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Casualties of the Trade War

Trade wars are good and easy to win, according to one of President Donald Trump’s most famous “tweets,” but the smart money on Wall Street seems to disagree. The Dow Jones Industrial average plummeted a scary 799 points on Tuesday, the other major stock market indices dropped a similar 3-plus percent, and the clear cause was Trump’s apparently ongoing trade war with China.
After a dinner meeting with Chinese President Xi Jiping at the G-20 gathering Argentina on Saturday Trump announced that he’d won such majors concessions from China as huge agricultural buys from American farmers and eliminating any tariffs on American-made automobiles, and was therefore prepared to pause a trade war that has thus far proved disastrous for both countries, which led to big stock market gains on Monday. By Tuesday the Chinese were denying they’d made anything like the extraordinary concessions that Trump had bragged about, Trump’s economic policy advisors were walking most of it back, and Trump himself was “tweeting” that “President Xi and I both want this deal to happen, and it probably will. But if not remember, I am a Tariff Man.” A later “tweet” shouted that “We are either going to have a REAL DEAL with China, or no deal at all – at which point we will be charging major tariffs against Chinese product being shipped into the United States.” Despite the poor grammar, the “tweets” clearly communicated that the trade war continues, and won’t be easily won, so the smart money on Wall Street responded accordingly.
On our way home from an evening chore we heard one of the right-wing talk radio talkers say that Trump had nothing to do with the stock market drop, and he somehow blamed it on the Apple and Boeing companies instead, but Trump and his apologists always find someone else to blame. We’re more inclined to believe the smart money opinion of the JPMorgan financial juggernaut, which told its investors in a trading note that “It doesn’t seem that anything was actually agreed to at the dinner and White House officials are contorting themselves into pretzels to reconcile Trump’s tweets (which seem if not completely fabricated then grossly exaggerated) with reality.” We’re not impressed much by JPMorgan’s prose style, either, but it does clearly communicate the truth of the matter.
Trump’s apologists would do better to argue that China’s trade policies well deserve an aggressive response, as they do indeed charge unfair tariffs and make the theft of American intellectual property a condition of doing business with American companies and benefit from the slave wages paid to many of China’s workers, but it’s harder to argue that Trump is winning. As bad as China’s trading policies might be, Trump was claiming full credit for a booming stock market and rising commodity prices when he declared the trade wars with China and most of the rest of the industrialized world, so he can’t dodge blame for things going downhill ever since. Trump’s bad habit of doing his end zone dance before he reaches the goal line make him look the more ridiculous to the American public and on the world stage every time, and harder for him to make that great deal he’s always promising. China’s dictator Xi doesn’t doesn’t have to worry about public opinion, and although world opinion doesn’t favor him it does take him seriously, and China’s economy is either the biggest or second-biggest in the world, depending on how you figure it, and prematurely boasting about the concessions you won from him probably isn’t the best negotiating strategy with a wily Chinese leader and his traditional Chinese obsession with saving face.
The sort of low-key and culturally-sensitive and behind-the-scenes negotiations that might have yielded improved trade relations between China and a formidable American economy and steadfastly principled  and experienced American president aren’t Trump’s style, however, and for now we expect more tariffs and “tweets” and stock market downturns. In the long run Trump might yet get the greatest deal ever with his bull-in-a-china-shop approach, if you’ll forgive the culturally insensitive cliche, but on Tuesday the smart money wasn’t betting on it.

— Bud Norman

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The Art of the Unfinished Deal

Monday’s news was  full of the usual ominous legal developments regarding the “Russia thing,” as well the continuing fallout from President Donald Trump’s petty ongoing feud with the late Arizona Sen. John McCain, but there was also a rare story about actual policy matters. Trump has made some progress in his trade negotiations with Mexico, and naturally he was eager to overstate the accomplishment.
The White House press corps was invited to listen in on a congratulatory phone call between Trump and Mexican President Enrique Pena Nieto, and although there were a few embarrassing moments of silence while the staff scrambled to get the line working, both presidents praised what they’ve agreed to thus far and lavishly praised one another. Nieto also said three times in the brief call that he was hopeful Canada will also join in the agreement, which seemed to annoy Trump, and by the end it was clear that a deal had yet to be sealed.
The good news that a more cautious president would have modestly touted is that Mexico has agreed to new trade rules for automobiles, intellectual property rights and labor regulations. Such tweaks to current North American Free Trade Agreement are likely to keep some car-making jobs in the United States and Mexico rather than Asia, make it harder for foreign competitors to steal corporate America’s innovations, although Trump didn’t make a big deal of it many Mexican workers will get a big raise and safer working conditions.
The bad news that a more honest president would have admitted is that the new rules will likely make your next new car more expensive, China and the rest of the worst thieves of America’s inventions aren’t involved in the deal at all, and that the vast non-automotive sectors of the Mexican economy might take a hard hit that sends more Mexicans heading to the cross the border in search of work. Trump didn’t get the concessions he wanted on various tariffs, and he made concessions to Mexico about the length of time before he could renege on the whole deal and start all over again, but he could have made a case that incremental progress had nonetheless been made.
Trump has an unfortunate tendency to spike the football and do his end zone dance just short of the goal line, however, and on Monday he was boasting a great that’s far from done. As much as Trump hates it, NAFTA is still a ratified-by-the-Senate and backed by the full faith of the American government treaty, and Canada is a signatory to that treaty, and given the current state of relations with both trading partners since Trump’s election working out all the details is bound to be tricky. On December 1 Nieto will turn power over to President-elect Andres Manuel Lopez Obrador, and although Obrador was consulted in the negotiations he won office on a promise to take a harder stand against Trump, so things need to be wrapped up quickly. Canadian Prime Minister Justin Trudeau will also have something to say about it, and so far he’s taken a hard stand in the trade war Trump initiated.
Whatever deal Trump eventually gets will also have to be ratified by the Senate, and the mid-term elections in November could well further complicate that always complicated process.
Still, incremental progress in a long, hard process is an achievement worth noting, and we note that the stock markets were pleased to see a slight lessening of the trade war tensions. It’s not enough to crowed out all the rest of the news, though, and Trump isn’t the sort to make such modest boasts.

— Bud Norman