Effects of Trump's Intended Trade Policies?

Gonzo Rodeo said:

My hope is that his bluster is nothing more than signaling. "Hey, world, we're not going to do that whole trade imbalance thing anymore."

I say fight tariffs with tariffs, even if those tariffs are called "regulations".

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LessBiased? said:

Though I didn't vote for Trump, I'm hopeful that he'll be a good President overall.

But I'm increasingly concerned about his ideas about trade and the mix of jobs in the US. In principle, building more things here in the US makes some sense. Currently, only about 8% of US jobs are in manufacturing, so an increase in these jobs could increase overall employment and also reduce dependency on other countries.

But our workers need to be competitive with other countries in terms of cost, quality, and productivity, and that can mean accepting lower wages. If our workers aren't competitive, seems that protecting their jobs with tariffs, etc. will simply raise prices for consumers, increase profits of protected companies, and reduce the pressure and incentive for those US companies and workers to raise their quality and productivity. I can see these factors being very harmful to our economy, and if we get into trade wars that could make things much worse.

So what specifically are the trade arrangements currently in place which are "unfair" to US workers? What is the case for Trump actually having the right approach with respect to trade and manufacturing?

I'm interested in investigating this issue with some objectivity, rather than just hearing shallow partisan talking points (which is what I've heard so far from Trump and in the media).

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LessBiased? said:

But how do you address the trade imbalance if another country can produce the same widgets as us at lower cost? Or aside from cost, produces better widgets than we produce, and we want those better widgets?

I'm ok with some bluster to pave the way for negotiations, but I'm concerned about whether the end result which Trump is seeking is viable and desirable.

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LessBiased? said:

Though I didn't vote for Trump, I'm hopeful that he'll be a good President overall.

But I'm increasingly concerned about his ideas about trade and the mix of jobs in the US.

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So what specifically are the trade arrangements currently in place which are "unfair" to US workers?

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Visbek said:

As well you should.

The reality is that Trump has absolutely no clue about economics, trade policies, or long-term effects. He is like the guy at the end of the bar, grumbling at the TV, because he isn't getting his way and USA #1!!!!

Trump's claim is that he will lower taxes and reduce regulations in the US, and then whack tariffs on items that cross borders. This is going to have several effects.

Many corporations already pay very little in taxes. They might repatriate some funds to the US, but not if doing so winds up incurring tax bills anyway. The net result is that federal tax revenues will almost certainly drop, and the deep sense of unfairness about corporate taxes will get worse.

The tariffs will backfire, or at least not achieve his goals (more US employment). This is for several reasons:

- Manufacturing workers in China and Mexico cost around $3.50/hour; in the US, it's $19/hour. There is no way that cuts in taxes and regulations will make up that cost differential.

- There should be no question that nations like China will retaliate against punitive tariffs, by imposing its own, or killing deals with big US companies (like Boeing, which has a $1 trillion deal with China on the table), or subsidizing exports, or just whipping up the Chinese public not to buy US goods.

- Exports are a big deal for the US economy. IIRC we import $2.8 trillion and export $2.3 trillion in goods and services -- that's not chicken scratch.

- Ironically, unauthorized immigration from Mexico has been dropping because it's now easier to get a halfway decent manufacturing job there. If we hamper Mexican job creation, where will they want to go to improve their economic prospects? Hmmm... let me think... it's on the tip of my tongue....

- Ironically Part 2, Mexico has a strong export economy because they have, wait for it... strong free trade deals with many nations, possibly more than the US. By getting stricter on our trading partners, we make China and Mexico and other nations more attractive.

Along those lines, by slamming the door shut on trade, we are basically handing numerous trading partners to China on a silver platter. In particular, those who signed onto the TPP are not going to be thrilled about renegotiating, and overall the US will do worse via individual negotiations than with group negotiations.

Ironically Part 3, if it does bring jobs back to the US, it will end up increasing costs on all those formerly cheap goods made outside the US. It is unlikely that the former factory worker, who still can't find a job because his former tasks are now handled by robots, will be happy when everything at Walmart costs 20% more than it did in 2016.


The reality is that protectionism does not work. Period. It backfired with Smoot-Hawley. It hasn't stopped China from dumping cheap steel on the rest of the planet. Ultimately, it is an attempt to thwart the market, and that imposes its own costs.

Not everything he's promising is awful; e.g. it certainly isn't a bad idea to revisit NAFTA. At the same time, he is not going to be able to steamroller Canada and Mexico into signing a deal that is disadvantageous to their own interests -- nor is there much evidence that NAFTA was, in its design, awful for the US. And ultimately, that really is what he wants. He doesn't want a deal that is fair to everyone, he wants to do what he usually does -- screw over everyone else and take the credit.



Y'know, I've directly asked that many times in these types of threads, and no one has actually given me a direct answer. Go figure.

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DaveFagan said:

He killed the TPP and that was good.

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We cannot improve our export without devaluing the USDollar. It is probably overvalued by at least 50%, perhaps more, and is the main impediment to USA exports competitiveness.

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The hue and cry for a $15/hour minimum wage sounds good, but has a negative effect on exports.

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When Unions have power, they abuse it, and when Corporations have power, they abuse it. The two need to work together for a common purpose.

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Trump alleges that China is a currency manipulator, but I think real soon he will discover that the USA is the currency manipulator and manipulates to benefit Big Monies at the expense of the overall citizenry.

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"FIAT" Currency value is supported by a Nations productivity, assets, etc. and we can regard this as collaterol because a $100 bill is a IOU from the US Government to the holder. If the USA dilutes its' currency by issuing huge amounts, either by print or digital, as in 2008 when $8 trilllion was created, then the same collaterol has more debt, then the value of that Fiat currency should drop proportional to increase in Fiat currency. The USA Dollar increased by 30% during this scenario.

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Are economist fools and got sucked in or can currencies be manipulated? Why didn't the USA Fiat Dollar drop as any economist would surmise during this event? Trump should ask the Fed and Treasury why.

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American said:

Impressive!!! Maybe you should be in charge. :roll:

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Visbek said:

Yep, it was great... for China.

The goal of the TPP was to box out China by making a strong deal with Southeast Asian nations. With that gone, China can point to the US as an unstable negotiator, and make its own moves to solidify its role in the region.

Well, at least you mentioned a problem with the TPP -- which is not present in NAFTA or most agreements. Moving on....



Intentionally devaluing the dollar specifically to improve our exports is currency manipulation. Ironically, Trump accused China of manipulating its currency... about 2 or 3 years after most observers agreed that China had stopped manipulating its currency.

Anyway. Let's look at the value over time:

So, it's actually not that bad. How would we lower it?

We could try quantitative easing. Of course, if we look at the chart, we see that wasn't what drove down the value in 2002. Plus, not a popular move with the Trumpers.

The Treasury could purchase huge amounts of foreign currency. That would require a huge effort, and other governments might notice and react.

We can lower interest rates. Thing is, interest rates are already near rock-bottom lows, and lowering them could overheat the markets and/or spark another debt bubble.

I'm curious, on what basis do you arbitrarily declare that it is "overvalued by 50%?"

Oh, and monetary policies are rarely included in trade agreements.



Not so much.

The average manufacturing wage is $19/hour, so increasing MW has little effect on those wages. Most MW jobs are in retail or hospitality, so it has little effect on exports.

Plus, national minimum wages are not part of trade agreements.

What else ya got?



Very true. But not a part of trade agreements.



1) A second ago, you encouraged currency manipulation. ?!?!?

2) What is it that you think we are doing to artificially increase the value of USD? It's not like the Fed has whacked up interest rates by 5% in the past 6 months.



Huh?

The Fed pursued rounds of QE from 2008 to 2013. The value of the dollar didn't jump until QE ended. That wasn't an artificial move on anyone's part, rather it was getting things back to normal.

You can also see that the value of the USD does not correlate to the amount of borrowing, or QE, or other moves -- it started heading to the basement in 2002.



We also know the USD did drop starting in 2002, stayed low for years, and only popped up in 2015. Why? The US has had a relatively strong economy; Europe is trying to stimulate the Euro; China's economy is slowing; emerging markets are stagnant; oil is traded in dollars, and is currently volatile; the list goes on.

Economists also know that everyday Americans buy lots of imported goods. If we nuke the value of the USD, the costs of those imports -- including gas, food, electronics, and pretty much everything at Walmart and Amazon -- will increase. Americans may say they want to buy American, but since they are rarely willing to pay what it costs, it seems unlikely they would be willing to pay a forced 20%, 30%, 50%, 100% premium for US goods, or foreign goods whose costs are artificially inflated by tariffs and currency manipulations.

Yes, currencies can be manipulated -- to a degree. That doesn't mean we can arbitrarily declare a target price, or that those policies are completely devoid of other (unpleasant) consequences.

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Visbek said:

lol

The fact that I personally have no interest in running for office doesn't mean I am wrong.

I also like how you resorted to snark instead of even attempting to prove that anything I said was wrong.

So, let's hear it. When has protectionism actually worked? And what, SPECIFICALLY, was wrong with NAFTA? Especially given that China has significantly grown in exports to America WITHOUT having a trade agreement in place?

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DaveFagan said:

Yes, currencies can be manipulated
That is really the point of my post. I am fully aware of other (pleasant and unpleasantt) consequences. For instance, if the USD is devalued by 50%, USA billionaires usually would lose 50%. I wonder if they lobby for a strong dollar?

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As to the dollar being overvalued, I relate that to overall indebtedness against its' collaterol. More debt requires more collaterol at a bank. No increase in collaterol for more debt is a "fool's game" for Banks. We owe more people with our IOUs known as hundred dollar bills but there is not more collaterol.

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American said:

Doesn't mean you're right either. Claiming that we're slamming the door on trade, and not being honest about the tariff policies is nothing but hyperbole. He didn't say he was putting tariffs on everything. But it works better for you if he did.

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Visbek said:

:roll:

Trump has openly said he wants to levy tariffs of 35-45% on China and Mexico. (The numbers, unsurprisingly, seem to shift with the wind.) That's trading partners #2 and #3 right there.

Just this week, he threatened a broad "border tax" on any US companies that manufacture goods outside the US for importation to the US. There was no restriction on nation of origin.

Even if China and Mexico were the only nations involved, almost everything I said is correct. Mexico is not going to sign an updated NAFTA that gives them the shaft, and they are already talking about retaliation. China would retaliate against tariffs, specific or broad, as they already have. If we [I[/I]hit Chinese goods with tariffs, then all that cheap stuff at Walmart is going to jump in price. The cost savings from lower corporate taxes and less regulation almost certainly will not go to consumers and US workers -- it will sit in the bank, just like the record profits we've seen in corporate America during the Obama years.

So no, I'm not invalidating any of my points with any alleged hyperbole.

You also haven't presented a single example of how any of the provisions of NAFTA were deeply unfair to the US; or, if it was such an awful agreement, why China wound up exporting so much to the US without having a trade agreement with the US.

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American said:

Mexico retaliate? Good luck with that.

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Visbek said:

That's... wait, what?

The value of the dollar is a relative measure; it's balanced against a basket of currencies. The chart above its based on exchange rates with the currencies of the EU, UK, NZ, JP, China, Mexico, Switzerland etc. "Value of USD" is not a measure of purchasing power.

Further, Wall Street has a strong history of pushing for lower interest rates, not higher ones. It wants cheap debt, and that is more likely to weaken the dollar than strengthen it. Of course, they rarely push for such drastic changes in rates that the value of the dollar itself would be changed.

The only way I can imagine the federal government devaluing the dollar by 50% in a reasonable time frame (say, 1-2 years) would be by printing up money and dumping it on the markets. This would result in a hyperinflation that would be disastrous for everyone.

Well, almost everyone. It's much easier for the wealthy to move their capital and non-real estate assets out of USD and into a more stable currency. (They still wouldn't like it though.)



Sorry to be fussy, but it's "collateral"

Back on point, government debt does not work anything like private debt. There is no "collateral" in government debts. Currency also isn't a debt, it's a medium of exchange that is introduced to the market via credit mechanisms. If a government defaults on its debts, the borrower is flat-out screwed. If you hold $1 million in T-Bills, and the Treasury Department announces it will only pay 70 cents on the dollar, you can't sue for ownership $300,000 in federal land to even things out.

Of course, the government owns the printing presses, so in most cases it can just print up the money it owes. But that doesn't always work, since (as noted) massive monetary generation can produce hyperinflation, and will cripple the economy.

Keeping in mind that I'm not a currency trader: We should also note that if there was a significant discrepancy between the actual value of the dollar, and its value relative to other currencies, then the currency traders would be arbitraging the living crap out of that discrepancy, and making fortunes, until they eventually arbitraged it out of existence.

Heck, hedge funds do this with international interest rate discrepancies of a few basis points. There is no way the ForEx markets would sit on its hands if a currency was genuinely overvalued by 30%.

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DaveFagan said:

"(say, 1-2 years) would be by printing up money and dumping it on the markets."
"Of course, the government owns the printing presses, so in most cases it can just print up the money it owes. But that doesn't always work, since (as noted) massive monetary generation can produce hyperinflation, and will cripple the economy.

And just what did you call QE of $8 trillion in 2008.

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DaveFagan said:

But that doesn't always work, since (as noted) massive monetary generation can produce hyperinflation, and will cripple the economy.

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And just what did you call QE of $8 trillion in 2008.

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Visbek said:

QE isn't "printing up money," and obviously did not cause hyperinflation.

QE is the Fed generating money to buy back T-Bills and MBSs. It takes assets out of the economy that are relatively illiquid, and replaces it with cash (which is highly liquid). No new financial assets enters the economy. All it does is shift assets around a little bit.

Hyperinflation is (broadly speaking) 50% or more per month. If a car cost $30,000 at the beginning of the year, and $227,000 six months later? That's hyperinflation. Since inflation was closer to 2% on average since the crash, we obviously didn't have that.

QE also didn't have a big effect on the value of the dollar -- see the earlier chart. The value of the dollar cratered starting in 2000, or eight years before QE started. You should also note that the value of the USD BOTH went up AND down while interest rates were extremely low.

So again... The tools for influencing the value of the dollar are quite limited. It can be done, but it requires far far more work than what we saw with QE.

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LessBiased? said:

Though I didn't vote for Trump, I'm hopeful that he'll be a good President overall.

But I'm increasingly concerned about his ideas about trade and the mix of jobs in the US. In principle, building more things here in the US makes some sense. Currently, only about 8% of US jobs are in manufacturing, so an increase in these jobs could increase overall employment and also reduce dependency on other countries.

But our workers need to be competitive with other countries in terms of cost, quality, and productivity, and that can mean accepting lower wages. If our workers aren't competitive, seems that protecting their jobs with tariffs, etc. will simply raise prices for consumers, increase profits of protected companies, and reduce the pressure and incentive for those US companies and workers to raise their quality and productivity. I can see these factors being very harmful to our economy, and if we get into trade wars that could make things much worse.

So what specifically are the trade arrangements currently in place which are "unfair" to US workers? What is the case for Trump actually having the right approach with respect to trade and manufacturing?

I'm interested in investigating this issue with some objectivity, rather than just hearing shallow partisan talking points (which is what I've heard so far from Trump and in the media).

Click to expand...

Visbek said:

QE isn't "printing up money," and obviously did not cause hyperinflation.

QE is the Fed generating money to buy back T-Bills and MBSs. It takes assets out of the economy that are relatively illiquid, and replaces it with cash (which is highly liquid). No new financial assets enters the economy. All it does is shift assets around a little bit.

Hyperinflation is (broadly speaking) 50% or more per month. If a car cost $30,000 at the beginning of the year, and $227,000 six months later? That's hyperinflation. Since inflation was closer to 2% on average since the crash, we obviously didn't have that.

QE also didn't have a big effect on the value of the dollar -- see the earlier chart. The value of the dollar cratered starting in 2000, or eight years before QE started. You should also note that the value of the USD BOTH went up AND down while interest rates were extremely low.

So again... The tools for influencing the value of the dollar are quite limited. It can be done, but it requires far far more work than what we saw with QE.

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DaveFagan said:

It is printing money with US Treasuries as collateral.

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When there are no foreign buyers, the Federal Reserve becomes the buyer of last resort. China sold/dumped over $600 billion of US Treasuries last year and that should have dropped the dollar, but it didn't.

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Why do you think China dumped $600 billion in Treasuries?

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China's holdings of U.S. Treasury securities fell $41.3 billion from September 2016 to October 2016 and are down $139.1 billion since October 2015, Treasury data show. China's holdings of U.S. debt have fallen five straight months.
....
"China is selling Treasuries to support its currency, which is under pressure due to capital flight," says Axel Merk, chief investment officer at Merk Investments

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LessBiased? said:

Currently, only about 8% of US jobs are in manufacturing, so an increase in these jobs could increase overall employment and also reduce dependency on other countries.

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Manufacturing's role in the economy crested in 1953, when factories contributed 28.3% of GDP. Since 1977, its share has declined every year except 1988 and 2004.

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