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kao_hsien_chih • 1 month ago

My sense is that the whole issue of trade disputes is not so much about trade and economics as much as politics and sovereignty. Not a whole lot will have changed in economic terms when the dust clears, but the underlying politics will have been altered unrecognizably. The whole idea of creating international bureaucratic bodies to oversee and regulate international trade (e.g. WTO) was to bypass the "normal" politics in the states involved. Long ago, the weaker countries cried "modern day imperialism" over these because they felt (not entirely without justification) that these arrangements took trade policy out of the hands of their domestic politics and unresponsive to their needs, interests, and demands--and, in a sense, this was exactly the point, since protectionism, even economically undesirable varieties, are product of "good" domestic politics. But since 1980s and 90s, the pendulum seems to have swung in the opposite direction where reclaiming a share of sovereignty over trade policy is preferred by many over trusting international bureaucracy. While not exactly "trade" policy (but it is economic), the experiences of the less well off countries in EU (as well as segments of the publics even in better off countries) has to be a fairly widespread worldview in many countries these days--certainly enough that it should make good politics to try to address them in some fashion, not try to override them by fiat (the latter seeming to be the preferred approach of the cosmopolitan elite)

Babak Makkinejad • 1 month ago

EU states are not sovereign, they sold their sovereignty to US, quite willingly, I must say.

The way orders are issued from DC and obeyed at European capitals is reminiscent of how Moscow used to run things.

West wants to turn the rest of the world into proletariat. The rest of the world is not going to countenance that, especially given the humiliating memories, some no doubt manufactured, of the period before 1945.

A bureaucratic system of adjudication of trade disputes, however clunky, is the epitome of Rationality, in my opinion. Free Trade would mean that Bangladesh should starve as its garment industry is destoyed and French, Flemish, Korean, and Japanese farmers be dislocated.

Trump cannot be serious about Free Trade, US has suffered because of it.

Pat Lang • 1 month ago

How can you say that the EU is not sovereign because they gave in to the US easily and then claim that nothing was settled?

Babak Makkinejad • 1 month ago

Because they are dependent on US capital markets as well as US military. They are all protectorates of US.

France was more sovereign in 1970s than she is today.

Pat Lang • 1 month ago

That is what is called an alliance. Keep talking. Bolton is pushing every day for war with Iran.

English Outsider • 1 month ago

"My sense is that the whole issue of trade disputes is not so much about trade and economics as much as politics and sovereignty."

That has to be right, and it certainly applies to small countries. Small countries must always be aware that there is a loss of sovereignty implicit in the very act of trading with larger ones. The greater weight of the large country can enable it to impose trading terms that are sometimes disadvantageous to the smaller.

Tough. That's how it is. But the smaller country must always be on its guard against the very real danger of allowing that to extend to loss of political sovereignty.

What I don't see is how this applies to the US. The US is not a small country and need not fear any loss of political sovereignty attendant upon any lack of size or power. Therefore one could perhaps see the current US trade negotiations in a different light.

That is, that Trump is not defending his country against any such threat. He is merely attempting to level the playing field. For far too long that playing field has been tilted against the US worker and, ultimately, the US economy. He was elected to rectify that and will, I believe, be judged by his success in doing so.

If, in attempting that, he ruffles a few feathers - well, if he went the asking nicely route they'd walk all over him.

That quibble aside, I couldn't agree more with your note.

FB • 1 month ago

'... For far too long that playing field has been tilted against the US worker...'

Yes, very true...and let's remember WHO exactly decided to move those jobs to China...a clue, it WASN'T China...

Anyone remember Ross Perot's campaign and his 'great sucking sound' of US jobs being sucked out...?

[OK Perot was talking about Mexico and Nafta...but that was even before 'outsourcing' and offshoring jobs became the hugely profitable thing to do in the US...

The way I see it China can't lose...not now...the horse has left the barn...

The US otoh will never bring good jobs back home just because of a president...the countyry's capitalists need to decide to do that and forego those profits and golden parachutes...

Same thing with immigration...who actually benefits from both legal and illegal immigration...could it be the people who hire folks and cut the payroll checks...?

Just wondering...

kao_hsien_chih • 1 month ago

I don't think the size of the country is the decisive factor.

International trade always produces winners and losers. Depending on the particulars, the gains might be more widely spread than losses, or vice versa. Both sides want to play the political game to shape the terms of the trade in their favor. Generally, those who are in favor of more protection tend to do well in domestic politics, while those who tend to gain more by opening up trade don't. This is why international bureaucracy regulating trade winds up being set up, to bypass the domestic political process in favor of the free traders.

I don't think there is a fundamental relationship between the size of the country and the political conflict over free trade. It may be that smaller countries tend to be predisposed more towards protectionist policies, but counterexamples are found easily (e.g. Singapore). The real issue is that creation of and deference to international bureaucracy is a mechanism through which the winners from free trade shift the venue of politics from the domestic to the international and, in a sense, unfairly disadvantage their political enemies by depriving them of the means to affect trade policy easily. Or, in other words, international trade bureaucracy is NOT just a solution for trade conflict between nations, but a political weapon directed at the skeptics at home. If the winners of free trade were willing to share their gains with the losers, the conflict would not need to be so sharp. This has not been the case in US: more than in most other developed countries, the winners of free trade kept the gains only to themselves, claiming moral absolute of the free trade and their Mammon-given right to hold on to everything. Those who lose from the free trade are not only aggrieved, but find themselves at the wrong end of the political game specifically rigged to deprive them of influence. They don't want to play by its rules if they can--and Trump is providing them this option.

In this sense, Trump's actions are re-domesticalizing the politics of free trade, making trade policy responsive to domestic interests that were shunted side formerly. The internationalists have only their own short-sightedness to blame: if they were willing to build up a broader coalition, or at least, appease their domestic opponents better, the opposition to free trade detached from domestic politics would not have become so acrimonious.

Personally, I think it's not a good development: walking back from free trade is not easy, if at all possible--too many linkages have been built, too many sectors are dependent on access to foreign inputs or markets, that actual protectionism will be near impossible to bring back without major costs. Still, if you are creating international bureaucracy to bypass domestic politics, you'd better not piss off folks back home enough that they'd start with pitchforks, and this is among the many mistakes internationalists have made.

Babak Makkinejad • 1 month ago

Trump is pushing for Free Trade, is he ready for 6000 dollar sedans from China?

Was Obama wrong to bail out General Motors?

Pat Lang • 1 month ago

Yes, let's see them and also see if Americans will buy them. Which Babak is this?

Biggee Mikeee • 1 month ago

The Buick Envision and the Cadillac CT6 Hybrid ($75,000) are both assembled in China and imported into the US. GM and Ford planned to build more there until the tariffs arrived. This is what motivated Trump to enact the tariffs on cars.

Mac Nayeri • 1 month ago

gotta say Colonel, not half bad cars....checked out some while there....

Fred • 1 month ago

When did China start making cars that meet NHTSA safety standards?

Mac Nayeri • 1 month ago

good question, don't know the answer myself....drove a Chinese made SUV called JAC from Tehran to Esfahan....felt no diff from Toyota, Honda etc....funny thing, when I said there I had never seen a single Chinese made car in the US peeps in Iran were astonished...

Pat Lang • 1 month ago

I bought a 12 gauge Norinco shotgun a while back. It was knockoff of a Remington. The Chinese gun was very nice but very heavy.

Mac Nayeri • 1 month ago

interesting....

Babak Makkinejad • 1 month ago

US pushed and cajoled for Free Trade but EU wrote her regulations in such a way the as to protect local producers. Free Trade, in my opinion, will reduce employment in US further. It certainly will depress wages.

English Outsider • 1 month ago

Yes, I get it now - " in other words, international trade bureaucracy is NOT just a solution for trade conflict between nations, but a political weapon directed at the skeptics at home."

And that's going to happen whatever the size of the country in question. How you boiled that lot down so it fits into a comment on the Colonel's site I can't imagine, but it's all there in the analysis you put forward. One can only agree with it.

I'm very uneasy with the use of the term "Free Trade" in any case. Even if some benign and neutral international authority were to succeed in arriving at frictionless trade with homogenised standards, and that divorced from any question of favouring this or that special interest group or of extending political influence, the thing doesn't work on a mechanical level.

We see that most clearly in the case of the US. You can't live there, let alone bring up a family, on less than - well what would you say, $12,000 a year? Whatever the amount, for the average family what would be a savage minimum to the American would be wealth untold in Ethiopia or Bangladesh. Perfect frictionless trade must give the work to the Ethiopian and leave the American worker high and dry.

Far too simplistic, say the economists. The American businessman just has to be faster on his feet and make more inventive use of the immense technological and industrial superiority we in the West possess. Trouble is, the economists are living in yesterday's world when they work on that assumption. Not entirely so, yet, but increasingly so. Therefore the work has to go to where the wages are the lowest and environmental and social considerations least regarded. The "Free Trader's" nirvana is the American worker's hell. Not too brilliant for the Ethiopian either, but that's not our business just here.

But if the economists have their heads in the clouds when they work on that outdated assumption the businessmen don't. They don't outsource or use cheap imported labour because they are malevolent and want to do their country down. They do it because it's the only way to survive in a globalised world. The mechanics of frictionless trade don't work except in the economists' imagination.

And that's assuming that benign and neutral international authority. Quis bloody custodiet is all one can say to that.

And now we have the Americans, with an entire continent to play with, saying that's not a large enough market unit to allow an economy to function as it should. Where are the marines? I have something I urgently need to tell them.

Trump, or someone on his 2016 team, gets it. The American worker, already facing the disruption of automation, gets it. He need only feel his wallet if he wants proof. Those who've been clever or fortunate enough to carve out a prosperous corner in the decaying edifice of the American economy don't get it. And until they do get it, most of them'll continue to fight Trump.

blue peacock • 1 month ago

All

Real trade economic analysis is not as simple as the cliche of "free trade good, protectionism bad" which was how WTO (GATT) and NAFTA were sold.

I think we should step back and see the evolution of the trade debate over the recent decades. A critical pivot point was the Uruguay round of the General Agreement on Trade & Tariffs (GATT) which created the WTO in 1994. GATT rounds spanned from 1986-1995. Bill Clinton and his "New Democrats" along with the corporatist wing of the GOP pushed this concept of free trade and negotiated NAFTA & GATT and provided China the Most Favored Nation status and essentially ceded US national sovereignty to the WTO.

Please read the post by Kao Hsien Chih on supra-national trade organizations and national sovereignty. I also urge everyone to watch the Charlie Rose interview of Sir James Goldsmith that Jack posted to hear the well articulated arguments against the GATT trade agreement.

The politics at that time was the free trade camp backed and funded by Wall Street and multinational corporate interests ran an extremely well financed & sophisticated media & "think-tank" campaign along with the Clintonistas and the corporate wing of the GOP to drown out opposing voices. They made a caricature of the opposition as supporters of "big labor" and luddites preventing the evolution of the world economy and the US economy in particular from moving to this glorious world of competition and innovation and high tech-high wage jobs for the American middle class. The only real opportunity that the opposition to the GATT deal had to have any meaningful voice was Ross Perot's quixotic presidential campaign. Here is a short clip of his argument in the second Presidential debate in 1992.

www.c-span.org/video/?c4554...

With this context let's reflect on what has actually transpired. The "giant sucking sound" did actually happen as the US industrial base was dismantled and shipped overseas. Real median household income has stagnated and entire communities have been devastated. China took advantage of the GATT round by joining the WTO and insisted that to gain access to the large Chinese market of a billion people with prospectively rising incomes, international manufacturers must set-up plants in China in joint-ventures with Chinese partners. Massive Foreign Direct Investment along with technology transfers from the west ensued and China has built a giant modern industrial base. Since the credit crisis of 2008, China has doubled down with a gargantuan increase in credit to finance an unprecedented fixed asset boom with gigantic capacities in industrial goods to real estate and infrastructure. The Chinese people have no doubt benefited economically as the transformation of hundreds of millions of people from abject poverty in just a few decades is unprecedented. The American consumer has also benefited as consumer goods have flooded in from overseas. From Walmart, Apple to Ralph Lauren they now have enormous supply chains that make the Pacific shipping lanes some of the busiest in the world. But how sustainable is this "prosperity" for the American middle-class? Labor participation rates are declining and the total of household, business and government debt which was $27 trillion in 2007 on the eve of the credit crisis is now $50 trillion.

With the hindsight of 30+ years, it should be clear that Ross Perot and Sir James Goldsmith have been vindicated. Their forecast has been spot on.

One can argue if Trump's strategy, policy framework and negotiating style is good or bad. But the bottom line is that he's the first political leader in decades with courage to challenge both the modern economic orthodoxy and the huge financial vested interests of Wall Street & multinational corporations as well as the political & media establishment they fund. The Chamber of Commerce is running a huge multi-million dollar campaign against Trump. Trump is rather transparent here. He wants to get to a trade regime with no tariffs, non-tariff barriers and subsidies, which IMO is not attainable when Japan will always want to protect their rice farmers for example. He wants to eliminate the NAFTA loophole where companies set-up shop in Mexico and Canada, import parts from EU & Asia, and then ship it across the border tariff-free. His argument is source the majority of the content of your products from North America to ship tariff-free. It looks like he's on his way to negotiate that with the new Mexican president. Note that Mexico has not a single aluminum smelter and Canada is the largest exporter of steel to the US. Trump's focus on the auto industry in his negotiating tactics is very strategic thinking. Auto's represent a $160 billion annual trade deficit. The US tariff is 2.5%, EU's is 10% and China slaps on 25%. Companies like BMW import 70% of their vehicles sold in the US from the EU. And the US market is the single largest market for premium vehicles with the highest profit margin/vehicle. Trump is essentially saying to the auto manufacturers that they should make in the US the autos that they sell in the US. At least he is making an attempt to re-arrange the trade dynamics to finally flow back some benefit to the American blue collar worker. And his use of national security as a lever is also real when entire product categories are now imported. Of course, we'll have to wait and see if he's successful with his current strategy.

N.M> Salamon • 1 month ago

Thanks for your exposition.
Some observations:
China's import of oil in US funds is about equal to USA's net import in US$ - the rest is in ruble/yuan.
The armed force imbalance is of no value, as attack on China is certain to get A-bombs into play [aside form danger to US ships both naval and other due to Chinese/Russian made anti ship missiles]
The USA can not maintain 25% duties on consumer goods for the simple reason that 75% of population can not afford to be consumer -debt levels are too high.
The USA can not maintain high tariffs as such would greatly increase the inflation rate applicable to the "deplorables" who are already on ropes [homelessness, welfare, food subsidies etc.] Notably the Fed would have to raise rates if inflation increases with dire result for the bond market and the federal deficit due to increased interest costs.
That the European satraps have bowed under US pressure is nothing new... there will be more changes in governments in the next cycle - the present bunch is too ripe [or rotten].
I do not imply by the above that China will not suffer, however they have a trillion dollar kitty to balance the external trade problems.

Fred • 1 month ago

"75% of population can not afford to be consumer..."
They are in debt because they are consuming beyond thier income. "the Fed would have to raise rates if inflation increases" The Fed has already raised rates twice this year. It was less than ten days ago that Trump based the Fed for raising rates. The losers in that have always been Americans at the bottom.
http://thehill.com/policy/f...

blue peacock • 1 month ago

Interest rates are still extremely low by historical standards. IMO, too much focus on 25 basis point increases in Fed funds rate which masks the real danger for leveraged financial assets which is the Fed draining liquidity from financial markets by reducing their balance sheet $50 billion a month which amount will rise every quarter. The ECB also plans to join the Fed by not increasing liquidity from the end of this year and may even to start to reduce the size of its assets. This is gonna blow up some leveraged entities at some point. As our economy has got more and more financialized, it is the financial markets that leads the economy and not the other way around.

P.S. When you read hysterical stories of petro-dollar and the Chinese reducing their US Treasury portfolio compare with what the Fed is doing right now.

N.M> Salamon • 1 month ago

With great respect the 25-50 basis point raise in the Federal Rate is insignificant when one considers that there is a 25% raise in prices at the port of entry, which translates to 35% + in retail prices [ the cost of doing business is at least 8% if not more when more than one enterprise is in the distribution from port of entry to consumer].
It is true that the political optics will help the Republicans in November, while the price increases [and Federal Rate] increase might not occur until later, they must occur as prices rise.
If you believe that present inflation rate [and unemployment rate] as published by the government is valid for the 80 % of USA's [or Canada's] working stiffs, then no doubt you believe in Santa Claus and numerous mythological entities from Norse, Greek, Roman etc. literature.,

Pat Lang • 1 month ago

You are the peak oil guy in Saskatchewan right? How is that working for you?

N.M> Salamon • 1 month ago

Colonel to answer your points:
I reside in Alberta foothills, and we have an oil well on our property [surface rights only]
Peak oil is coming please cite any your in the near past which indicated the finding of 34TRLLION barrel [the yearly consumption of the world] to replace that which was used up. - THERE IS NONE
The Permian oil play in Texas has a reserve of approx. 46 Trillion barrels [little over a year supply for the world] at present withdrawing 2.9 Billion barrels per day [around 1/5 of US daily. requirement].
If the USA armed forces play some more democracy creation games, some of the past oil production will be curtailed a la Syria, Libya, Iraq, making peak oil occur even sooner.
Please note the present price of $70.00 or so a barrel Is already having a negative effect on economics of various nations. Any further rise will recall 2007-8

Fred • 1 month ago

NM,

Having gone well past your peak oil due date I find it humorous that in pointing out your factual error on interest rates you double down by trying to create your own facts: "25% duties on consumer goods" (see your initial comment) with a 25% rise in everything imported. Perhaps you should actually look at what was done by Trump.

"The United States Trade Representative said the U.S. will initially impose a set of tariffs on 818 items worth about $34 billion on July 6. Separate measures affecting 284 products worth about $16 billion could take effect following a review and public comment process."
https://www.cnbc.com/2018/0...

N.M> Salamon • 1 month ago

Last I heard the President threatened tariffs on $500 billion of Chinese exports - It is probably just noise, but the effect would be too large for the US economy

Fred • 1 month ago

Perhaps you have should read the news source posted on that line you responded too.

blue peacock • 1 month ago

You miss two important points in your math. One the Chinese are devaluing their currency which would reduce the price of their exports. Two, the massive over-capacity in China across a range of product categories from steel to solar panels. These industries are not profitable and only through both overt & "covert" subsidies are these businesses able to dump their products on international markets. What makes you think they won't reduce their prices further.

The flaw in your analysis is that it is static. What you need is a more dynamic model - even possibly a game theory analysis.

N.M> Salamon • 1 month ago

Your points are well taken - the yuan's devaluation vs USD is real not so much against the Euro

Babak Makkinejad • 1 month ago

That is why people are now shopping at various dollar stores, not even at Walmart.

Fred • 1 month ago

Just remember, Dollar Tree is much different from Dollar General and both are different from 5 Below and Old Navy. All of those are different from Amazon and its Whole Paycheck subsidiary.

Pat Lang • 1 month ago

Do you even live in the US? You actually think American consumers are impoverished?

Babak Makkinejad • 1 month ago

Yes, to both questions.

The impoverishment is quite visible not just by noting the proliferation of dollar stores or the elimination of hardwood furniture from department stores but also by the fact that even the college-educated crowd with decent income are leasing their vehicles, or by the general deterioration of roads.

Outside of such bubbles as DC or Boulder or Austin one cannot but notice that. Salvation Army stores are always crowded on weekends, with a variety of shoppers from different backgrounds.

In places such as San Ramon, San Jose, New York City, Boston young people cannot buy equity on their own incomes.

william mcdonald • 1 month ago

I agree. It seems almost like a Potemkin village. Just go back off the main boulevards to see the real deal- aging and decrepit buildings, graffiti everywhere, liquor stores and bottled water storefronts, homeless seemingly everywhere...

Fred S • 1 month ago

If only Obama and the democrats had done something about that in their years in office.

Pat Lang • 1 month ago

Maybe you should go see America outside the monster cities.

Fred • 1 month ago

"hardwood furniture from department stores " department stores have been leaving the furniture business for decades. Furniture manufacturing was one of the first casualties of giving to China MFN status.
https://www.fs.fed.us/ne/ne...

Equity is not furniture. How is the economy in Iran? Better than Boston? Got lots of Theranian youth buying equity, and cars and furniture "on their own incomes"?

Jack • 1 month ago

This interview of Sir James Goldsmith by Charlie Rose frames his debate with Laura Tyson, Clinton's trade representative. Well worth watching to understand the trade debate.

https://youtu.be/wwmOkaKh3-s

Lex • 1 month ago

I think China is just working to change the situation regarding energy being priced in dollars - removing that problem - and working with Russia and Iran to keep well-supplied. If you look at the history of China under the CCP, you will see that they will put up with a lot more pain than the mild irritation currently caused by this trade war in order to maintain dignity and sovereignty. It is one thing to get the spineless Eurocrats to roll over, but the Chinese will accept nothing short of a return to the pre-trade war status quo, then a serious negotiation with benefits for both sides. The situation pre-Communism - called the "century of shame" or something like that is a big deal to the Chinese, and they will never be humiliated by Western powers again. Also, the ridiculous Russia-hating frenzy has allowed relations between China and Russia to become warmer than every before, removing the possibility of playing them off against each other. Between them, they have a lot of real estate, manpower and natural resources - not to mention similar views on sovereignty and Western adventurism. I'll bet Kissinger can't sleep at night these days - and it's not memories of his war crimes keeping him up. As for the military advantage, it is of little use unless you use it - is Trump ready to play that game with China? More to the point, is the military? I don't know.

Pat Lang • 1 month ago

IMO this is not the same Babak.

VietnamVet • 1 month ago

The Elite have rigged the system so all the wealth flows to them. Tariffs raise prices to
consumers. Since people are already head over heels in debt and interest rates are rising and can’t be paid; the question is who crashes first; retail with no customers or bond holders with no interest payments? Facebook and Twitter are today’s train wreck. In the long term, if a war with Iran/Russia/China is avoided, the USA will turn into the Brazil of North America. Immense wealth walled against intense poverty. Public education, public health, public utilities and resources; all gone with no cleanup. Food shortages. Firefights. Law and order vanished. A non-constitutional authoritarian national government will be the big one that breaks off the Pacific Northwest and New England for a restoration of government by and for the people.

FarNorthSolitude • 1 month ago

Basically a repeat of the Great depression, crony capitalism always ends thus as large pools of capital sit uncirculated in the hands of a few. Mixed economies are the best as they create a stable middle class.

"It is manifest that the best political community is formed by citizens of the middle class, and that those states are likely to be well-administered, in which the middle class is large. Great then is the good fortune of a state in which the citizens have a moderate and sufficient property; for where some possess much, and the others nothing, there may arise an extreme democracy, or a pure oligarchy; or a tyranny may grow out of either extreme- either out of the most rampant democracy, or out of an oligarchy; but it is not so likely to arise out of the middle constitutions and those akin to them."

Aristotle, 306 BC

Babak Makkinejad • 1 month ago

Brazil of North America is apt. That was how Oakland looked to me from afar, like those over built hills in Sao Paolo.

Fred • 1 month ago

"the question is"

Based on your writing the question, after 8 years of Obama doing all those things that got you to write that, is why anyone voted for a Democrat.

Pat Lang • 1 month ago

I once remarked to a British diplomat who expressed despair over the state of things that as Spinoza said " because man loves God, it does no follow that man has any right to think that God will love him in return." The Brits asked me what terrible thing had happened to make me remember that. i ask you the same question.

VietnamVet • 1 month ago

Colonel,

Close to 75, I am still agnostic. I was raised that way. My Dad lost his Mom in childbirth when he was 12 and my Grandfather married a Scottish Catholic to raise my Aunt. The loss and their battles turn my Dad against religion. So, I am stuck with science, my eyes, and history to try to explain things.

Pat Lang • 1 month ago

So, agnostics generally believe in the nefarious nature of human motivations as you do?

Babak Makkinejad • 1 month ago

Harper:

There is no trade deal with EU, only an agreement to look for a deal within an unspecified interval of time.

China, like Korea and Japan, will make concessions to appease US pressure but will not substantially open her markets. If Trump believes otherwise, he be wrong - in my opinion.

And what does it matter if US has superior military? Is she prepared to wage a land war in Asia? And for what exactly?

China already has started paying for IP, that was a concern a decade ago or more.

She also buys oil in Yuan and ruble as well as dollar.

Pat Lang • 1 month ago

Are you a Democrat? The commitment was clear from Junckers.