the market to make the right decisions, but apparently tech companies are unable to act in their own best interest with respect to china-so big brother government must interfere? perhaps the tech companies could access china without giving up IP, if they were willing to negotiate harder? at any rate, if you want to punish china, you should also punish their collaborators in this IP situation.

          Reply
    2. noneconomist

      Not only fun but rapidly descending toward stoogian. Either that, or I missed the libertarian platforms that encourage deficits and more debt, insisting the US must continue to increase military spending to maintain a role as a global empire, wall building, et. al. And don’t get me started on libertarians who insist on also pretending to be conservatives.

      Reply
  11. PeakTrader

    I think, the communist Chinese will negotiate with Trump after the election. Otherwise, they may face a rebellion, after the highly inefficient growth-at-any cost policy turned the country into a sewer and made output expensive, while the net benefit to labor was little. Nonetheless, I don’t expect the communists to change much, including respecting international law. China’s economy is in a desperate situation, including from its one child policy. It needs the cheating and stealing to gain at the expense of other countries and the global economy to avoid the middle income trap. Eventually, either the communists will be overthrown or the international community will have to restrict or ban foreign firms operating in China. However, some foreign firms have left China already, along with China’s capital outflows.

    Reply
    1. pgl

      The Chinese will negotiate but they will not change that much??? Lord – your babble is usually beyond incoherent but now it self contradicts itself. Another PeakTrader rant that makes the reader even dumber.

      Could someone in the White House pull the plug on this Russian bot before it embarrasses their “cause” even more?

      Reply
    2. pgl

      “made output expensive, while the net benefit to labor was little.”

      Speaking of contradictorary babble! If Chinese output were expensive then they would not be so competitive and the US would have to worry about their competition. US trade surpluses as far as the eye can see!!!

      As far as labor not benefiting – Chinese real wages have grown considerably over the last generation. Oh did Wilbur Ross not tell you that? Look Peaky – we know your job is to lie 24/7 for Wilbur but this one was demonstrably false.

      Reply
    3. pgl

      Forbes is a right wing organization but even they understand that PeakTrader’s claim that Chinese workers have not benefited is a flat out lie and a really stupid one at that!

      https://www.forbes.com/sites/timworstall/2017/03/01/chinese-wages-are-showing-paul-krugman-is-right-once-again/#1a19b66a3fea
      “Scott Sumner points us to this:

      Average wages in China’s manufacturing sector have soared above those in countries such as Brazil and Mexico and are fast catching up with Greece and Portugal after a decade of breakneck growth that has seen Chinese pay packets treble.
      ….
      Average hourly wages in China’s manufacturing sector trebled between 2005 and 2016 to $3.60, according to Euromonitor”
      Tripling of real wages in just over a decade? I wonder how that compares to how real wages in the US have changed? I bet PeakTrader can get some claim from Kevin Hassett that U.S. real wages have quadrupled. And the Dow hit 36000 in 2001!

      Reply
      1. PeakTrader

        Pgl, you’re too ignorant. State owned enterprises are heavily subsidized. Labor is building empty cities, offices, excess capacity, etc.. And, the social costs are enormous. It’s a highly inefficient economy that wastes resources on output. And, of course, with all kinds of trade barriers, consumers buy low quality goods at Wu-Mart or counterfeit goods. However, the communist elite are doing well, although many are fleeing the country or relocating in case everything falls apart.

        Reply
        1. pgl

          Repeat after me – real wages have tripled. All of your undocumented babble does not address this central fact. Seriously Peaky – have you not noticed that even your own dog is laughing at you.

          Reply
        2. baffling

          peak, your constant reference to “communists” is lost in the 80’s decade. it seems you are looking for problems to fit your solution from decades ago. please stop, it is embarrassing. further, your description of the current state of affairs in china is woefully inaccurate. have you even been to china, much less in the past decade? my bet is your understanding of current china conditions stems from running faux news in the background all day, wasting time since you became an unemployed banker. hannity and company have little real knowledge on china today-accept that as fact. china has problems, to be sure, but it is also in the process of bringing a billion people out of poverty-not a small task. there is still a great divide between the urban and rural populations, a problem enhanced by mao and his silly policies. many in china understand this-you think they are stupid?-but they also understand significant social change takes time. you want to call them failures because they have not changed fast enough. this is a common position you embrace, obama failed because he also did not improve the economy as fast as peaktrader thinks it should occur. but i must ask, why should anybody, china or obama, be concerned about an arbitrary timeline created by a failed banker in the first place? answer: they are not concerned about an irrelevant peaktrader.

          Reply
          1. pgl

            His comment about empty offices takes the cake. I guess he thinks Shanghai is some sort of ghost town with only a couple of thousand people still there. In truth, if a new building comes onto the market, there would likely be a few thousand people lining up to move in on day one. I sometimes wonder if Peaky even could point China out on map.

          2. PeakTrader

            Baffling, you have a more distorted view of communist China than official communist economic data. No wonder you couldn’t make it in banking.

            Perhaps, 100 million “middle class” Chinese are doing relatively well. However, the other 1.3 billion is in the gutter.

            Even believing communist data contradict your assertions. Yet, you continue to defend communism and socialism.

            The economic, social, and environmental conditions are well documented. You’re watching too much CNN. Next you’ll be telling me North Korea is a paradise.

          3. baffling

            peak, your response is simply incoherent. you have absolutely no ability to listen and understand what others say. you simply have a worldview and insist it is correct, irregardless of the truth. look peak, at least i have been to china and seen parts of it firsthand. not all of it, but plenty nevertheless. you have never even been to china, and act like watching faux news makes you an expert. let me clue you in, you are not even a novice on china. your best path forward is to simply shut up and listen rather than promote your mistakes.

            “Next you’ll be telling me North Korea is a paradise.”
            nowhere did i make any type of claim like this regarding china. simply a straw man argument for the fool who is still living in st ronnies 1980’s. hey peaky, ronald called, he wants his rotary phone back.

          4. Moses Herzog

            @ pgl
            I think it’s well-established I am no defender of commenter PeakIgnorance on this blog. However, I must point out that the large Chinese ghost towns (pretty much cities) has been well-established and documented between 2008 and now, and I have seen smaller versions of such things with my own eyes There are multiple examples and if you wish me to hunt them down and put them in this thread, I will do so if you specifically require/request proof. And to give the example of Shanghai to make a point about national policy as it relates to empty/vacant/unused construction projects and/or government “stimulus” brings new meaning to the term “cherry picking”.

        3. 2slugbaits

          PeakTrader Aren’t you in the least bit embarrassed by Trump’s admiration for President Xi’s authoritarian tendencies? Do you seriously believe that Trump loses sleep each night as he anguishes over the fate of Chinese or Russian or Turkish or Saudi or Filipino dissidents? Trump has a long history of worshiping authoritarian rulers. If Xi offered to help finance a Trump golf course in Beijing I’m pretty sure Trump would end the tariffs and heap mountains of praise on Xi and his Great Leap Forward. Trump could visit China. Maybe swim the Yellow River in record time. That would be kind of cool. Maybe the Chinese would flatter Trump and rename it the Orange River.

          Reply
          1. 2slugbaits

            PeakTrader

            I don’t admire Barbra Streisand, but at least she had the good sense to retire so that she no longer afflicts the nation with her sappy movies. OTOH, Donald Trump is still a global menace.

          2. noneconomist

            PT wants nothing less than revenge against the Chinese communist terrorists who hijacked that plane and flew it into the Empire State Building a few years back. All made worse by videos of residents in Chinatown in San Francisco cheering as the building came down.
            We need closer ties with more democratic states like Saudi Arabia whose leader is a prince of a guy who knows how to get things done.

  12. Benlu

    (my apology for having to repost)
    Some of China’s measures that could lessen the pains of trade tariffs.

    http://xhnewsapi.zhongguowangshi.com/share/news?id=228375444078592

    China’s finance minister said the country will adopt a more proactive fiscal policy but will not resort to a deluge of strong stimulus policies.

    Minister of Finance Liu Kun said the fiscal policy should be more forward-looking, flexible and effective to play a bigger role in boosting demand, restructuring the economy and promoting high-quality development.

    In an interview with Xinhua, Liu said the proactive fiscal policy will prioritize four sectors, namely cutting taxes and fees, improving weak links, boosting consumption and improving people’s livelihood.

    Apart from policies to reduce taxes and fees unveiled at the beginning of the year, China has announced more policies to support the real economy and technological innovation, which will help reduce enterprises’ burden by more than 1.3 trillion yuan (about 188.4 billion U.S. dollars) this year, Liu said.

    He said the ministry is working on more measures to cut taxes and fees, which if implemented, will make the growth of fiscal revenue stay at a low level in the coming months.

    The country’s fiscal revenue rose 4 percent year on year to 1.11 trillion yuan in August, slowing from the 6.1-percent gain in July.

    With the economy on firm footing and fiscal revenue increasing, China lowered its fiscal deficit target for 2018 to 2.6 percent of GDP, down by 0.4 percentage points compared with 2017.

    Reply
  13. joseph

    “Did you wanna see Taiwan lose their democratic right to vote??? And Southeast Asia nations like Vietnam become even more of a proxy for China than they are now (like North Korea regularly gets moved around as a chess piece).”

    I think are confusing your geopolitical metaphors. It’s supposed to be dominoes, not chess. This whole Southeast Asia, Korea, Vietnam domino thing sounds vaguely familiar but I just can’t seem to put my finger on it.

    Reply
  14. pgl

    “if the proposed $900 billion of tariffs are implemented at 25%, doesn’t that work out to about $225 billion? That would seem to be sufficient to cover a military buildup in the Pacific. It may be sneaky (as are excise and sales taxes which tend to be ignored) and it is definitely slight of hand (cut income taxes while taxing imported products… paid by the consumer).” – Bruce Hall yesterday.

    Yes – this is the Republican way. Cut income taxes to the benefit of the very rich but impose sales taxes on the rest of us. But no – if we impose a 25% tax on what appears to be $900 billion of imports, we will not get $225 in tax revenue. After all – one would expect a reduction in imports if we tax them.

    Oh wait – rightwingers argue supply side economics for cutting income taxes. I guess the same idea does not work for sales taxes?

    Reply
  15. spencer

    Haver Analytics posts a monthly estimate of the federal deficit. As of August they estimate it is – 4.4% of GDP as compared to about -3% when Trump took office.

    Also note that the trade deficit is hitting record lows.

    This combination always seems to happen when the Republicans cut taxes.

    Will he top Reagan turning the US from the worlds largest creditor nation to the worlds largest debtor nation?

    Reply

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