How Goes the Trade War?

The post-Labor Day stock markets were all down on Tuesday, and the conventional wisdom is that it had something to do with the ongoing global trade war that President Donald Trump has been waging. Trump insists that China is getting the worst of it, and promises the Chinese will soon come begging to sign the most spectacular trade deal America ever made, with the rest of world falling in line shortly afterwards, but for now the smart money doesn’t seem to be betting on it.
China’s economy is indeed taking quite a beating in the trade war, but a downturn in the world’s second largest economy doesn’t bode well for the global economic forecasts, and around the world the markets are jittery about that. Even here in fortress America the bond markets are signaling that the smart money is nervous about the domestic economy’s short term prospects, business investment has been declining, a closely watched index of America’s manufacturing output just fell below 50 percent for the first contraction since 2016, and the smart money around the world will surely fret about that,
America is also taking quite a beating in the trade war, and its consumers are paying higher prices for Chinese goods or American-made products with Chinese parts, no matter what nonsense Trump spews about the Chinese paying all the tariffs, and the farmers and aircraft workers here in Kansas are losing vital markets, and so far it seems a trade war of mutually assured destruction. Trump remains confident it’s all soon leading to the best trade deal ever, with a stock market bonanza sure to follow, but for now both we and the smart money aren’t so sure about it.
Trump still boasts of his close personal friendship with the Chinese dictator Xi Jinping, but Xi is a dictator-for-life and Trump is a mere president who has to run for reelection next year, and hopes to run on boasts about the best economy ever, so Xi seems in the stronger negotiating position. Perhaps Trump would have a stronger hand if he were negotiating on behalf of an entire world fed up with China’s undeniably unfair trading policies, but Trump has also chosen to feud about trade with most of the rest of the world, and there’s a reason the smart money isn’t betting on the strategy.

— Bud Norman

Hong Kong and the Rest of Us

The images from Hong Kong over the weekend were heart-warming and awe-inspiring, with hundreds of thousands of people taking to streets and demanding freedom and democracy in defiance of the Chinese government’s brutal authoritarian crackdown. There’s hope that it’s reaching a critical mass that even the worst of the Chinese dictatorship can dish can’t resist, and that the people of the remarkable island city of Hong Kong will get the freedom they and democracy that all people of the earth deserve.
There’s also some faint hope that the movement will spread through the rest of authoritarian China, and perhaps even around the globe, but for the moment free and democratic America doesn’t seem to be playing its usual role in nudging it along.
President Donald Trump is waging a mutually destructive trade war with China over its undeniably unfair trading practices, but he still boasts of his close friendship with Chinese dictator Xi Jinping and doesn’t seem to care much about how his good buddy handles his pesky domestic protesters. In a series of “tweets” the president “tweeted” about how he was wreaking great damage on the Chinese economy, but late “tweeted’ that “I know President Xi of China very well. He is a great leader who very much has the respect of his people. He is also a good man in a ‘tough business.” I have ZERO doubt that if President Xi wants to quickly and humanely solve the Hong Kong problem, he can do it. Personal meeting?”
Trump later clarified by “tweet” that he didn’t mean a personal meeting between himself and Xi, but rather a personal meeting between Xi and the hundreds of thousands of protestors flooding the streets of Hong Kong. We can’t imagine how those negotiations would turn out, nor can we imagine what Trump would consider a humane solution. In 1989 there was a mass demonstration on Tiananmen Square that threatened to bring freedom and democracy to China and the Chinese dictatorship squashed it with brutal force, and in a 1990 interview with Playboy Magazine Trump said “When the students poured into Tiananmen Square, the Chinese government almost blew it, then they were vicious, then they were horrible, but then they put it down with the power of strength. That shows you the power of strength.” When asked about it in a 2016 Republican primary debate, Trump insisted he wasn’t endorsing China’s response but clumsily explained, “I said that it was a strong, powerful government that put it down with strength. And then they kept down the riot.
Trump used to wax nostalgic at his campaign rallies about how protestors would have been taken out stretchers, and he’s winked at or urged on on similarly rough responses to protests in Turkey, the Philippines, Hungary, Poland, Italy, Brazil, Saudi Arabia, and of course Russia. Those brave souls taking to the streets of Hong Kong clearly cannot count on Trump’s support, and at this point we’d advise anyone thinking of taking to the streets against to be brave but cautious.
Meanwhile, we also notice that none of those damned Democrats running for president seem to care much about those brave souls on the streets of Hong Kong, or any of the rest of the yearning-to-be-free world. Thus far the Democratic primary debates have been mostly about free this and free that for everyone in America, along with the usual promises made to various classes and races and sexual orientations within our borders, and somehow foreign policy never seems to come up. It might seem a missed opportunity for the Democrats, given what a mess Trump has made of foreign policy, but all of them seem to have the same Democratic instincts for protectionist trade policies and the same aversion to meddling in the world’s affairs on behalf of freedom and democracy.
Which seems to be where the rest of America’s at these days, in its time of relative economic prosperity and severe self-doubt. The once-iconic Democratic President John Kennedy vowed at his inauguration that America “shall pay any price, bear any burden, meet any hardship, support any fried, oppose any foe, in order to assure the survival and success of liberty,” but the Democrats jumped ship on that when the Vietnam War went sour and haven’t gotten back on since. The once-iconic President Ronald Reagan ultimately won the Cold War with similarly tough anti-Soviet rhetoric and no bullets fired, despite cutting off authoritarian allies in the Philippines and elsewhere, but these days most of the Republicans remember him as the guy who have gave amnesty to a bunch of Mexicans, and Republicans seem to have little regard for the people bravely pouring into the dangerous streets of Hong Kong.
By the vagaries of history China gave Great Britain a 99-year lease on Hong Kong after Britain got the best of a war over tea and opium, and despite Britain’s reputation for harsh colonial rule it granted the island city an unprecedented freedom and democracy, and the enterprising people of Hong Kong made it a very profitable enterprise even at Britain’s reasonable tax rates. When the lease ran out in 1997 Britain honored its deal, and the Chinese were at first willing to take its fair share of the profits from the roaring Hong Kong enterprise, but since then they’ve been cracking down on all that freedom and democracy the Hong Kong protestors had become accosted to over 99 years.
For obvious reasons we’re not running for president on either party’s ticket, but if we were there seems to be an opening here. America’s engagement in the rest of the world has always a messy business, to be sure, but under Republican and Democratic administrations America’s disengagement has always proved worse. In the short term standing up for Hong Kong’s freedom-loving and democratic protestors might not help Trump negotiate a trade war peace with his buddy Xi, but in the long run a free and democratic Chinese government is more likely to arrive at a mutually beneficial trade deal. Some Democrat might yet make a bold stand on behalf of the Hong Kong protestors, but he or she won’t want to negotiate with a more capitalist and formidable China anymore than Trump does.
Still, we hold out hope for the best. Freedom and democracy are resilient ideas, both here and abroad.

That Darned Inverted Yield Curve

The bond market has an inverted yield curve, a fancy term which means that the returns on two-year bonds exceed the returns on ten-year bonds, which means that the smart money is seeking safe haven from a coming storm. In plainer terms, an inverted yield curve has always been a reliable predictor of a looming recession.
Combined with some other distressing data about business investment and manufacturing hiring and economic downturns in such important countries as Great Britain and Germany and China, the news spooked Wall Street so bad that all the stock markets dropped by more than 3 precent with Dow Jones Industrial average having it’s worst day in decade. The three major American stock indexes have dropped a full 7 percent over the past three weeks, the Asian and European and South American markets are similarly panicked, and you can only imagine the anxiety its causing President Donald Trump.
Trump can and surely will still brag about the unusually low unemployment rate and how economic growth has been chugging along at a slightly better rate than the previous six years of the Obama administration, but for now he can’t brag that despite all his faults he’s delivered the greatest economy ever. For now he’s on “twitter” blaming Federal Reserve Chairman Jerome Powell for not more aggressively cutting interest rates, but Trump appointed Powell, whose policies have been in the long term interest of the country rather than the short-term political advantage of Trump, and the smart money isn’t buying it even the rubes in the red MAGA ball caps do.
The smart money seems to think that Trump’s trade wars and deficit spending and petty feuds with longtime allies and trading partners is largely responsible for the mess. When Trump retreated from his threatened increase on tariffs with China on Tuesday the stock market had a good day, which was quickly erased by Wednesday’s carnage, and it’s increasingly clear that the trade wars have taken a toll on the global economy. The Chinese economy has slowed, but given that it’s either the biggest or second biggest in the world that hasn’t helped global economic growth, and given that Trump’s good buddy and Chinese dictator Xi Jinping doesn’t have to worry about a recession during a reelection, So Trump’s not likely to win the greatest deal in the history of the world by election day. The British economy seems in recession due to its “Brexit” from the European Union, which Trump heartily and needlessly endorsed, the German government is blaming a recent economic downturn on Britain’s “Brexit” and a global economic downturn due to frayed trade relations, so the silver lining in the looming storm clouds is hard to find.
We’re not panicked, at least not yet, as the unemployment rate is still low, ┬ábut there are reasons to worry. During the last recession, the worst since the Great Depression, a Republican president and a Democratic Congress agreed on a controversial bail-out bill that was hated by both the far left and the far right, but won the endorsement of both major party presidential nominees. In retrospect we begrudgingly admit it might have averted a catastrophic economic meltdown, and note a couple of years later a Democratic president and Republican Congress didn’t get in the way in the longest economic expansion in America’s history, but we worry that such bipartisan solutions aren’t at all possible in the current political climate.
America carefully coordinated its monetary and other economic policies with our allies and trading partners during the last global recession, which might well have averted the worst of it, but that’s harder to envision happening these days. Trump has been antagonistic toward allies, obsequious toward enemies, and is not going to save the day with the greatest deal ever made.
Trump is not entirely to blame, of course. Adding to the world’s economic anxiety is an eye-popping 50 percent drop in the Argentine stock market after one of those Latin American socialist crazies got elected president, and Trump is right to argue that several of the Democratic contenders for his job are just as bad. If the economic excrement hits the fan between now and election day, the Democrats will happily place blame where blame is due but won’t do anything to bale out the country to the political benefit of Trump. None of our longtime allies seem interested in helping Trump, either, except for a few fellow populist and authoritarian nationalists.
Still, we’ll hold out hope for the best and leave it to Trump to worry about the worst. If he can’t run for reelection on the argument that for all his faults he’s wrought the greatest economy ever he’s in bad shape, as he he’s not very popular and has a lot of faults to overlook. We’ll also hold out hope that the damned Democrats don’t nominate some Latin American socialist crazy who would make things even worse, and for all our short-term worries we’ll place our long-term faith in the resiliency of the America’s still more or less free market economy and the eventual genius of the American people.

— Bud Norman

A Trump Retreat in the Trade War

The stock markets were all up on Tuesday, mostly due to President Donald Trump backing off his threats to impose the further tariffs on Chinese imports that have lately been dragging the stock markets down. Trump is loathe to admit a mistake, but he hates a slumping stock market even more.
By backing off his threat of another 10 percent tariff on $300 billion of such popular Chinese imports as cellphones and laptop computers, at least until the Christmas buying season is well underway, lest retail sales suffer, Trump has tacitly admitted that all his talk about how the Chinese are paying the billions of dollars in tariffs rather than the American consumer was pure balderdash. He won’t openly admit it, of course, and his die-hard fans will indulge him the fiction, but the smart money in stock markets and the rest of the world know the score.
Trump somehow became President of the United States on the argument that he wrote “The Art of Deal,” and that as the world’s greatest negotiator he would deliver the greatest trade deals in the history of the world, but for now he’s more intent on maintaining a slow but steady economic status quo. This makes it harder for him to deliver on his promise of that greatest trade deal ever with China in time for his reelection day, as he has clearly blinked in these high-stakes negations and the Chinese are stereotypically wily enough to notice, but if the stock markets are up and the unemployment rate is down ob election day the die-hard fans won’t mind.
This all comes as the brutal Chinese dictatorship is brutally cracking down on pro-democracy protestors in Hong Kong, which Trump cares little about and rightly assumes that most of the voters in America care even less about. and he is not going to express any indignation about that. Trump claims that his very close friendship with Chinese dictator Xi Jinping is the reason that Sino-American relations are going so swimmingly, and he’s not one to let a brutal crackdown on pro-democracy protestors get in the way of a such a beautiful friendship.
November is a long ways off, and the next November even longer off, and there’s no telling how things might be by then. We’ll hold out hope that economy will be chugging along at a slow but steady rate, prepare as best as we can for the worst, and not expect that Trump or any damned Democrat will strike the greatest deal ever made.

— Bud Norman

Casualties of the Trade War

Trade wars are harder to assess than military wars, where you can tell who’s winning and losing by such metrics as ground gained or lost and casualties inflicted or suffered. The stock markets are probably the best indicator of how a trade war is going, and lately they indicate that President Donald Trump’s trade war with China is not going well.
When the Dow Jones Industrial Average hit a record high on July 15 Trump took full credit, but we don’t expect he’ll assume any responsibility for the 2.9 percent drop on Monday nor the 6 percent drop since the record high. The huge sell-offs in nearly every sector of the economy have clearly been a response to the tariffs Trump had imposed on Chinese imports and the retaliatory tariffs China imposed on the considerable exports America’s agricultural and aviation and other high-tech industries relied on selling to the first or second largest economy in the world. China has also signaled it will resume manipulating its currency to gain a foreign trade advantage, Trump has urged via “tweet” that the Federal Reserve Board retaliate by artificially weakening the dollar, and so far the smart money isn’t buying Trump’s assurances that America is going wind up with the greatest deal in the history of the world.
We can’t claim to be smart money, but we’re longtime observers of geopolitics and global trade and domestic political pressures, and we figure the smart money is right to be worried. Trump claims to have a Nietzschean will to power and personal rapport with Chinese dictator Xi Jinping that will soon result in that greatest deal in the history of the world, but he went bankrupt several times in the casino business despite house odds and he’s clearly in the inferior position in these asymmetrical negotiation.
Trump’s trade policies are inflicting severe damage on China’s economy, but his good buddy and brutal dictator Xi needn’t worry about that. He doesn’t have to face reelection, the repressed Chinese press isn’t going to make a fuss about an economic downturn, protesters will be cowed from gathering on the streets, the country’s privately held businesses will try to stay privately held, and in keeping with China’s ancient traditions Xi’s looking well past the current spat and a hundred or so years down the road.
Trump, on the other hand, has to deal with the daily headlines from that pesky free press and independent Fed and powerful companies and restive farm state Republicans and the rest of our democratic process, and he never thinks beyond the next news cycle. As much as he clearly envies his dear friend Xi’s dictatorial powers, Trump is obliged to appease the gods of the stock market and public opinion. There are just 15 months until the next presidential election, which is a blink in the eye of a Chinese dictator and an eternity to an American president, so between now and election day we don’t expect Trump to deliver to America the greatest trade deal in the history of the world.
The best case scenario is that Trump agrees to a desultory return to the status quo, with China making some slight concessions in their undeniably unfair trading practices, and Trump’s die-hard fans calling it the best trade deal in the history of the world. The smart money won’t be impressed, but given how crazy the Democrats are these days Trump might yet win reelection if the stock markets are slightly up and the unemployment rate remains low.

— Bud Norman