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Trump, Tariffs and How to Start a War

The best way to deal with Donald Trump, especially if you are a foreign government negotiating trade issues, is to give him a little win. It doesn’t have to be big and important; he’s mainly interested in declaring a triumph, and he’ll supply the hot air to inflate your little concession into an allegedly major defeat free of charge. Just remember to look crest-fallen, and you’re home and dry.

Thus, for example, Trump’s recent ‘triumph’ over Mexico. He threatens escalating tariffs against Mexico, the Mexicans cave in after ten days, and the border problem is solved (until the next time he needs it). Only the nerds notice that the Mexican ‘concessions’ are almost all actions that Mexico had already promised to take in quiet, orderly discussions with the United States between December and March.

The Canadians did even better when renegotiating the North American Free Trade Agreement (NAFTA). Trump called it the “the worst deal ever signed,” but several clauses in the old treaty that Ottawa disliked were dropped. The only Canadian concession was to give U.S. dairy producers access to 10% of the Canadian milk market (that’s just 3 million people) – if they can persuade those Canadians to buy their bovine growth hormone-treated milk.

A very small price to pay, but nobody in Canada was so foolish as to crow out loud that they had seen the Americans off. The Canadian negotiators looked suitably hangdog and defeated, and Trump claimed the credit for a “great deal” and a “historic transaction”. Game, set and match to Ottawa.

And so to the grand drama of Trump’s tariff war with China. This one ought to be a no-brainer, because China is in an extremely vulnerable position. Its exports to America are worth almost three times as much as US exports to China, so it really cannot afford to lose the U.S. market. Chinese President Xi Jinping should just give Trump enough to make him happy – he’s easily pleased – and move on to the next problem.

To the extent that Donald Trump calculates his moves beforehand, this would have been his calculation, and it is logically correct. But it didn’t work out that way: after a year of escalation and counter-escalation, the two countries are nearing the point where they will have imposed 25% tariffs on all of each other’s exports. What went wrong?

Trump issued his usual threats and was the first to escalate at every step of the dance, but if the Mexicans and the Canadians can work around his histrionics, why can’t the Chinese?

Maybe it’s just pride: Xi simply can’t abide the vision of Trump capering with joy as he celebrates his victory over the Chinese. Or maybe it’s fear: letting Trump have a victory (and a real one, this time) would so humiliate Xi in the eyes of his own colleagues and rivals that his own position would be in danger.

It’s probably the latter. The negotiations seemed to be going well, with Trump predicting an “epic” deal and praising his dear friend Xi. Then suddenly in early May the White House complained that China was trying to re-negotiate points previously agreed, and the whole thing fell apart. It feels like Xi lost an argument at home – which would imply that he is considerably less secure in power than everybody assumed.

In either case, Xi is making a big mistake. The Chinese economy is not doing well. Factory output is declining, and new car sales fell last year for the first time since 1990. China’s total debt, even on untrustworthy official figures, is nearing three times annual GDP, which is the level where panic usually sets in. In fact, it’s the level at which Japan’s three-decade economic depression began in 1991.

Strip out all the unproductive investment and creative accountancy, and Chinese GDP grew last year by less than 2%. Employment is stagnant, retail sales are falling, the stock market dropped by a quarter last year. This is not an economy in good shape to withstand a prolonged trade war.

The great fear of the Chinese Communist Party is that people will turn against the regime if the economy stalls and living standards stop rising. They certainly don’t love the regime. Why else would they obey it? This theory may be tested to destruction in the next few years.

So if Xi is not free to do a trade deal with the US and the Chinese economy tanks, what must he do to save Communist rule and his own power? He will need a foreign war, or at least the threat of one, in order to get nationalism on his side. Not war with the United States, of course. That would be crazy. But Taiwan would do nicely.

And this is one that you really can’t blame on Trump.
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To shorten to 675 words, omit paragraphs 3 and 4. (“The Canadians…Ottawa”)

Gwynne Dyer’s new book is ‘Growing Pains: The Future of Democracy (and Work)’.

Trump the Promise-Keeper

Donald Trump is a man of his word, and he promised his ‘base’ to build a wall on the US border with Mexico to stop an “invasion of gangs, invasion of drugs, invasion of people.” It turns out that Mexico isn’t willing to pay for it after all, but a promise is a promise. So he has declared a fake ‘national emergency’ to get his hands on the money he needs.

It’s fake because the days when huge numbers of illegal immigrants were trying to come in across that 3,200 km. border are long past. Fifteen years ago it was more than a million and a half people a year. It had fallen to 400,000 by the middle of Barack Obama’s first term in 2010, and has not exceeded that number since.

Half of those 400,000 people are caught while crossing, so let’s just focus on the 200,000, more or less, who currently sneak through the border far from any legal crossing point, and whom a wall might stop. Let’s imagine that it could stop them all.

The predicted cost of the wall is $23 billion, so how much would the United States be spending for each of these would-be border-crossers? Around $11,000 per person, and very, very few of those people are gang members or drug-smugglers; they are just looking for work and a better life. The United States is fully entitled to turn them all away, but this is ridiculous.

The wall is largely symbolic, but it is a very important symbol for Trump. It was one of the key promises he made to the true believers in his ‘base’, and it was striking how angry they got at him when it looked like he would be thwarted by Congress. As Ann Coulter said: “The only national emergency is that our president is an idiot.”

But the ‘national emergency’ will probably do the trick for Trump. It will face all sorts of legal challenges, but the rules for declaring national emergencies are so vague and the precedents so numerous that he will probably win in the courts in the end.

In the meantime, he will have around $8 billion to play with, mostly taken from the military and disaster-relief budgets. It’s only a third of what it would take to build a full border wall, but it will let Trump look busy and persuade the ‘base’ that he is making progress.

So there’s one promise kept, more or less. The other two that really count are his promise to “bring the jobs back” and his commitment to outlaw abortion.

He can’t bring the jobs back because they never left. The vast majority (around 85%) of American manufacturing jobs lost since the turn of the century were killed by automation, not by free trade. But the fantasy statistics about near-full employment pumped out by the government may suffice to keep his base quiet, even if jobs are strangely scarce or low-paying around where they live.

What Trump does need to deliver on is banning abortion. He cannot do that himself, of course, but he promised to appoint ‘pro-life’ justices to the Supreme Court during the 2016 election campaign. He has probably managed to create an anti-abortion majority on the Court by now (although you can never tell with judges). But there is a problem for him and the Republican Party if he delivers on that promise.

47% of white women voted for Donald Trump in 2016, but around half of them were not part of his ‘base’. They were just traditional Republicans who voted as they always did, some of them perhaps holding their noses this time.

If the Supreme Court reversed its historic 1973 Roe vs Wade decision that made abortion legal throughout the United States, a lot of these women would be very cross with Trump and the Republican Party. Given that Trump only won by a hair’s breadth in 2016, he cannot afford to lose their votes.

Therefore he definitely doesn’t need a big win on Roe vs Wade in 2019 if he wants to be re-elected in 2020. Does he know this? It’s his own future at stake here, and he’s usually very alert to developments that might threaten it.

He can’t really control what the Court might decide, but he will be hoping that they just nibble at the fringes of the issue, not reverse Roe vs Wade outright. And the Court is quite likely to do just that, because senior judges hate to overthrow decisions of long standing that enjoy wide acceptance in the society. (Two-thirds of Americans support the current law.)

Trump doesn’t care about the outcome on most issues, probably including this one. He just wants a ‘win’, and he can conjure it up out of the most unpromising material. If the judges make a few minor changes to the law, he will portray it as a triumph and drop the subject.

The real secret of dealing with Trump? Throw him a fish, and he will go away.
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To shorten to 725 words, omit paragraphs 3 and 4. (“Half…ridiculous”)

Gwynne Dyer’s new book is ‘Growing Pains: The Future of Democracy (and Work)’.

The End of the Big Trade Deals

US president-elect Donald Trump announced on Monday that he will cancel the “Trans-Pacific Partnership” on his first day in office (20 January 2017). That will kill the TPP off for all 12 countries that agreed on it just over a year ago: as Japan’s Prime Minister Shinzo Abe said, the TPP would be meaningless without the involvement of the United States. But then, it was pretty meaningless even with American involvement.

Japan and the US were the only two really big economic players in the TPP deal. All ten other partners – Canada, Mexico, Peru and Chile on the eastern side of the Pacific, and Vietnam, Singapore, Brunei, Malaysia, Australia, and New Zealand on the western side – have a total population scarcely bigger than that of the United States alone.

It was really just an attempt to create a Pacific trading bloc that excluded China, thereby preserving what was left of the traditional US and Japanese domination of the region’s trade. For just that reason, the other big trading economies of the region, Indonesia, the Philippines and South Korea, stayed out of it. They preferred to play the giants off against one another.

Chinese influence and trade in South-East Asia may grow modestly as a result of the TPP’s cancellation, but no profound transfer of power or wealth will ensue. There were no big tariff cuts coming as a result of the TPP anyway, because actual taxes on international trade were already low. The real focus was on removing so-called “non-tariff barriers”.

The classic example of a non-tariff barrier was Japan’s attempt in the 1980s to ban imports of foreign-made skis on the grounds that Japanese snow was “unique”. A great deal of detailed haggling in the TPP talks went into breaking down thousands of similiar (and sometimes equally ridiculous) barriers to trade, but any country that wants to keep those gains can just incorporate the same deals into bilateral trade treaties with other ex-TPP members.

Not many jobs would have been gained or lost, in the US or elsewhere, if the TPP had gone into effect. The same is true for the US-European Union equivalent of the TPP, the Transatlantic Trade and Investment Partnership (TTIP), which was dead in the water even before Trump was elected. Donald Quixote is attacking windmills, not dragons, because the great free-trading spree of 1990-2008 has already come to an end.

It was not working-class American voters who killed TTIP. It was mainly European consumers who didn’t want hormone-laden American beef, US-grown GM foods, and chlorine-washed American chickens on their supermarket shelves.

To be fair, European left-wingers also played a role in mobilising opposition to the deal, by raising the (probably correct) suspicion that the “Investor-State Dispute Settlement” process (ISDS) in the proposed treaty was designed to cripple the ability of European goverments to impose high safety standards in health and environmental issues.

Most of the jobs that moved from developed to developing countries in the heyday of “globalisation” (or often, in the US case, just from Rust Belt states to Sun Belt states where wages were lower and unions were weak or non-existent) left long ago. In recent years eight American jobs have been lost to automation for every one that went abroad.

Most economic strategies, including both protectionism and free trade, conform to the law of diminishing returns. The same goes for political strategies, but they tend to lag even farther behind the realities. That’s why the old white working class in the US (and therefore Trump) still feel compelled to “fight “ free trade – and why even Hillary Clinton, once an enthusiastic advocate of the TPP, was ultimately obliged to turn against it .

When she finally made that U-turn, Reince Priebus, the chairman of the Republican National Committee, mocked her as “a case study in political expediency.” Now he has been appointed as President Trump’s chief of staff, and he will change his tune accordingly. But the cross-party consensus on this does not make it the right tune.

The truth is that these now aborted free-trade deals were merely the finishing touches on an edifice whose basic structure was completed more than a decade ago. Those who had devoted their lives to building that edifice simply kept on doing what they were good at doing, necessary or not. And all the while technological change was conspiring to make them as irrelevant as the people who so vehemently opposed them.

Cultural lag being what it is, the last battles in this long war – probably between the US and its NAFTA partners, Canada and Mexico, and between the US and China – are yet to be fought. We may be entering the next decade before the political process anywhere seriously engages with the reality of automation as the main destroyer of jobs. But reality always wins in the end.
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To shorten to 725 words, omit paragraphs 7 and 8. (“It was…issues”)

Trump in Power

Let us suppose that it is July 2017. Let us suppose that Donald Trump, nominated as the Republican candidate for the US presidency exactly a year ago, won the November election – quite narrowly, perhaps, but the polls are certainly suggesting that such a thing is possible. So he was inaugurated six months ago, and has started to put his campaign promises into effect.

We may also assume that the Republican Party retains control of both houses of Congress. If it doesn’t, then Trump’s ability to execute his plans would be seriously circumscribed, but the surge of support that gives Trump victory would probably also give the Republicans a win in some close Senate races. The Republican majority in the House of Representatives, thanks to extensive gerrymandering, is practically fireproof.

Trump’s three most disruptive campaign promises were also the three that had the most appeal to his core voters, and he is implementing them fast. They are: a 40 percent tariff on all foreign imports, an end to free trade deals, and tight curbs on immigration – especially the famous “wall” on the Mexican border.

It won’t actually be a wall, of course. It will be the kind of high-tech barrier that countries build when they are really serious about closing a frontier. There will be a ditch about three metres deep and ten metres wide extending for 3,000 km along the US-Mexican border. It will have a three-metre-high razor-wire fence along the front edge of the ditch, facing Mexico, and another along the back edge.

The front fence has a high-voltage current running through it. The back fence carries the video and infra-red cameras and motion-sensors that detect attempts to cross the ditch, and the remotely controlled machine-guns that respond to those attempts. There are also land-mines down in the ditch. Why is it so lethal? Because long experience has shown that the only way to really close a border is to kill people who try to cross it.

The “wall” is not yet finished in July 2017, of course. It will take several years to complete, at a cost of $30-50 billion. Already, however, there are daily deaths among the tens of thousands of Mexican protesters who gather at the construction sites – and a few among Mexican-American protesters on the other side of the fence as well.

The Mexican government, faced with economic disaster as the millions of manufacturing jobs created in Mexico to export back to the United States evaporate, has broken diplomatic relations with Washington, as have several other Latin American nations. State Department experts are worried that a radical nationalist regime may come to power in Mexico, but “establishment experts” are not welcome in the new White House.

Negotiations for a Transatlantic Trade and Investment Partnership between the US and European Union have been broken off, and the Trans-Pacific Partnership will never be ratified by Congress. The legislation for a 40 percent tariff on foreign imports is still making its way through Congress, as is the bill to end the North American Free Trade Agreement (which is causing panic in Canada, 73 percent of whose exports go to the United States).

The new laws will go through in the end, and the most important casualty will be US-China trade (as Trump fully intends it to be). China is already in a thinly disguised recession, and the impact of the new trade measures will turn it into a political crisis that threatens the survival of the Communist regime.

Beijing will certainly respond by pushing forward with the proposed Regional Comprehensive Economic Partnership, which would include sixteen nations of the Asia-Pacific region but exclude the United States. However, it may also manufacture a military confrontation with the United States to distract popular discontent at home with a foreign threat. The dispute over the South China Sea would do nicely.

Japan, which is starting a major military build-up after Prime Minister Abe finally removed the anti-war Article 9 from the constitution in March 2017, will be at America’s side in this confrontation, but its European allies may not. Trump’s pro-Putin posture has not gone down well in the EU, which worries about Russia’s intentions, and his demands that Europe’s NATO members pay more of the alliance’s costs have not helped either.

The European Union, still in shock after Britain’s Brexit vote in 2016, has been further shaken by the near-win of Marine Le Pen, the leader of the far right, anti-EU National Front, in the May run-off of the French presidential elections. The spectre of EU collapse comes nearer, and Europe has no time for America’s Asian quarrels.

In the United States, the economy is still chugging along despite the stock-market crash of November 2016. Trump’s big increase in the military budget, his huge expansion of infrastructure spending (with borrowed money) and the rise in the minimum wage have kept the machine turning over for the time being. The effect of declaring a trade war on the rest of the world is not yet being felt at home – but it will be.

And it’s only July 2017. Trump still has another three-and-a-half years in the White House.
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To shorten to 725 words, omit paragraphs 2 and 12. (“We may…fireproof”; and “The European…quarrels”)