Guest Contribution: “Why China won’t yield in Trump’s trade war”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. This is an extended version of a column that appeared at Project Syndicate on April 17th.

April 20, 2018 — President Trump enacted steel and aluminum tariffs in March, citing national security. China is the intended target, as most other major suppliers were eventually exempted. On April 2, China retaliated by imposing tariffs on 128 American products (representing about $3 billion of trade), ranging from 15% on fruits to 25% on pork. Trump April 3 announced 25% tariffs on another 1300 Chinese products [representing some $50 billion of trade], citing forced transfer of US technology and IPR. China on April 4 responded with plans for retaliatory 25% tariffs on 106 US exports — including soybeans, autos, and airplanes — to go into effect when the US tariffs do. On April 5, the White House announced it was considering $100 billion of additional tariffs on China.
If these tariffs go ahead, yes, it is a trade war. How will it end?
The US won’t win. Of course economists have a general proposition that everybody loses in a trade war. But some defend Trump’s actions as bargaining tactics. There are reasons in this particular case to believe that China is unlikely to back down. I can think of seven.

Why China won’t give in

  1. The Trump tariffs hurt American consumers and users (for example, the steel and aluminum tariffs hurt the auto industry and, in turn, car-buyers), while China’s retaliation hurts other important American interest groups, starting with agriculture and on to manufactures. These negative effects are receiving a lot more public attention, as they become real, than they do when economists try to warn of them ahead of time, in the abstract.

  2. Industries and consumers in China would also be hurt by a trade war, of course. It is dependent on US soybean exports, for example. But China is not a democracy. President Xi Jinping is in full control. So Chinese leaders can overrule interest groups, to a large extent.

  3. To the extent that China’s leaders have to take domestic public opinion into account, public opinion will remain behind them in a trade war. You know how Americans remember the 1773 Boston Tea Party, a (successful) effort to reverse the British imposition on the colonies of taxes on imported tea? Residing as strongly in China’s national consciousness is the memory of the Opium Wars of 1839–1842 and 1856–1860, when it (unsuccessfully) resisted the British campaign to force the Middle Kingdom to open its economy to opium and other imports. [This was the low-point in British 19th century free trade ideology, as the 1846 repeal of the Corn Laws was the high point.]
    The conflict ended with the Unequal Treaties. Reversing the “century of humiliation” is as important to modern popular Chinese consciousness as the word “liberty” is to American consciousness. China’s memory of this humiliation means that it will not back down down to bullying trade threats. Meanwhile, on this side of the Pacific, most American voters tell pollsters that they support free trade and don’t support Trump.

  4. It’s not true that the deficit country is necessarily in the stronger bargaining situation. Distressingly, Trump tweeted, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.” If anything, the surplus country is often in a stronger position, because it has accumulated financial claims against the other country, in this case well over a trillion dollars of Chinese official holdings of US treasury securities. It is true that if the Chinese government dumped US treasury securities, the fall in their price would hurt itself as well as the US. But that doesn’t nullify the point. For one thing, China doesn’t necessarily have to decide to sell them. As the US debt burgeons and US interest rates rise — both trends are virtually certain to continue this year – trade conflict could produce rumors that the Chinese might stop buying US treasury securities, which in turn could be enough to send US bond prices lower and US interest rates further up.

  5. The financial markets already don’t like Trump’s trade war. The stock market – which he has put so much stock in – goes down whenever perceptions that the trade war is real go up.

  6. China’s leaders, like those around the world, are concluding that there is not much point making deals with Trump because he is erratic and cannot be relied on to stick to a deal. Not even overnight, let alone for the long haul.

  7. What would it mean for China to “give in”, anyway? Trump has not been clear on his demands.

    • On steel tariffs? China could adopt so-called Voluntary Export Restraints on steel exports to the US, as South Korea has recently announced. But the Chinese already export relatively little steel to the US.

    • On intellectual property? OK, here the US and other countries have some valid complaints to bargain about. But the grievance is weaker when the US corporation willingly agrees to technology transfer as the price of admission to China, not to mention that facilitating the movement of production facilities to China was not what Trump promised his supporters.

    • On eliminating the bilateral deficit? If China wanted to try to satisfy the most specific and insistent of Trump’s demands, which pertains to the bilateral merchandise trade deficit, it could work to export less merchandise to the US directly and more routed through Taiwan and other third countries, perhaps with some final assembly taking place in the third country. Then the measured bilateral deficit would go down. But in that case Trump and his supporters would say that China was using smoke and mirrors to hide the bilateral deficit, unaware that bilateral deficit measures are as meaningless as smoke and mirrors to begin with: Chinese exports contain a lot of intermediate inputs produced in Korea, the US and elsewhere. What matters are the overall Chinese trade surplus and the overall US trade deficit. China’s surplus peaked in 2008 at 9 per cent of GDP] and by now is rather small, almost down to 1% of GDP. The overall. The overall US current account deficit is admittedly on the rise – but that is attributable not to trade policy but to recent Republican fiscal policy actions which are blowing up the budget deficit and thereby reducing national saving.

What would a serious US strategy look like?

A serious strategy to address meaningful complaints against China such as IPR appropriation or excess steel capacity would ally with other partners who have similar grievances. Pressure would be applied to China via rule-based institutions such as the WTO and TPP if possible or through bilateral negotiations if necessary. The Trump strategy is the opposite of this – acting to de-rail the WTO, withdrawing from TPP, and alienating most relevant trade partners with insults and tariff threats. Trump has accomplished something unthinkable: making the Chinese President look like an enlightened leader of the international trading order by comparison.

The common rejoinder is that the multilateral procedures and bilateral negotiations don’t work with China, so we have to get tough. But they work better than Trump’s aggressive trade war route will. It is easy to forget that the conventional approach with China, operating via established fora, has achieved such successes as a 37% appreciation of the renminbi over 2004-14 and meaningful crackdowns on the counterfeiting of US brand merchandise and stealing of US software.

Problems remain. But that doesn’t justify a turn to the aggressive unilateral approach. Consider three precedents for failed attempts to go that route:

  • Ronald Reagan’s so-called Voluntary Export Restraints imposed on Japan in the 1980s. They benefited Japan, not the US, and their eventual removal was beneficial for American consumers and even for a slimmed-down and newly competitive US auto industry. VERs have since then been agreed illegal.

  • George W. Bush’s steel tariffs in 2002, which cost many more jobs than it protected.

  • Trump’s allegations during the presidential campaign that China was “manipulating its currency” to keep it undervalued. During this period, 2015-16, it was doing precisely the opposite. (The reason is that by 2014 the yuan had already appreciated so much that its earlier undervaluation had been eliminated.) Trump just looked foolish when, after taking office, he admitted that the allegation was out of date.

Another rejoinder is that the US doesn’t win all of its cases in the WTO. But it does win 90 per cent of the cases it brings. Further, Americans should remember that occasionally it is their own country that has violated the international rules. The Bush steel tariffs were a clear example. (The relevant Bush officials did not even bother to argue that the tariffs were legal under the WTO. Sure enough, they were ruled illegal and the administration reversed them.) Recent US moves are more clearly in violation of the international rules than the Chinese policies to which they are supposed to be a response. Remember that under WTO rules it is usually legal for a trade partner to retaliate with tariffs on an equal value of trade if the originator’s tariffs are ruled illegal under the rules. This puts China in a stronger bargaining position.

To say that China will not surrender on the substance of the trade war is not to say that it might not give the American president a face-saving way to declare victory and get out. It could be some fig leafs (like agreeing to buy some US liquefied natural gas at the world price), just enough to give Trump a photo-op story to show his supporters via the Fox news network. But it won’t do anything to improve the US trade balance, output, employment, or real wages.

This post written by Jeffrey Frankel.

66 thoughts on “Guest Contribution: “Why China won’t yield in Trump’s trade war”

  1. 2slugbaits

    It’s worth keeping in mind that Trump (as well as many of his supporters on this blog) was an enthusiastic supporter of Brexit. That says a lot. So far as I know Trump has never renounced this sin against basic economics. And for those who believe Trump must be smart because he’s rich (and here I mean you PeakTrader), it turns out that Trump lied his way onto the Forbes list:

    1. PeakTrader

      2slugbaits, Trump was smart enough to win a presidential election and with no experience.

      And, the Republicans hold more national and state offices, since the 1920s.

      Maybe, it’s the Democrats, who are dumb.

      Of course, Trump also has a few billion dollars more than you.

      1. pgl

        Good afternoon KellyAnne. I see that you are still defending all sorts of poisonous comments with “we won”!

      2. 2slugbaits

        PeakTrader I suspect it was more a case of voters being stupid enough to vote for Trump rather than any intelligence on Trump’s part. And of course, it was the Electoral College that gave us Trump, not the voters. And you’re still too proud to admit that you were snookered about Trump’s wealth. He doesn’t have a few billions. Maybe a few millions, although I’m even skeptical about that if you want to talk about net wealth. The point of the article was that Trump lied (bigly) to Forbes once before about his wealth, so why should we believe him today. You probably thought Bernie Madoff was rich as well. You’re what the call “a mark.”

        1. pgl

          “He doesn’t have a few billions. Maybe a few millions, although I’m even skeptical about that if you want to talk about net wealth.”

          Of course Peaky would argue this is all because the Chinese stole Trump’s IP so all those offsetting liabilities in the calculation of his net wealth – they have been defaulted on. Sort of like how Peaky did things when he was a banker. No wonder he got fired!

      3. Not Trampis

        Mate, He thought like most other people he was going to lose. He was simply in it to boost brand Trump.

        That is one of the reasons he is no conservative

  2. Moses Herzog

    It’s gruelingly sad to watch what has become a significant portion (after Republicans have robbed public schools’ resources) of functionally illiterate Americans be so easily led around by the nose by Trump’s TV propaganda. My father said (before he died) that he didn’t think democracy would survive in America. At that time, I thought it was the ramblings of a grumpy old man, and grinned to myself. Now when I see people like “rtd”, PeakIgnorance, Ed Hanson, and the folks on FOX news so vehemently proud of their own ignorance and Sean Hannity doing the chocolate cha-cha with Michael Cohen (Trump’s fixer) as his radio fandom cheers him on, I am moving slowly along the spectrum towards my Dad’s thoughts on the future of Democracy in America.

  3. dilbert dogbert

    I expect the Chinese will throw him a meaningless concession so he can scream WINNING!!! Un will be smart if he does the same.

  4. PeakTrader

    It’s largely about China taking and stealing intellectual property for production and export, which results in larger U.S. trade deficits and fewer good U.S. jobs, along with less tax revenue and innovation. The Communists don’t care much about its masses. So, they can weather losses better than the U.S.. Until China changes its bad behavior, the civilized world should shift production from China to Taiwan, the Philippines, Bangladesh, etc. and impose trade barriers on China’s (indirect and direct) exports. China will lose much more than its trading partners. Eventually, that will bring them to the bargaining table and the U.S. will benefit tremendously.

    1. pgl

      Since you failed to read what Frankel wrote – try this:

      “On intellectual property? OK, here the US and other countries have some valid complaints to bargain about. But the grievance is weaker when the US corporation willingly agrees to technology transfer as the price of admission to China, not to mention that facilitating the movement of production facilities to China was not what Trump promised his supporters.”

      1. PeakTrader

        Pgl, you’re assumption is false. I read JF’s entire article and I don’t disagree with what you cut & pasted.

        I stated before:

        U.S. firms shouldn’t be coerced into giving away IP for market access and it certainly shouldn’t be stolen.

        Another failed and meaningless response by Pgl.

        1. pgl

          Stealing IP is your dog whistle for not supporting monopoly privileges. There was a time where US policy supported ending monopoly privilege and supporting competition. It’s good to know that you have such utter disdain for competitive markets.

        2. 2slugbaits

          PeakTrader U.S. firms shouldn’t be coerced into giving away IP for market access

          No one is coercing US firms to seek access to Chinese markets. And if US firms determine that access to Chinese markets is worth the cost of surrendering IP rights, then that’s the business of the US firms, not yours and not Trump’s. But since you’re so concerned about people being “coerced”, how concerned are you about US consumers being coerced into having to pay monopoly prices? Maybe I should give you a few minutes to review just exactly why IP rights are profitable.

          1. PeakTrader

            2slugbaits, I’ve responded to those comments many times before. Obviously, you need much more time to understand giving away IP rights will result in less innovation, fewer good jobs, less tax revenue, etc.. Of course, you want more Americans to work at Walmart, McDonald’s, or Uber, because of your hatred of the rich and your love of socialism.

          2. 2slugbaits

            PeakTrader I’ve responded to those comments many times before.

            Yes, you have. And always with ersatz economic nonsense. I see this as a teachable moment for you. An opportunity for you to think like an economist instead of that “Swabian housewife” economic ignorance. Try reading some actual research on innovation and economic growth. The whole point of IP rights is to restrict output. Restricting output results in fewer jobs. That’s how a monopolist generates rents. It’s by setting output equal to MR = MC, but setting price at demand. You’ve got things completely backwards. And again, if a US firm decides that it wants to share its IP rights with China in order to gain access to the Chinese market, that’s a business decision. It sounds to me like you’re the real socialist here. You’re the one who wants the government to interfere with private sector business decisions. Lately you’ve taken to advocating some kind of mercantilist/socialist theory of trade. Hey, come to think of it, that is almost the very definition of Trumponomics.

            As to the possible loss of innovation, here things are a lot trickier and ambiguous than you understand. There’s a delicate balance. Innovation thrives when there is a temporary opportunity to earn non-zero economic profits. A firm must be able to recover its R&D costs, and that means it has to be able to charge a higher than competitive market price. Now a firm’s decision to share its IP rights does not hurt innovation because that’s a voluntary business decision; but the threat of IP rights being stolen can hurt innovation. So we need some IP protections in order to foster innovation. The question is finding the right amount of protection. Too much protection hurts innovation every bit as much as too little. You have to find the Goldilocks period of protected rights. If the copyright or patent lasts too long, this can hurt innovation. It hurts future innovation in two ways. First, it gives the owner of IP rights an incentive to ambush any future innovations that might threaten a current copyright or patent. Remember how Microsoft engaged in “catch and kill” tactics? Or how the automotive industry worked overtime to kill innovation in mass transit? The other way in which excessively long lived IP rights hurt innovation is a bit subtler. All technical knowledge stands on the shoulders of previous generations of researchers. When copyrights or patents expire it makes the insights and knowledge embedded in that technology available to more researchers. An example of this would be the risk to future medical research if IP rights to genome research are overly restrictive.

            In reading your posts I’ve noticed that you don’t seem to understand the difference between business and economics. That might be why you seem to think maximizing unearned rents is such a great thing. It’s all about making a few people ultra rich and not about maximizing welfare. That’s Donald Trump’s world view. The idea of consumer surplus is completely absent in your posts. If you are genuinely worried about workers at Walmart, then why are you advocating policies that threaten to reduce employment at Walmart? And why don’t you oppose excessively long IP rights that drive up prices for prescription drugs that low income Walmart workers need? It’s the attitude of a crooked Wells Fargo banker living with a lot of denial.

          3. PeakTrader

            And, foreign firms should be allowed to operate independently and competitively in China:

            “China is vital for many top international brands, but doing business there often comes with a high entry fee…International companies have long complained that China has strong-armed them into handing over trade secrets in exchange for market access…International automakers are “training their future competitors and receiving only a fraction of what their intellectual property would earn” if they were allowed to go it alone in China, said Mary Lovely, a professor at the Peterson Institute for International Economics…”It’s no surprise that some domestic Chinese brands resemble American or European models” because of this practice, said Scott Kennedy, a China expert at the Center for Strategic & International Studies…Companies that refuse to play ball are left on the outside, forced to pay potentially hefty tariffs at the border for the goods they ship to China…CEO Elon Musk voiced his frustration earlier this month…It’s like competing in an Olympic race wearing lead shoes.””

          4. PeakTrader

            “…no US auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV auto companies in the US.” – Elon Musk

            “American electric vehicle (E.V.) companies operating in China are forced to have a Chinese partner and transfer technology to them. E.V.s are one of the next great global industries, and China has plans to use its market access rules to control the whole E.V. supply chain, not to mention aerospace, quantum computing and a range of other advanced industries.”

          5. PeakTrader

            Continued…”they are also playing by a set of rules that others would be naïve to ignore.”

          6. PeakTrader

            2slugbaits says:

            “The whole point of IP rights is to restrict output.”

            Economics is very simple for 2slugbaits.

          7. PeakTrader

            And, people, who work in banks are very honest.

            But, you wouldn’t know about that either.

          8. 2slugbaits

            PeakTrader Apparently you cannot distinguish between economic analysis and special pleading. Your quote is a perfect example of special pleading masquerading as economics.

    2. pgl

      Speaking of IP rights – perhaps the most discussed trademark in history is Coca Cola. Peaky might think the Chinese have stolen their IP rights but this story notes how the business is done in China which is how it is done worldwide:

      There is a battle in U.S. tax court right now as to what the royalties should be from the foreign affiliates of Coca Cola back to the Atlanta parent. It seems all foreign affiliates of Coca Cola pay less than 10% of sales whereas the IRS insists this royalty rate should be raised to 20%.
      Protecting IP rights? Not quite. More telling multinationals they should pay more U.S. taxes. Funny that Peaky’s logic supports the IRS position. I wonder why they do not call on PeakyBoy to be their expert witness!

  5. rd

    Think China would have to be reasonably sure that the ‘meaningless concession’ won’t be followed up by another Trump demand, and another, and ….

  6. pgl

    “the Chinese already export relatively little steel to the US.”

    We imported over $2 billion of steel from China but only 15% of this is from China. We in fact imported more from Sweden.

    1. PeakTrader

      You don’t know:

      “The Commerce Department said that after anti-dumping duties were imposed on Chinese steel products in 2015, shipments of cold-rolled steel from Vietnam into the United States shot up to $295 million annually from $11 million.”

      “China is now a major exporter of basic steel commodities to many other countries, where it is often transformed into downstream products such as pipe, rails, and bars that are ultimately exported to the United States from those downstream producers.

      “China is selling a lot of steel to third countries, which then process the steel into products sold into the United States at unfair prices.”

      1. pgl

        One can check the actual data of how much we import from Vietnam here and it seems our imports were over $71 million in 2015:

        No wonder you quote without a link some alleged Commerce claim. Census is actually saying we import more from Vietnam than we do from China.

        Now you may be implying that the Vietnamese are conspiring with the state owned Chinese companies but if you knew any history, the Vietnamese do not trust the Chinese. And guess what KellyAnne – we do not trust you either.

          1. pgl

            “Although the product was processed in Vietnam to be made corrosion resistant or cold-rolled for use in autos or appliances, the Commerce Department agreed with the claims of American producers that as much as 90 percent of the product’s value originated from China.”

            Did you read your own piece? So they were as much imported from Vietnam as Canada imports Ford and GM cars from Detroit. Detroit only assembles the cars but buys its components from all over the place especially Mexican maquiladoras. Those iPhones we import from China? Over 95% of the price that Apple buys Chinese represent components imported from places like Korea and Japan. Very little of this price is from the cost of assembly in China.

            So those bilateral trade deficits your boys in the White House to bash China are bogus. Thanks to your little story here – it is clear that your team is either two faced or incredibly stupid. In your case – both!

          2. pgl

            “Your link doesn’t support your statement”.

            Actually it does so Peaky either cannot read or is lying again. Yes – census reports gross sales not value-added. Everyone knows that except you. Your little rebuttal included a link to a story that you either did not read or did not understand. Yes – there is a lot of process trade going on here. Of PeakIgnorance clearly has no clue what processed trade even means.

          3. pgl

            “The Vietnamese-shipped cold-rolled steel will face combined preliminary U.S. anti-subsidy and anti-dumping duties of 531 percent, while the corrosion-resistant steel will face combined duties of 238 percent – more than high enough to shut both products out of the U.S market.”

            My God! US steel is worse that the US sugar sector. Tax the mess out of foreign made products so they can prop up their inefficient factories and still make a profit ripping the rest of us. This is the “capitalism” Peaky supports? No wonder they ran him out of the banking business.

        1. pgl

          Menzie made an important point here:

          “I’ve seen the argument that China’s tariffs on soybeans will have no effect because the soybeans will be relabeled so that US soybeans go to Europe, and soybeans that previously went to Europe go to China, evading Chinese tariffs on US soybeans. John Cochrane makes this point. This seems to have surface appeal in a world where transport costs are zero, and there are no set-up costs to establishing new trading links. Still, I sensed that this conclusion must rest on some assumptions, including for instance infinitely elastic supply. I decided to investigate further.”

          Menzie goes onto to note there is a literature on this that qualifies Cochrane’s discussion. Cochrane was noting how foolish single country tariffs were as opposed to tariffs on imports from all nations. I guess PeakyBoy does not realize his Reuters defense of Trump’s three stooges (Kudlow, Navarro, and Ross) shows the stupidity of their zest to attack imports from China and nowhere else.

  7. don

    “Industries and consumers in China would also be hurt by a trade war, of course. It is dependent on US soybean exports, for example.”
    Most of the rest of Frankel’s “analysis” is equally flawed. Currency manipulation has been by far the biggest violation of “free trade” to occur in recent decades, but he has never criticized this practice. And I very seriously doubt that China would fare better than the United Stares if China undertook to sell its U.S. assets. It would provide a big fiscal stimulus for the United states and a bigger fiscal drag for China. Maybe Frankel should read what Krugman has to say on the subject:

    1. pgl

      Krugman wrote that in November 2013. And there is nothing in what Krugman wrote then that undermines what Frankel wrote here.

      1. don

        Well, Frankel makes his argument about China’s holdings of U.S. debt under the lead sentence “It’s not true that the deficit country is necessarily in the stronger bargaining situation.” And he goes on to say “If anything, the surplus country is often in a stronger position, because it has accumulated financial claims against the other country, in this case well over a trillion dollars of Chinese official holdings of US treasury securities.” I think the average reader can be forgiven if he interprets this as contradicting Krugman’s argument that China stands to lose more than the United States by selling off its U.S. debt holdings. Or are you relying on his subsidiary argument that “rumor” of a Chinese debt sale could raise U.S. interest rates? (I would ask by how much and for how long? And Frankel surely can’t be talking about short term rates, since those are determined by the fed.)
        You point out that Krugman’s argument was made in 2013. Are you trying to imply that it is less true today?

        1. pgl

          “You point out that Krugman’s argument was made in 2013. Are you trying to imply that it is less true today?”

          Krugman was still arguing we were below full employment back in 2013. He is suggesting we are near full employment today. So yes – he is implying as such.

    2. 2slugbaits

      don I think you may have missed Frankel’s larger point, which was that there is an asymmetry of motivation in terms of the willingness of the Chinese to suffer the consequences of a trade war. It may well be true that over the long run a trade war will hurt the Chinese economy more than the US economy; but Frankel’s point was that the Chinese are also more willing to stick it in the eye of what they will see as running dog imperialists at it again. Remember, contrary to McNamara’s rational calculation approach, the North Vietnamese were more willing to accept regular bombings of Hanoi than Americans were willing to accept 6 percent inflation.

      1. don

        I accept this point. But I would be less surprised if we gave up the economic fight for other foreign policy objectives (such as not encouraging China to ally with Russia against the United States in other global arenas). But is Frankel really that well qualified to make such pronouncements?

    3. Moses Herzog

      @ don
      I can tell from your very low writing and reading level, Don, you are a Republican.

      What’s the matter Don, did you just decide today that Ronald Reagan was a blathering idiot with early Alzheimers?? Or is your son one of those “dirty/lazy liberals” who can’t take a little competition in the free market workplace?? You Republicans got what the multinational corporation CEOs spoon-fed you—“Everyone wins with free trade”. Now you’re crying like an infant because it didn’t quite work out like your Republican masters told you it was going to??

      Don, I suggest that instead of regurgitating opinions that Rupert Murdoch got the dumb blondes on FOX news to spoonfeed you, read a respected major city newspaper, maybe read a book once in awhile, or hell, maybe just try acting like an adult who can think for himself. You’ll find it’s quite liberating.

      1. 2slugbaits

        I think you’re being unfair to don. Sometimes he and I agree; sometimes we don’t. But I’ve always thought that his points deserve serious consideration. The same with Steven Kopits. I don’t see either of them as one of those dimwitted Fox Noise types who always swallow the Trump party line and would fit in better over at zerohedge.

    1. pgl

      Trump bound by the rules of the WTO? Why should he be as he is above the law in his own country.

  8. KC

    Past US governments have squandered the peace dividend (post Cold War) and global trade dividend in wars and cutting back taxes, instead of using them to address poverty, inequality and disadvantage among Americans.

    If US politicians were serious about improving the lives of disadvantaged both in the US and overseas, I would be sympathetic to China helping America out of it current difficulties. But why should China do deals that only serve to promote American corporate interests?

    It is not the job of China’s government (or any government) to make life easy for firms. The job of government is to promote the long-term interest of workers and consumers, especially the disadvantaged.

    There are 3 key challenges confronting our generation: (a) climate change, (b) inclusive (and sustainable) growth both within and across nations, and (c) the refugee crisis. The US trade deficit seems a far way down the list of issues deserving our attention.

    The problem is not US trade deficit. The problem is the unwillingness of US politicians to do anything to improve the lives of American workers and consumers, notwithstanding their rhetoric.

    US politicians and many commentators identify too closely with corporate interests. So much so that even the US Supreme Court deems corporations as having rights worth defending.

    That said, this current madness in US political system is arguably a recent phenomenon. I feel sure that one day, future politicians (and commentators) will return to their true democratic roots and pay close attention to the wellbeing of the disadvantaged. There are many fine examples in US history of putting poeple’s wellbeing before corporate interests.

  9. Ed Hanson


    This post presents an opportune time to review previous chicken little discussions brought to us through past posts

    First, it was Lean Hogs, with a scary chart with arrows pointing to the down in June Lean Hogs futures. The trade war was on and the first victims were us through our wonderful hog producers, oh woe is me. So now it is about a month later. And what has happened. Let the price do the talking’
    Then March 23, price 74.125. Now April 20, 77.5. Up 3.375 dollars. Nice steady uptrend now challenging the 50 day moving average So much for the sky falling on the hogs.

    Okay, the hogs aren’t following the leftist screed, doggone them right wing pigs, soybeans will save chicken little’s bacon.

    The soybean post was April 4, and truly the futures market was showing signs of panic, and as the title of the post said, “July Soybean Futures as of Noon, Today” was 10.17. But of course cooler heads quickly reasserted and as one sub-headline said the next day said, “When panic fizzled, prices sizzled.” Prices were already showing recovery but what does the then and now tape say?
    The April 4, Noon price, 10.17. Now April 20, closing price 10.40. Up .23 in 2 1/2 weeks. But face it, soybeans, too, are traitors to the left and refuse to act low to their betters.

    The panic which Jeffrey Frankel attempts to create will not have staying power. It is most likely that President Trump will mostly succeed with the new trade policy, which will see freer trade, on bilateral basis with many countries, without the slow and somewhat ineffective bureaucracies found in the WTO. The worse might be reciprocal tariff policy, which really not that bad.

    Did I say no panic? It is coming. It arise as President Trump continues to deal with the tough problems; problems either ignored, kicked down the road or made worse by previous administrations. And the panic will be with the left. So it goes.


    1. pgl

      “Okay, the hogs aren’t following the leftist screed, doggone them right wing pigs, soybeans will save chicken little’s bacon.”

      Are you also writing tweet for Trump? Try just reporting the facts without this Sean Hannity babble speak.

      1. 2slugbaits

        We have a socialist in the White House as well. According to Bloomberg and E&E News reports Trump is considering invoking an old WW2 provision that would allow him to nationalize coal consuming industries (e.g., power plants) and compel them to use coal rather than natural gas.

    2. CoRev

      Ed, where the heck is that “like” button? Pgl, 2skugs, Joseph, and I must now include Menzie will not see the obviousness of your message.

      1. pgl

        “the obviousness of your message”.

        Check my link as it is obvious that Ed cherry picked his dates and you fell for it. I guess facts have a well known liberal bias which is why you and Ed misrepresent them so often.

    3. 2slugbaits

      Ed The futures market captures investors’ information at a specific point in time. It also has ripple effects on spot prices. In both the lean hog and soybean futures markets the tariff announcement resulted in a sharp decline in the spot prices for both. Lean hogs fell to a little over $61 and soybeans fell from $10.80. The lean hog market was already weak because of excess supply, but the tariff announcement put pressure on pork producers to either sell on the spot market or incur feeder costs and risk selling at a low June futures price. So they dumped some hogs on the market. That reduced the number of hogs available for the June market, which had the effect of increasing the price somewhat. And you saw a similar thing with soybeans, although that gets complicated because there was a Brazilian buy after the tariff announcement. Futures markets are not independent of spot markets and vice versa.

      If you don’t believe that the tariffs had an adverse effect on already weak hog and soybean markets, then I invite you to watch last night’s Market To Market. A good discussion begins around 12 minutes into the program.

  10. pgl

    PeakIgnorance cherry picks some quotes from Mary Lovely but does not provide this link:

    Check out what Peaky omitted at your will including:

    “Multinational firms embraced China as a location for offshore production, making it the third-largest recipient of foreign direct investment in 2016, behind only the U.S. and the U.K.”

    No he focuses on this:

    “China is vital for many top international brands, but doing business there often comes with a high entry fee…International companies have long complained that China has strong-armed them into handing over trade secrets in exchange for market access…International automakers are “training their future competitors and receiving only a fraction of what their intellectual property would earn” if they were allowed to go it alone in China”

    Well the Japanese multinationals make modest percent of sales from their intangible assets but not so much Ford and GM. I guess PeakIgnorance is too lazy to read their financial statements. BTW – I noted how Coca Cola uses its brand effectively selling to Chinese customers. Peak’s response? Crickets.

    1. PeakTrader

      Another ridiculous response by Pgl.

      China has (potentially) a large consumer market, cheap labor and other low production costs, good infrastructure, etc. to do business in China. And, did Coca Cola give its formula to China? I doubt it.

      That doesn’t exclude the other statement. Talk about ignorance – what a hypocrite.

      1. Ulenspiegel

        “And, did Coca Cola give its formula to China? I doubt it.”

        You miss the point in case of coca cola. I bet, good (Chinese) food chemists are able to produce something that tastes like cola without real problems.
        The lable on the bottle is the selling point.

        You could make a better argument against China by describing the issues of medium sized companies which e.g. sell construction equipment to China and find that Chinese competitors are able to copy the stuff with knowledge of the (non-Chinese) patents and delivered hardware. The companies are now in the interesting situation of either not getting their R&D expenses back or not longer filing patents for their products.

        1. pgl

          “The lable on the bottle is the selling point.”

          The tax court battle between the IRS and Coca Cola agrees with this but then the taxpayer tries to tell us that the value of the marketing IP was created abroad. In downtown Atlanta Coke has this awesome museum of their history of advertising over their many years that undermines what Coke is telling the court.

      2. pgl

        “did Coca Cola give its formula to China? I doubt it.”

        I doubt it too but you just made my point undermining your incessant garbage. And to suggest someone is a hypocrite when they provide the link to the article you failed to link to is really beneath contempt. Of course expecting you to engage in an honest conversation is a bar too high.

        1. pgl

          Do people in China enjoy Kentucky Fried Chicken? Peaky is worried that the Chinese will steal the secret recipe of 11 herbs and spices. Of course the Colonel has made sure that has not happened! But I bet a lot of their herbs are made in China!

  11. Benlu

    Peak, it is puzzling to me why couldn’t more US corporation seek the legal routes of fighting the IPR theft in courts just like Google,apples, Samsung, Huawei, Qualcomm,ZTE, …have been doing? For lack of substance, evidence,…?

      1. Benlu

        Peak, Apple, google, Qualcomm, Samsung, Huawei, Samsung have been suing each other for IPR infringements in the past. If US could not figured who infringes on its IPR then to the court it means no infringement of IPR.

  12. PeakTrader

    Ulenspiegel, I agree branding is most important. However, it should be noted, the introduction of New Coke in the 1980s was a failure. From the New York Times:

    “Coca-Cola, the world’s best-selling soft drink, once contained cocaine, and it is still flavored with a non-narcotic extract from the coca, the plant from which cocaine is derived.”

    And, “The crazy reason why no company can truly emulate the taste of Coke.”

    From a chemistry site:

    “The chemical analysis is actually the easy part. However, Coke and all of these other manufacturers don’t just take a list of chemicals or ingredients, mix them in a tub and then put it in the bottle. The manufacturing process is every bit as important as the ingredients and much harder to determine. For example,

    in what order are the ingredients added
    how long do you mix the batch before adding the next ingredient
    at what rpm do you mix them
    what kind of mixer do you use
    and the list goes on and on. There might be 100 ingredients in the Coke formula, but there are probably over 1,000 variables in the manufacturing process, and there is no straightforward analytical method you can use to specify all of the process parameters. The ingredients is the easy part, the process is what stops someone from making a replica product – well that and legalities.“

    I agree, the brand is important, but the perception or reality of taste differentiation is also important.

  13. Benlu

    I meant “ If a US corporation could not figure out which other corporation infringes on its IPR then to the court it means no infringement of IPR”.

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