April 6, 2018 (Analysis) We have a trade war between the United States and China. This war is deepening. It could lead to an economic nightmare. Yesterday the United States Trade Representative announced this:
USTR Robert Lighthizer Statement on the President’s Additional Section 301 Action
Washington, D.C. — U.S. Trade Representative Robert Lighthizer today released the following statement in support of the President’s direction that the Office of the United States Trade Representative (USTR) consider additional measures under Section 301 of the Trade Act of 1974 regarding China’s unfair acts related to technology transfer, intellectual property, and innovation:
“President Trump is proposing an appropriate response to China’s recent threat of new tariffs. After a detailed investigation, USTR found overwhelming evidence that China’s unreasonable actions are harming the U.S. economy. In the light of such evidence, the appropriate response from China should be to change its behavior, as China’s government has pledged to do many times. Economies around the world — including China’s own — would benefit if China would implement policies that truly reward hard work and innovation, rather than continuing its policies that distort the vital high-tech sector.
“Unfortunately, China has chosen to respond thus far with threats to impose unjustified tariffs on billions of dollars in U.S. exports, including our agricultural products. Such measures would undoubtedly cause further harm to American workers, farmers, and businesses. Under these circumstances, the President is right to ask for additional appropriate action to obtain the elimination of the unfair acts, policies, and practices identified in USTR’s report.”
Any additional tariffs proposed will be subject to a similar public comment process as the proposed tariffs announced on April 3, 2018. No tariffs will go into effect until the respective process is complete.
This is a continuation of the tit for tat between the two nations. The Chinese have announced tariffs on agricultural products. According to the Washington Post, some of these products are as follows:
- Yellow soybeans
- Black soybeans
- Corn flour
- Uncombed cotton
- Other durum wheat
- Other wheat and mixed wheat
Add to this pork, and what you have is the Chinese hitting a very specific area of the country, Trump country.
While some people on the coasts celebrate this, as a form of revenge, that celebration speaks more about the division in the country than awareness of the coming crisis. The reality is that losing $1.2 billion dollars in soy futures overnight will affect farmers directly. But it will also affect urban populations who did not vote for Trump as well.
California almond farmers, for example, will also lose value, and some may lose their farms. This is just the initial effect. The way trade wars work is that both countries will lose a vibrant economy and will enter a recession. This is what Director General of the Word Trade Organization Roberto Azevêdo said:
“It is clear that we now see a much higher and real risk of triggering an escalation of trade barriers across the globe,” he said at a meeting of the whole WTO membership. “We cannot ignore this risk and I urge all parties to consider and reflect on this situation very carefully.
”Once we start down this path, it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in deep recession. We must make every effort to avoid the fall of the first dominoes.”
While Azevêdo is speaking a deep recession, perhaps as deep as 2008, it is time to have a conversation on possibly 1929. President Herbert Hoover and his allies in the Republican Party enacted similar policies. They also put in place trade barriers, you may call them tariffs, they were collectively known as the Smoot-Hawley Act and were put in place for similar reasons.
We were not alone. The back and forth slowed the global economy, until we had a crash of the stock market. That is what most people remember. It was dramatic, made headlines, and it is seen as the nominal start of the Great Depression. However, that was the end result of wrong headed economic policies, enacted on both ideology and sheer pig headedness… not unlike now. They also included a tax bill that favored the very rich.
It seems that both President Donald Trump and his critics missed both basic economics and history classes. Granted, those affected indirectly by the policies, celebrating the schadenfreude of people they despise, is human nature. The major problem is the president, and a political party, that missed class work on the origin of the great depression, or basic economics.
We are now on a path that will hurt the country, not just Trump country. It will take time to reach every nook and cranny of the country. Given the authoritarian bent of the president, we have to wonder how he will react at the opportunity. Also, Trump said that “I would love to be able to bring back our country into a great form of unity. Without a major event where people pull together, that’s hard to do. But I would like to do it without that major event because usually that major event is not a good thing.”
That major event may very well be an economic crash. Granted, hubris, and we have seen plenty from this president, is the last thing to go. But at times one has to wonder what exactly is the end game here.