What’s under the froth and bubble of Trump and tariffs?
Don’t be deluded. An American trade war with China that escalated globally was likely to happen sooner or later, with or without Trump’s shenanigans – which aren’t really about tariffs anyhow.
For decades there has been grumbling in the White House corridors about China’s currency abuses and intellectual property theft aimed at making its goods cheaper in the West while maintaining a massive Chinese trade surplus within the US.
Nobody in America has been willing to do anything about this because China has been buying mind-blowing American debt to become the world’s largest government holder of US Treasury notes.
Concurrently cheap imports from China have masked declining standards of living for Americans – which has, to a substantial extent, been happening in Australia.
But when it eventually became glaringly apparent to Americans that China was using profits from unfair trading practices to finance an aggressive military machine -- and still nothing was being done about it -- President Trump, self-proclaimed global fixer of anything he felt needed fixing, declared he’d use Liberation Day tariffs to free fellow Americans from Chinese torture by trade.
His argument for action is simple. China must be stopped destroying jobs in US manufacturing, and what’s more, if the Chinese cannot be brought back into line on internationally agreed rules of trading, they will find a way to provoke military war – in which case, any efforts to right wrongs in trading would be pointless.
But will a tariff war prevent a military war, and if does, will it do more harm than good?
Some considerations
If there’s anyone outside the White House who sees economic rationale in Trump’s no-exception tariffs, then Macks Advisory is unaware of it.
Anyway, what’s going on isn’t really about tariffs, they’re just an opening gambit in Trump’s plan to smash the world’s economic and political order and replace it with something intended better to serve US interests – a plan widely referred to as the Mar-a-Lago Accord.
This aims to improve America’s trading position by using tariffs and other bully-boy tactics to force the world to take a radial step in weakening the dollar via currency agreements. According to Accord theory, this devaluation will make US exports more competitive, will put economic pressure on China, and increase American manufacturing.
While millions of Americans support their President’s view that something needs to be done about their country’s trade imbalances, they ‘re not convinced the Trump way is the way to do it.
Small businesses that for decades have been operating within a stable US system, are facing the immediate prospect of finding working capital to pay tariffs, even if that means sacking staff. Otherwise, they’re electing to close their businesses or go bankrupt.
In a recently published report, Goldman Sachs estimates Trump’s tariffs will hurt unemployment five times more than it will help. The firm says a broad increase of only 10% in import taxes (although Trump has been talking about much more than that) will create 100,000 manufacturing jobs, but it will kill 500,000.
Crescendo of criticism
There’s an increasing crescendo to criticism of Trump and tariffs. The US National Association of Manufacturers in a recent media statement says, “the high costs of new tariffs threaten investment, jobs, supply chains, and, in turn America’s ability to outcompete other nations.”
Mack Trucks, one of Pennsylvania’s largest employers, has laid off hundreds of employees as global demand for their product decreased. Volvo says it may need to lay off about 800 workers, and DHL Express has suspended any deliveries to the US worth more than $800
The International Monetary Fund (IMF) says Trumpism is setting the global economy on “a new era” marked by “significantly” slower economic growth, because of tariff uncertainty and consequent chaos.
But the IMF is not the only major financial institution warning that the Trump tariff regime will have serious consequences for international and local economies. The Institute of International Finance (IIF) predicts “a shallow recession” will soon hit the US – any sort of a US recession isn’t good for Australia - and Apollo Global Management’s Chief Economist Torsten Stok says, “there is a 90% chance” of a Voluntary Trade Reset Recession (VTRR) in the US.
Trump has implied these dire predictions will be negated because he’s paused some tariffs, and his talks with world leaders are “going very well”. If they are, then Macks Advisory has seen no manifestation of this.
Current state of play
Beyond a few scattered, individualised deals with major international corporations, Trump’s negotiations with major trading partners have produced little. Despite his claim that “big progress” is being made, negotiations with Japan appear to have collapsed totally as this article is being written.
And no good seems to have come from talks with Israel’s Bibi Netanyahu and Iran’s mullahs, although Trump declares everybody is “on the same page” as far as trade policies are concerned.
Of course, China isn’t making things easy for anyone who seeks “appeasement with America”, threatening “counter measures” against all those who attempt to make deals that are against Chinese interests.
Our conclusion: if Trump continues with his slash-and-burn policies, yet Americans somehow manage to prosper from the chaos their President has unleashed, then he will have traded away core respect, economic and political values that have in the past, indeed made America great.
