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Trump Readies Sweeping Tariffs and Investment Restrictions on China

50 points by gonyea 9y ago

crocal 9y ago
Are we really back in 1929? Seems like it [1]. [1] https://en.m.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act https://en.m.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act
- JumpCrisscross 9y ago
  The steel and aluminium tariffs were Smoot-Hawleyesque. Sanctioning emerging hostile dictatorships, on the other hand, has been standard post-War practice for the West.
  - coldtea 9y ago
    >Sanctioning emerging hostile dictatorships, on the other hand, has been standard post-War practice for the West. As has been supporting emerging friendly dictatorships.
- googlryas 9y ago
  Some differences between the two being that Smoot-Hawley broadly applied tariffs to tens of thousands of products from most countries in the midst of a major economic depression in an attempt to help out American farmers and other related industries.
  - crdoconnor 9y ago
    The preconditions to this bill sound all too familiar though: >By the late 1920s the economy of the United States had made exceptional gains in productivity due to electrification, which was a critical factor in mass production. Horses and mules had been replaced by motorcars, trucks and tractors. One-sixth to one-quarter of farmland previously devoted to feeding horses and mules was freed up, contributing to a surplus in farm produce. Although nominal and real wages had increased, they did not keep up with the productivity gains. As a result, the ability to produce exceeded market demand, a condition that was variously termed overproduction and underconsumption.
- misja111 9y ago
  The US has a trade deficit towards China, so China has more to lose in a trade war than the US. Therefore the US can try to impose a limited amount of trade sanctions on goods from China without getting punished for it. It seems just common sense economics to me.
  - origami777 9y ago
    Do you think the limited sanctions will be effective? If I were China I don't think this is significant enough for me to stop my plan. Maybe it's intended as a warning. I don't like trump at all. But I agree with defending our country. And overall, the less we can rely on China the better.
  - crdoconnor 9y ago
    >The US has a trade deficit towards Chine, so China has more to lose in a trade war than the US. The US stands to lose all of the manufactured (especially electronics) goods China makes. The supply chains for a lot of its companies (especially tech) will be severed. China stands to lose soybeans, civilian aircraft, corn and... chicken feet, I suppose? Of those, the only one that isn't easily substitutable with imports from elsewhere is civilian aircraft, and China is already pretty far ahead on making its own. I think, on balance, given the relative substitutability of US vs Chinese imports, China has the upper hand in a peaceful scenario. The US can't really replace the Chinese industrial ecosystem whereas China can get corn and soybeans from elsewhere - assuming that shipping is not blocked. ...which is why I'm worried that the US might try to escalate a trade war to blockades and from blockades to, well, you know... That said, if the US continues with a policy of unfettered trade while China continues with managed trade, China's hand grows stronger while the US's gets weaker. The US doesn't actually have a lot of good options now - it's about 15 years too late for it to safely reverse this process.
  - PeterStuer 9y ago
    Is it still a "deficit" if you count all the exported social and environmental disasters?
  - dnomad 9y ago
    There's nothing common sense about this. It's just stupid. But do few Americans understand economics that I can see the majority falling for it. People will happily vote to cut their own throats in order to punish some out group. For future reference the giant trade deficit has benefited the USA enormously and increased quality of of life of most Americans. The incredible thing here is not that we import so much from China but that the hyper-productive Chinese exporters and manufactures have been so willing to surrender real goods and labor for the green pieces of paper we call currency which the government can create at the push of the button. This was the trade of the century. I suspect that this will ultimately only help China and hurt America. China will be forced to develop their own internal markets and diversify their exports more -- which they've been doing already. You'll also just see more action from other low wage exporters like Vietnam. In the end Americans will just as price increases. Tariffs won't bring back jobs, reduce the extreme inequality that's killing the country nor are they real investment.
- jakecrouch 9y ago
  There are many other parallels that can be drawn between the 1930s and the 2010s. Ray Dalio's theory about long term debt cycles explains this in a non-ad-hoc way - every 50-75 years an economy's debt becomes too high and must be deleveraged. In a globalized economy this will happen to many countries at the same time and lead to tensions between debtor and creditor countries.
  - golergka 9y ago
    I had a feeling that another World War is long overdue. At least this time we can hope to get it over with a bit quicker.
    - jakecrouch 9y ago
      This is a legitimate concern. The Revolutionary War, Civil War, and World War II are all spaced roughly 80 years apart, and all coincided with deleveragings.
beiller 9y ago
Just my opinion but I think trade wars is heading in the wrong direction. We need to open trade more. At first it will cause pain and inefficiency, but specialization and collaboration has a larger net benefit to humans than both countries manufacturing everything themselves. But of course over specialization weakens the whole system when a piece goes missing perhaps.
- Khaine 9y ago
  I agree. However, it only works when trade is fair. Overall, what has happened is that low skill and unskilled jobs have gone to where labour is the cheapest. This has benefitted the poorest of the poor, at the expense of poor people in first world countries. The other consequence is that labour and safety standards are effectively eroded as where these jobs are offshore to are unlikely to enforce these requirements. The result of this has been to reduce global poverty and drive down the prices of goods (i.e. clothing). However, then you have places like China which then place restrictions on market entrants, enable local companies to steal intellectual property and undercut western companies, without legal recourse. No-one has been willing to call China on these actions for fear of losing out on the entire market.
  - simonh 9y ago
    Not much I can disagree with there, except that apart from labour and safety standards none of what you describe is in any way unfair. Being poor and willing to work for less money isn't cheating. Meanwhile, as they develop and labour wages rise and the pool of untapped labour dries up, the bargaining power of workers in China and elsewhere to get improved wages and conditions also rises. We can see that happening in China now. It’s indisputable that China has used many protectionist manoeuvres to hamper and limit foreign participation in Chinese markets, but western countries have been willing to accept that in return for having access at all. If we want to renegotiate that position fine, and maybe judicious use of tariffs and restrictions could be a useful tool to use to prompt serious negotiation, but that’s not the same thing as just flat out hitting the nuclear button and going for an all out trade war, which is what seems to be happening.
_0ffh 9y ago
Is it possible to bet on a rising consumer price index?
megous 9y ago
Trump will tax americans for $30bn per year in imported goods/raised domestic prices. Many cheer their increased costs. :D There are no global benefits to limiting trade, which this action is. Neither are there any overall regional benefits. Certain industries will benefit, and certain industries will lose, on both sides of the border, as markets adjust. Some people will be forced to do their trade with different people for higher prices, rise prices, or close business, or suck it up in private life. That's about it.
fovc 9y ago
I'm very much in favor of free movement of people, capital and goods, but would like to point out that David Ricardo himself had to caveat his free trade argument: Ricardo recognized that applying his theory in situations where capital was mobile would result in offshoring, and therefore economic decline and job loss. To correct for this, he argued that (i) most men of property will be satisfied with a low rate of profits in their own country, rather than seek[ing] a more advantageous employment for their wealth in foreign nations, and (ii) that capital was functionally immobile. [1] I definitely did not learn this in Microeconomics when we studied comparative advantage. [1] https://en.m.wikipedia.org/wiki/David_Ricardo https://en.m.wikipedia.org/wiki/David_Ricardo
- logicchains 9y ago
  Did you study Macroeconomics? It's a fairly accepted phenomenon: https://en.wikipedia.org/wiki/Factor_price_equalization https://en.wikipedia.org/wiki/Factor_price_equalization (identified there by https://en.wikipedia.org/wiki/Paul_Samuelson https://en.wikipedia.org/wiki/Paul_Samuelson, about as "mainstream" as it's possible for an economist to be). "Whichever factor receives the lowest price before two countries integrate economically and effectively become one market will therefore tend to become more expensive relative to other factors in the economy, while those with the highest price will tend to become cheaper. An often-cited example of factor price equalization is wages. When two countries enter a free trade agreement, wages for identical jobs in both countries tend to approach each other." It could be argued that this is a good thing if one considers the benefit of bringing third-world people out of abject poverty to outweight the loss of slightly reducing the living standards of first-world semi-skilled labour.
bobosha 9y ago
seems to be an example of cutting of one's nose to spite the face. This will unfortunately prove counter-productive.
pasbesoin 9y ago
A couple of decades too late.

50 points by gonyea 9y ago

Are we really back in 1929? Seems like it [1]. [1] https://en.m.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act https://en.m.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act

JumpCrisscross 9y ago
The steel and aluminium tariffs were Smoot-Hawleyesque. Sanctioning emerging hostile dictatorships, on the other hand, has been standard post-War practice for the West.
- coldtea 9y ago
  >Sanctioning emerging hostile dictatorships, on the other hand, has been standard post-War practice for the West. As has been supporting emerging friendly dictatorships.
googlryas 9y ago
Some differences between the two being that Smoot-Hawley broadly applied tariffs to tens of thousands of products from most countries in the midst of a major economic depression in an attempt to help out American farmers and other related industries.
- crdoconnor 9y ago
  The preconditions to this bill sound all too familiar though: >By the late 1920s the economy of the United States had made exceptional gains in productivity due to electrification, which was a critical factor in mass production. Horses and mules had been replaced by motorcars, trucks and tractors. One-sixth to one-quarter of farmland previously devoted to feeding horses and mules was freed up, contributing to a surplus in farm produce. Although nominal and real wages had increased, they did not keep up with the productivity gains. As a result, the ability to produce exceeded market demand, a condition that was variously termed overproduction and underconsumption.
misja111 9y ago
The US has a trade deficit towards China, so China has more to lose in a trade war than the US. Therefore the US can try to impose a limited amount of trade sanctions on goods from China without getting punished for it. It seems just common sense economics to me.
- origami777 9y ago
  Do you think the limited sanctions will be effective? If I were China I don't think this is significant enough for me to stop my plan. Maybe it's intended as a warning. I don't like trump at all. But I agree with defending our country. And overall, the less we can rely on China the better.
- crdoconnor 9y ago
  >The US has a trade deficit towards Chine, so China has more to lose in a trade war than the US. The US stands to lose all of the manufactured (especially electronics) goods China makes. The supply chains for a lot of its companies (especially tech) will be severed. China stands to lose soybeans, civilian aircraft, corn and... chicken feet, I suppose? Of those, the only one that isn't easily substitutable with imports from elsewhere is civilian aircraft, and China is already pretty far ahead on making its own. I think, on balance, given the relative substitutability of US vs Chinese imports, China has the upper hand in a peaceful scenario. The US can't really replace the Chinese industrial ecosystem whereas China can get corn and soybeans from elsewhere - assuming that shipping is not blocked. ...which is why I'm worried that the US might try to escalate a trade war to blockades and from blockades to, well, you know... That said, if the US continues with a policy of unfettered trade while China continues with managed trade, China's hand grows stronger while the US's gets weaker. The US doesn't actually have a lot of good options now - it's about 15 years too late for it to safely reverse this process.
- PeterStuer 9y ago
  Is it still a "deficit" if you count all the exported social and environmental disasters?
- dnomad 9y ago
  There's nothing common sense about this. It's just stupid. But do few Americans understand economics that I can see the majority falling for it. People will happily vote to cut their own throats in order to punish some out group. For future reference the giant trade deficit has benefited the USA enormously and increased quality of of life of most Americans. The incredible thing here is not that we import so much from China but that the hyper-productive Chinese exporters and manufactures have been so willing to surrender real goods and labor for the green pieces of paper we call currency which the government can create at the push of the button. This was the trade of the century. I suspect that this will ultimately only help China and hurt America. China will be forced to develop their own internal markets and diversify their exports more -- which they've been doing already. You'll also just see more action from other low wage exporters like Vietnam. In the end Americans will just as price increases. Tariffs won't bring back jobs, reduce the extreme inequality that's killing the country nor are they real investment.
jakecrouch 9y ago
There are many other parallels that can be drawn between the 1930s and the 2010s. Ray Dalio's theory about long term debt cycles explains this in a non-ad-hoc way - every 50-75 years an economy's debt becomes too high and must be deleveraged. In a globalized economy this will happen to many countries at the same time and lead to tensions between debtor and creditor countries.
- golergka 9y ago
  I had a feeling that another World War is long overdue. At least this time we can hope to get it over with a bit quicker.
  - jakecrouch 9y ago
    This is a legitimate concern. The Revolutionary War, Civil War, and World War II are all spaced roughly 80 years apart, and all coincided with deleveragings.

beiller 9y ago

Just my opinion but I think trade wars is heading in the wrong direction. We need to open trade more. At first it will cause pain and inefficiency, but specialization and collaboration has a larger net benefit to humans than both countries manufacturing everything themselves. But of course over specialization weakens the whole system when a piece goes missing perhaps.

Khaine 9y ago
I agree. However, it only works when trade is fair. Overall, what has happened is that low skill and unskilled jobs have gone to where labour is the cheapest. This has benefitted the poorest of the poor, at the expense of poor people in first world countries. The other consequence is that labour and safety standards are effectively eroded as where these jobs are offshore to are unlikely to enforce these requirements. The result of this has been to reduce global poverty and drive down the prices of goods (i.e. clothing). However, then you have places like China which then place restrictions on market entrants, enable local companies to steal intellectual property and undercut western companies, without legal recourse. No-one has been willing to call China on these actions for fear of losing out on the entire market.
- simonh 9y ago
  Not much I can disagree with there, except that apart from labour and safety standards none of what you describe is in any way unfair. Being poor and willing to work for less money isn't cheating. Meanwhile, as they develop and labour wages rise and the pool of untapped labour dries up, the bargaining power of workers in China and elsewhere to get improved wages and conditions also rises. We can see that happening in China now. It’s indisputable that China has used many protectionist manoeuvres to hamper and limit foreign participation in Chinese markets, but western countries have been willing to accept that in return for having access at all. If we want to renegotiate that position fine, and maybe judicious use of tariffs and restrictions could be a useful tool to use to prompt serious negotiation, but that’s not the same thing as just flat out hitting the nuclear button and going for an all out trade war, which is what seems to be happening.

_0ffh 9y ago

Is it possible to bet on a rising consumer price index?

megous 9y ago

Trump will tax americans for $30bn per year in imported goods/raised domestic prices. Many cheer their increased costs. :D There are no global benefits to limiting trade, which this action is. Neither are there any overall regional benefits. Certain industries will benefit, and certain industries will lose, on both sides of the border, as markets adjust. Some people will be forced to do their trade with different people for higher prices, rise prices, or close business, or suck it up in private life. That's about it.

fovc 9y ago

I'm very much in favor of free movement of people, capital and goods, but would like to point out that David Ricardo himself had to caveat his free trade argument: Ricardo recognized that applying his theory in situations where capital was mobile would result in offshoring, and therefore economic decline and job loss. To correct for this, he argued that (i) most men of property will be satisfied with a low rate of profits in their own country, rather than seek[ing] a more advantageous employment for their wealth in foreign nations, and (ii) that capital was functionally immobile. [1] I definitely did not learn this in Microeconomics when we studied comparative advantage. [1] https://en.m.wikipedia.org/wiki/David_Ricardo https://en.m.wikipedia.org/wiki/David_Ricardo

logicchains 9y ago
Did you study Macroeconomics? It's a fairly accepted phenomenon: https://en.wikipedia.org/wiki/Factor_price_equalization https://en.wikipedia.org/wiki/Factor_price_equalization (identified there by https://en.wikipedia.org/wiki/Paul_Samuelson https://en.wikipedia.org/wiki/Paul_Samuelson, about as "mainstream" as it's possible for an economist to be). "Whichever factor receives the lowest price before two countries integrate economically and effectively become one market will therefore tend to become more expensive relative to other factors in the economy, while those with the highest price will tend to become cheaper. An often-cited example of factor price equalization is wages. When two countries enter a free trade agreement, wages for identical jobs in both countries tend to approach each other." It could be argued that this is a good thing if one considers the benefit of bringing third-world people out of abject poverty to outweight the loss of slightly reducing the living standards of first-world semi-skilled labour.

bobosha 9y ago

seems to be an example of cutting of one's nose to spite the face. This will unfortunately prove counter-productive.

pasbesoin 9y ago

A couple of decades too late.