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  • The Trade War and Agriculture.

    Posted by Michael Kennedy on May 11th, 2019 (All posts by )

    We are entering a period when the tariff controversy with China is getting serious.

    The Wall Street Journal is worried.

    A failure to break an impasse in talks in Washington on Friday opened a new phase in the trade fight after more than five months of back-and-forth negotiations. This time, some economists and analysts said, Beijing is taking stock of potential economic damage from higher tariffs.

    The U.S. raised punitive tariffs to 25%, from 10%, for $200 billion in goods leaving China on Friday and thereafter. President Trump also ordered staff to begin the paperwork to impose levies on the more than $300 billion worth of everything else China sells to the U.S.

    While Beijing has met previous volleys of tariffs from the U.S. by raising duties on American goods—and the government has promised to retaliate—it held its fire. Though China has more limited tariff options, since it imports fewer products from the U.S. than the other way around, the Chinese leadership is also constrained by an economy that is in a shaky recovery from a sharp slowdown.

    There is talk of China boycotting US farm products. They tried it a year ago.

    The world’s biggest oilseed processor just confirmed one of the soybean market’s biggest fears: China has essentially stopped buying U.S. supplies amid the brewing trade war.

    “Whatever they’re buying is non-U.S.,” Bunge Ltd. Chief Executive Officer Soren Schroder said in a telephone interview Wednesday. “They’re buying beans in Canada, in Brazil, mostly Brazil, but very deliberately not buying anything from the U.S.”

    In a move that caught many in U.S. agriculture by surprise, China last month announced planned tariffs on American shipments of soybeans.

    The boycott failed.

    “China has to resume purchases of U.S. soybeans,” Oil World said in its latest newsletter. “The South American supply shortage will make it necessary for China, in our opinion, to import 15 million tonnes of U.S. soybeans in October 2018/March 2019, even if the current trade war is not resolved.”

    China may not be in good shape to handle a trade war.

    The tariff escalation is worrisome for Chinese officials, who are watching potential ripple effects, from weakening of the currency to crimping future foreign investment. Raising existing tariffs or imposing new ones could hit products China’s economy needs, like semiconductors, pork, oil and passenger jets.

    A wider-scale trade conflict could also force Beijing to further ease credit and boost government spending to shore up growth, doubling down on the stimulus used last year at a time some analysts say it should be ratcheting back such measures.

    What is behind this trade controversy? A long history of US accommodation of China, which began as a way to open China to world trade and reduction of tensions with the US. It began with Nixon in 1972 but continued with Bush, who had been ambassador, and then Clinton who allowed a campaign donor to sell critical missile technology to China.

    In 1998, the New York Times’ Jeff Gerth broke a story about the Clinton administration’s willingness to permit two U.S. aerospace corporations to transfer sensitive missile technology to the Chinese. The CEO of one of the corporations, Loral, had pumped hundreds of thousands of dollars of campaign contributions into the Democratic National Committee. In return, the Clinton administration waived controls on Loral’s export of these technologies to the Chinese aerospace industry.

    As usual, the US media covered for Clinton.

    One of Clinton’s favorite reporters was Walter Pincus of the Washington Post. His son was then the General Counsel at the Commerce Department, which had authorized the illegal transfers. Despite the obvious conflict of interest, Pincus repeatedly wrote or contributed to Post stories parroting the Clinton line. Pincus did not write the recent story about the Hughes’ fines.

    Now, we have a new president who is trying to reverse the huge trade imbalance, against considerable resistance from the usual suspects.

    U.S. Trade Representative Robert Lighthizer; U.S. Treasury Secretary Steven Mnuchin; U.S. Commerce Secretary Wilbur Ross and U.S. President Donald Trump are confronting Chinese Chairman Xi Jinping and Vice-Chairman Liu He… and now consequential things get economically very serious.

    There are going to see multiple geopolitical background moves now as the confrontation shifts to the painful phase…. who can outlast the economic standoff.

    WASHINGTON DC – Negotiations to end the US-China trade war came to a surprisingly early close in Washington on Friday with no signs of a deal – reportedly just hours before the Chinese delegation will return to Beijing.

    Where is the resistance coming from? Aside from China, of course?

    However, Lighthizer and Trump are not only fighting China, they are fighting U.S. politicians who are beneficiaries of China. They are also fighting against the U.S. CoC, the multinational corporations, Wall Street and members of both political parties who desperately want to stop any trade balance reset.

    Almost half, perhaps more than half, of congress has a better financial self-interest if China can gain economic superiority over the United States. This congressional hearing, and the severity of Lighthizer toward those purchased politicians, highlights this very tenuous internal challenge.

    “Big Ag” will be part of it. Much of US agriculture is now heavily corporatized. The family farm is not common.

    The U.S. economic, trade and manufacturing system is so structurally broken, after three decades of severe corruption by corporate financial interests: Almost half, perhaps more than half, of congress has a better financial self-interest if China can gain economic superiority over the United States.

    The likely response from China will be additional tariffs on U.S. goods and/or refusal to purchase U.S. agriculture products. Their strategy will be to get key BIG AG senators, and the U.S. Chamber of Commerce, to target fire toward President Trump over diminished farm prices.

    How will Trump fight this ? What effect will tariffs on Chinese imports have ?

    The prices of imported durable goods (stuff from China) will increase, slowly over time; depending on the supply chain for the specific product sector. However, if China retaliates by stopping import of U.S. agriculture products, the prices for U.S. domestic highly-consumable goods drops quickly.

    In this scenario Wall Street is hardest hit. Other than the AG sector, Main Street -and the U.S. consumer therein- actually benefits.

    The Big Club will go bananas.

    Corporate America is not necessarily the consumers’ friend. Many decided the US future was as a service economy,

    President Trump has begun a process for less dependence on foreign companies for cheap goods, (the cornerstone of a service economy) and a return to a more balanced U.S. larger economic model where the manufacturing and production base can be re-established and competitive based on American entrepreneurship and innovation.

    No other economy in the world innovates like the U.S.A, President Trump sees this as a key advantage across all industry – including manufacturing.

    The benefit of cheap overseas labor, which is considered a global market disadvantage for the U.S., is offset by utilizing innovation and energy independence.

    The third highest variable cost of goods beyond raw materials first, labor second, is energy. President Trump unleashed the U.S. energy sector and slashed regulations; as a consequence the U.S. manufacturing price of any given product now allows for global trade competition even with higher U.S. wage prices.

    Here is a Trump speech from 2011.

    Interesting. He’s been thinking about this stuff for years.

     

    58 Responses to “The Trade War and Agriculture.”

    1. Gavin Longmuir Says:

      Thank you for noting that China started fighting a “trade war” decades ago; the only difference now is that the US finally has a President who is prepared to fight back. It is unfortunate that — at least in the sad environs of DC — he is fighting almost alone.

      As you point out, the US Political Class (which includes too much of big business) actually benefits in the short term from selling out their nation and their fellow citizens. China’s Political Class, on the other hand, benefits from promoting the interests of China and the Chinese. When playing a game against someone who does not want to win, the outcome is usually predictable.

      However, there clearly is a great opening for a new breed of politician in both arms of the Uniparty — new faces who could run in primaries on a pro-America/pro-jobs platforms against the bought-and-paid-for pro-Chinese incumbents. Whether political newcomers will take advantage of that opening, only time will tell.

    2. David Foster Says:

      Interesting idea by Trump: take some of the $$$ raised by the increased tariffs and use it to buy agricultural products and send it to countries in need of assistance. Would have the effect, of course, of putting some price floor on ag prices being negatively impacted by the trade disputes.

      I’m unsurprised that Tom Vilsack, former agriculture secretary, could only come up with a whole raft of reasons why it couldn’t/shouldn’t be done.

      https://www.cnbc.com/2019/05/10/trumps-new-plan-to-aid-farmers-faces-many-hurdles-says-ex-usda-chief.html

    3. David Foster Says:

      Soybeans and China: lots of interesting thoughts & data

      https://www.quora.com/Why-does-China-import-soybeans-from-the-US

    4. Mike K Says:

      David, your link is interesting but that article has another link that is even more interesting.

      China amazing economic growth had been dependent on unobstructed access into the large US market, and its highly efficient manufacturing bases to trade low cost produced goods for US Dollars – and then trap those wealth within China (even the Belt and Road Initiatives, most of the money they loan out, do not even leave China at all)

      Thus for China, their aim is to keep the tariff as low as possible (they are sure they can’t stop the tariffs from going up; but they want to limit it as much as possible) – so that their products can continue their unfair price advantage against their competitors – and continue to bring the US dollars back to stash in China.

      However, China also cannot allow their “hard-earned” closed economy that effectively locks wealth within China, to be opened – and introduce greater connectivity with the world and capital outflow. Chinese psyche just can’t accept doing something so “dumb” – as to “make your own people’s lives more difficult” by introducing competition and allow money to flow out of China.

      So China will want to keep all their protectionist measures – and even double down with their Made In China 2025 proclamation.

      But the US does not need China.

      But if you scrutinize the sort of products being exported into USA from China, most of them are unnecessary or there are alternatives from other countries or can be produced locally.

      China also represents too small of a “trading partner” to concern themselves with any possible closure of the Chinese market from USA. (8.5% is really not much in the grand scale of things – especially the tax cuts are doing so well for the USA now)

      And if you look at the numbers in term of import and export, USA is buying way too much from China and they are losing money in overall global trade just by allowing China to sell freely in the US. Thus all these must change – and thus 25% tariffs on virtually everything.

      Trump is unlikely to lift his foot on the pedal and is likely to follow through with tariffing virtually everything China has to sell to the USA. There is little benefit to USA to NOT tariff China – not to mention it does create a little income too for the government via the tariff (yes, I know its paid by US consumers, but at least US government get something).

    5. David Foster Says:

      From China’s point of view: even absent tariffs, it would make sense for them to shift their economy away from extreme export-dependency and produce more for domestic consumption…they have done this to some degree already. It’s worthwhile thinking about how quickly they can or cannot accomplish a major shift in this mix.

    6. David Foster Says:

      From the article MK linked:

      “This means that, to not get access to the US market, any companies producing goods for consumers will stand to lose 33% of their earnings (or potential earnings). ”

      However, a lot of these goods are US-branded products made for US companies…in some cases, with a substantial ownership percentage by a US company in the Chinese operation doing the producing.

    7. Mike K Says:

      David, you point out some of the sources for the furious anti-Trump faction of US Chamber of Commerce types.

      This is an interesting comment from the second link.

      the imported soybeans are much cheaper than those produced domestically.

      The soybeans produced in China are not genetically modified, and are mostly for food. The soybeans imported are genetically modified and are used to extract oil and feed the farm animals.

      The difference between them is not only the yield, but also, non-GMO soybeans need more care, therefore more labor. The genetically modified soybeans can be produced in a very large scale and a highly automated way. This makes a huge difference in cost and thus, price.

      China is in short of farm land, and soybean is not the most important crop in China—certainly much less important than rice and wheat. Therefore China prefers to import the soybeans at a low price rather than encouraging more domestic production.

      China has been importing more soybeans than the rest of the world since 2008, and it is predicted that this trend will continue in the future.

      I was not aware of the GMO connection.

    8. Trent Telenko Says:

      >>Interesting. He’s been thinking about this stuff for years.

      This is why I’ve written several “Xanatos Gambit” posts about Trump strategy trees. It is the way the man has rolled his whole adult life, save for when the 1986 real estate tax law changes bankrupted him.

      The key thing here is Trump knows what the “Big Guys” will never admit:

      There is no such thing as “Free Trade” between a free and an unfree society.

      There is only “Managed Trade.”

      And unfree nations always manage trade for their political/military benefit.

      From Nixon to Trump, China has managed US-China trade with a pack of multi-national corporate tools who make their bones off the arbitrage between slave and free labor.

      Since Trump the USA has managed US _ China trade to the advantage of the American working and Middle class to the disadvantage of the Chinese and their multi-national corporate tools.

    9. Gavin Longmuir Says:

      It can be difficult to find consistent trade figures for China because of differing definitions, trade routed through 3rd countries, and exchange rate variations. With that proviso, here are apparent China trade figures for 2018:

      China global exports…$2,294 Billion
      China global imports…$1,935 Billion
      China global surplus……$359 Billion
      China surplus with US…$324 Billion
      China surplus with RoW…$35 Billion (Rest of World)

      90% of China’s global trade surplus comes from the US. Absent the very unbalanced trade with the US, China has nearly balanced trade with the Rest of the World. Implication is that anything which cuts China’s trade surplus with the US is going to cause painful changes in China — and probably also painful changes in other parts of the world as Chinese goods which would have gone to the US get dumped in (eg) Europe, eating into Europe’s remaining manufacturing base.

    10. Tom Holsinger Says:

      Gavin, those were eye-opening statistics. Thanks.

    11. JG Says:

      This is why the Globalists of the Dems and Repubs hate Trump. Trump wants to support USA first and there is too many in Congress and in the Government that do not feel the same way and should be up for treason as they failed to live follow the oath they took.

    12. Mike K Says:

      Watching one of the 20 Democrat candidates on TV this morning an d he is saying that China is a real problem but Trump doesn’t know what he is doing.

      Ther Congressman, who I have never heard of, is talking about the guy who has built hotels all over the world.

    13. John Henry Says:

      3 words;

      African Swine Fever (not swine flu)

      This is an ebola like disease that spreads and kills quickly. Virus is not killed by cooking, processing or salting.

      Tens of thousands of pigs have been culled already.

      This has far ranging potential impacts including mass human statvation and revolution.

      Pork is the primary meat consumed in China. Herd is @450mm. Could be entirely wiped out and there is not enough pork in the rest of the world to pay for it.

      Fortunately the disease is not transmissable to humans.

      John Henry

    14. Anonymous Says:

      Trent,

      Re the so called trade imbalance :

      Suppose we buy $1mm worth of microwave ovens from China.

      We get useful goods.

      China gets dollars.

      Now what?

      There are only 4 things china can do with the dollars

      1 put them under a mattress or in a vault. In that case we got the ovens for free (as if you sold me a car and never cashed the check). Causes imbalance

      2 buy us stocks, bonds, land, build factories etc in the USA. Buy us govt bonds Causes imbalance.

      3. Buy goods in the US to ship to China trade balances

      4 buy something from a third country eg nuclear reactors from France. This shifts the problem 1-3 to France

      I have no problem at all with any so-called trade imbalance. The problem is definitional not real.

      The real problem is that China et al finance the US deficit. That puts us in their power. They can threaten to stop at any time.

      So by addressing the trade imbalance, PDJT is really choking off funding to the swamp. I am normally a pretty rabid free trader. Trade always balances (see 1-4). But if I have to temper my support for free trade temporarily to starve the swamp, well, OK.

      John Henry

    15. David Foster Says:

      JohnH…that’s pretty much the standard free-trade argument. Here’s a contrarian view from Warren Buffett, in 2003:

      http://archive.fortune.com/magazines/fortune/fortune_archive/2003/11/10/352872/index.htm

    16. David Foster Says:

      Here’s an interesting-looking study on **who is paying** for the trade ‘war’ with China:

      http://www.econpol.eu/publications/policy_brief_11

      I suspect that the short-term effect and the medium/long-term effects are likely to be different.

    17. Anonymous Says:

      Thanks for the link, David. I’ve been a fan of Buffet since I first read of him in one of “Adam Smith’s” books in the 70s. (still kick myself for not buying BH at $300 because it was too expensive)

      I don’t see him saying anything different from my comment though hi writing is better and more detailed.

      Our only disagreement is about “trading assets for commodities” as he puts it. I agree, and mentioned, that this is a problem when it finances govt dept. Like him, I do support, and mentioned, that I am ok with tariffs to stop that.

      But what about the BMW plant in SC? Or Rockefeller center? Or NYC condos? Purchased with German, Japanese and other foreign buyers.

      He seems to think a German owned auto plant in SC is problematic.

      He seems to think it is trading assets for commodities.

      I see it as SC gaining an asset. I see it as no different from just as it would if Ford had built the plant.

      The money to build the plant is dollars in both cases.

      In one case it would have flowed direct from Dearborn to Spartanburg.

      In the other it flowed from, say, Dearborn to China for microwaves, then to Saudi Arabia to buy oil for China, then to Germany to buy BMWs for Saudis.

      Then from Germany to SC to build the plant.

      We might that the more circuitous route benefitted more people /countries. Or maybe not.

      In a any event the end results are the same. Lots of direct manufacturing jobs plus lots of indirect jobs and economic activity in SC.

      Plus the good folks in Dearborn now have microwaves! Would they if Ford had invested directly?

      John Henry

    18. Anonymous Says:

      I’m doing this on my phone so apologies for typos.

      John Henry

    19. Mike K Says:

      http://www.econpol.eu/publications/policy_brief_11

      That link agrees with the one I thought I posted above but I had the wrong link.

      This is a better one.

      Wyatt Mingji Lim
      Wyatt Mingji Lim, Co-Founder at DefensePoliticsAsia.com (2017-present)
      Updated Dec 6
      The short answer is: China is destined to lose the trade war.

      Why so?

      First, lets look at how the 2 countries get to where they are at the beginning of the trade war and what are the motivations/objectives of the 2 countries in this trade war.

      CHINA: The World’s Most Protectionist Country
      China, throughout history, had always been a civilisation that opts for self-sufficiency over depending on any outside countries/import/resources. As part of the Chinese psyche, Chinese people naturally have the tendency to be protectionist, valuing the security of resources and stability over trust and coope…(more)

      This is very similar to the link I thought I had posted.

    20. David Foster Says:

      John Henry…but a decision by foreign companies to put a plant in the US will in fact be driven in part by tariff-avoidance (as well as by transportation costs and inventory management considerations), just as a plant-location decision by a US company would be. The tariff question isn’t about foreign-owned plant in the US versus American owned plant in the US; it is about somebody-owned plant in the US versus somebody-owned plant in Poland or China.

      The question of whether a US-owned plant the US is more beneficial than a foreign-owned plant is an interesting one; answering it would require an analysis of the comparative corporate tax policies of the two countries as well as of the ownership structure. There is also a question of intellectual property protection.

    21. Gavin Longmuir Says:

      David F: Thanks for the link to that Buffet article “America’s Growing Trade Deficit Is Selling The Nation Out From Under Us.”

      The astonishing thing is that Buffet was warning about this in 2003 — 16 years ago — and the unsustainable trade imbalance has only become worse. Then again, Ross Perot campaigned on the need to correct the budget deficit in 1992 — 27 years ago — and the unsustainable budget deficit has only become worse. There is indeed “a lot of ruin in a nation”. And we have had a lot of advance notice that ruin is in our future.

    22. David Foster Says:

      It is not clear that Buffett is still 100% holding to those views…he seems pretty aligned with the Democrats in general.

    23. MCS Says:

      Rather German cars built in SC than Mexico. The Germans are pricing themselves out of what markets they have left with their energy costs.

      Outside of the U.S., there are very few places that can put millions of tons of soybeans on ships. Brazil is one, but their transport from farm to port is almost totally by truck, over roads that are very vulnerable to weather, to a single port. Not that we won’t see problems if there is flooding along the inland river system.

      I think the Chinese economy is very brittle. The businesses that can turn on a yuan to build an extra 10 million IPhones will shut down overnight if the order collapses. The Chinese agricultural system is very inefficient from a manpower standpoint. I’ve plowed a 120 acre field in a long day with medium sized equipment that I couldn’t even turn around in a Chinese field. How long are the rural Chinese going to accept the lifestyle that can be supported by a couple of acres of land? They are ruthlessly suppressing any organizations out side the control of the government. Most recently Christian Churches, previously Faulun Gong. They think they can use computers and surveillance to keep a lid on, while mostly kids find a way around every new ting almost as soon as they can roll it out.

    24. Mike K Says:

      he seems pretty aligned with the Democrats in general.

      Blocking the Keystone XL pipeline did that. Now that the pipeline is a done deal, he might go back to honest economics,

      The Japanese car plants in the US were a response to Reagan tariffs.

      Remember ?

    25. Trent Telenko Says:

      John Henry,

      I no longer believe in “Free Trade.”

      The “rational economic man” of “Free Trade” is like the “socialist man” of Marxism.

      Both are ideological constructs.

      And neither of these “ideological men” have any bearing on how real people, and especially their leaders, live their lives.

    26. Trent Telenko Says:

      My lying eyes look at the effects of Pres. Trump’s tariff’s on Chinese metals and sees increased American steel jobs in a 3.2% growth economy.

      “Free” Trade is for suckers.

    27. Mike K Says:

      An interesting sidelight on the trade talks and tariffs.

      I wonder how much Biden’s comments that China was not a threat, and some polls showing he could win, played a role in persuading China to back off. Biden’s comments were very destructive, regardless.

      He (through his son) is bought and paid for by China. If he is the nominee, Trump could win on that issue.

      I am surprised the connection between Biden’s comments, the trade talk derailment, and now awareness of the China bribes hasn’t been included in stories like th[e WSJ story linked above].

      And a link to this column about Biden.

      Why is Joe Biden so warm toward China?

      Last week, Biden raised eyebrows when he shrugged off concerns over the China threat. “Come on, man,” Biden said. “I mean, you know, they’re not bad folks, folks. But guess what, they’re not competition for us.”

      Perhaps Biden’s insouciant attitude toward the Chinese government has to do with the fact that his family does not consider them competitors but business partners.

      In 2013, then-Vice President Joe Biden and his son Hunter Biden flew aboard Air Force Two to China. Less than two weeks later, Hunter Biden’s firm inked a $1 billion private equity deal with a subsidiary of the Chinese government’s Bank of China. The deal was later expanded to $1.5 billion. In short, the Chinese government funded a business that it co-owned along with the son of a sitting vice president.

      If Biden’s polls look good and China considers that it owns him, like it owned Clinton, why negotiate ?

    28. John Henry Says:

      Blocking the Keystone XL pipeline did that. Now that the pipeline is a done deal, he might go back to honest economics,

      Don’t forget that Buffett/BH is a major shareholder of Burlington Northern Railway. A significant portion of their business is hauling oil in tank cars. Every barrel of oil that goes via (much more efficient) pipeline is one less barrel that pays for a ride on the railroad.

      The Japanese car plants in the US were a response to Reagan tariffs.

      Partly, Michael, only partly. The real problem was that the Japanese car companies were sitting on mountains of US dollars. Dollars ONLY have value because they can ultimately be spent in the US. They needed to spend/invest/loan that money back into the US. That is true whether tariffs are zero, 100% or something else.

      What the tariffs do is influence how they spend/invest/loan those dollars. Had their been no tariffs, they might have bought real estate like Rockefeller Center, Pebble Beach, Shopping malls, farmland etc. Or invested in US media companies or whatever.

      Because they are car companies and wanted to sell cars in the US, they spent their dollars building manufacturing facilities.

      Two examples of distortions caused by tariffs:

      In the 80’s the tariffs on finished vehicles was significantly less than components imported for final assembly. Toyota, probably, built an “assembly plant” in Bremerton(?) WA. They would bring in pickups, fully assembled, except that the bed was not bolted to the chassis. It was just strapped on. The “assembly plant” would take an envelope of bolts out of the glove compartment, bolt bed to chassis, connect the plug for taillights and Voila! An “assembled” pickup truck.

      Again in the 80s and due to local taxes rather than tariffs: New cars without airconditioning paid significantly less excise tax than cars with. Cars were shipped in without and paid the lower rate. The distributor had a prep center where they would take a box containing an air conditioner kit, supplied by the factory, out of the trunk and, in about 2 hours, install it as an “aftermarket accessory”

      I suppose we have to have taxes of various kinds but lord do they create distortions.

      John Henry

    29. David Foster Says:

      Even excluding any personal financial motivations on the part of Biden, it is clear that the Democrats are laser-focused on threats from Russia while largely ignoring those from China.

    30. Gavin Longmuir Says:

      Trent T: “I no longer believe in “Free Trade.”

      I believe that ‘Honesty is the best policy’… but I still lock my doors, because not everyone else shares that belief.

      Free Trade is an aspirational goal. It can make sense under certain fairly stringent conditions — it is bi-lateral; the two traders are near-peers; regulatory burdens are similar; no non-tariff barriers; overall trade is balanced. Under that kind of set of circumstances, the theoretical benefits of Comparative Advantage may be realized.

      For some reason, even intelligent people can become entranced with grossly over-simplified equations and accord “Free Trade” the same kind of unwarranted neo-religious belief as “Climate Change”. Trade between the a relatively open economy like the US and a mercantilist economy like China is a suicide pact for the US. The late unlamented British Empire pursued Unilateral Free Trade in the later 19th Century. That foolish trade policy is not the only reason the British Empire is no more, but it certainly did not help.

    31. Anonymous Says:

      Mitsubishi lost $2 billion on their purchase and subsequent sale of Rockefeller center in the 90s.

      The Japanese lost something like $350mm on their purchase and sale of Pebble Beach golf course.

      Since I had mentioned these 2 properties above and some may not have known what I was talking about.

      John Henry

    32. Anonymous Says:

      Trent Telenko Says:
      May 13th, 2019 at 7:00 am

      My lying eyes look at the effects of Pres. Trump’s tariff’s on Chinese metals and sees increased American steel jobs in a 3.2% growth economy.

      I am as glad as anyone to have those jobs back in the US.

      The really major benefit, IMHO, is that every dollar not spent on Chinese steel is one dollar less that the Chinese can use to finance the swamp.

      I like the idea of tariffs to starve the beast.

      I even like the idea of a uniform tariff on everything coming into the US regardless of source. Essentially a sales tax. This is how the US govt was mainly financed prior to the 17th Amendment.

      Maybe we do need to subsidize the US steel industry via tariffs. I think we could have a legitimate debate about that.

      John Henry

    33. Anonymous Says:

      To clarify, the uniform tariff I mentioned would replace, partially or fully, corporate and individual income taxes. Not add to them. Ideally. Good luck making that happen.

      John Henry

    34. Trent Telenko Says:

      This is what my lying eyes see with Pres. Trump’s tariff’s on China:

      The Blue-Collar Jobs Boom Nobody Seems To Notice (Because It’s Happening Under Trump)
      John Merline economy, Election 2020 May 13, 2019

      https://issuesinsights.com/2019/05/13/blue-collar-jobs-trump-economy/

      …Under Trump, jobs in goods-producing industries — manufacturing, construction, mining — have been increasing at a much faster clip than when Joe Biden was vice president. These are the jobs Democrats are constantly promising that their policies will create and protect.

      The data show that the economy created 1.2 million goods-producing jobs since Trump took office. That’s more than twice as many as were created in Obama’s last 27 months in office (455,000).

      Look at manufacturing. In Obama’s last 27 months, the economy created 109,000 manufacturing jobs. It’s created 470,000 so far under Trump. Jobs in the durable goods manufacturing industry declined during this time under Obama. As did mining and logging jobs. They made solid gains under Trump.

      Blue-collar workers are seeing stronger wage gains as well, with weekly wages for goods-producing jobs up $70 under Trump (a 7% increase), compared with $39 under Obama (a 4% bump).

      It’s white-collar service jobs that have been climbing more slowly under Trump. They’re up 4 million, compared with 5 million under Obama. Retail trade jobs actually declined in Trump’s first 27 months, compared with a 521,000 gain in Obama’s last 27 months. Government jobs have also been growing more slowly under Trump.

      But even here, the more working-class transportation and warehousing industries saw faster job growth under Trump than Obama — 445,000 to 397,000.

      More, please!

    35. David Foster Says:

      “It’s white-collar service jobs that have been climbing more slowly under Trump.”

      Many of these jobs are subject to what has been called Telemigration…offshoring some of the work to low-wage countries with tight coupling via the Internet or other communications network. (The term is from Richard Baldwin)

      Examples include medical-image review, legal document review, financial analysis, engineering, and programming.

      And there are no tariffs on services imports.

    36. Gavin Longmuir Says:

      David F: “Many of these jobs are subject to what has been called Telemigration …”

      Cue a story from a while ago. I had an issue with my credit card company, and called the 800 number. A pleasant efficient lady took care of the problem — perfect English, with a pleasing Indian accent. When business was done, I asked her — out of interest — if she was located in Bangalore, India, because I had heard so much about outsourcing to that area.

      “I wish!”, was the lady’s fervent response. “Bangalore is such a nice area! The schools are great! The climate is great! Nah! I am in Ottawa, Canada — and it is cold & snowing.”

      More seriously, there are issues as well as opportunities with telemigration — language, time-zones, supervision, handling of special requests. In my line of business, an entrepreneur set up an office in California which was the front end for an engineering team based back in China. They could be highly competitive on price, but other issues around communication limited the business.

      It is possible that automation is going to kill more white collar jobs than telemigration. Since a disproportionate number of those kinds of jobs are held by women, we can expect the phenomenon to get a lot of political focus.

    37. Mike K Says:

      My wife called the bank the other day and the person answering was in the Philippines.

      With x-rays mostly digital now, many are being read in India. Of course the physicians reading them have no license that we would recognize.

    38. miguel cervantes Says:

      this piece may illuminate some things

      https://www.powerlineblog.com/archives/2019/05/bidens-china-syndrome.php

    39. Anonymous Says:

      It is possible that automation is going to kill more white collar jobs than telemigration.

      I suppose it is possible but we’ve been hearing for 240 years* that it is going to happen and it hasn’t yet.

      Automation creates jobs. It doesn’t kill them. Automation makes life better for everyone.

      John Henry

      *240 years since James Watt and Matthew Boulton have us power at demand and made automation possible.

    40. Gavin Longmuir Says:

      John Henry: “Automation creates jobs. It doesn’t kill them. Automation makes life better for everyone.”

      That is a little bit of a sweeping statement. Automation (more generally, technology) destroys some jobs while creating others. A lot of women decades ago had jobs as telephone exchange operators — today a different group of people have jobs building computerized telephone exchange equipment. And let’s stop to shed a tear for the demise of the typing pool as the new technology of computer terminals & PCs replaced typists.

      So it would not be a departure from history if a whole lot of white-collar jobs got eliminated by automation & computerization. It is also probably correct to say that different jobs will be created as a consequence of the resulting greater wealth in a more automated society.

      However, if we look at what has happened in the real world over the last 50 years or so, a lot of the new jobs have been created in governmental bureaucracies. While some of those jobs have contributed to increasing wealth and well-being, many of them have been pure overhead, and an unfortunate number of the regulatory jobs have become sand in the gears of society. With the expansion of government probably approaching its practical limits, one wonders what will be the next big source of new jobs.

      Perhaps we can agree on the statement — Automation will change the future employment market.

    41. David Foster Says:

      On the question of ‘what will be the next big source of new jobs’, we have a discussion of this…a contest, even…a while back:

      https://chicagoboyz.net/archives/53587.html

    42. Texan99 Says:

      ‘While traveling by car during one of his many overseas travels, Professor Milton Friedman spotted scores of road builders moving earth with shovels instead of modern machinery. When he asked why powerful equipment wasn’t used instead of so many laborers, his host told him it was to keep employment high in the construction industry. If they used tractors or modern road building equipment, fewer people would have jobs, was his host’s logic.

      ‘“Then instead of shovels, why don’t you give them spoons and create even more jobs?” Friedman inquired.’

    43. Trent Telenko Says:

      It is a measure of how much elite culture has changed when you see an article like this:

      China Loses More From This Trade War
      It is vulnerable because it is a much poorer country with more fragile political institutions.

      By Tyler Cowen
      May 13, 2019, 5:30 AM CDT
      https://www.bloomberg.com/opinion/articles/2019-05-13/china-loses-more-from-this-trade-war?fbclid=IwAR1yNkljwcKI6fyQyKu2UtGgBAW19OFaw1D0SmWjkMCxwf-L1FMO82Jijyg

      “With the U.S.-China trade talks now at a halt, odds are that the recent U.S. tariffs on China will continue — and perhaps even rise and multiply. So it’s worth considering what effects those tariffs will have. One prominent argument, which can also serve as a criticism of President Donald Trump, is that the U.S. consumer is the loser. Yet in reality, China is probably in the more vulnerable position.

      To be clear, there are well-done studies showing that the recent tariffs have translated into higher prices for U.S. consumers. I am not contesting that research. The question is whether those studies give sufficient weight to all relevant variables for the longer run.

      To see why the full picture is more complicated, let’s say the U.S. slaps tariffs on the industrial inputs (whether materials or labor) it is buying from China. It is easy to see the immediate chain of higher costs for the U.S. businesses translating into higher prices for U.S. consumers, and that is what the afore-mentioned studies are picking up. But keep in mind China won’t be supplying those inputs forever, especially if the tariffs remain. Within a few years, a country such as Vietnam will provide the same products, perhaps at cheaper prices, because Vietnam has lower wages. So the costs to U.S. consumers are temporary, but the lost business in China will be permanent. Furthermore, the medium-term adjustment will have the effect of making China’s main competitors better exporters.

      Obviously, no final long-run estimates are possible right now. But it is quite plausible that China will bear the larger costs here, not the U.S…..”

      See the rest at the link.

    44. Brian Says:

      Cowen’s not at all representative of “elite culture”. He’s libertarian and contrarian. But he does seem to be an empiricist, rather than dogmatic about what actually happens in the real world. If a policy he prefers has negative implications or results, he’s unusually open about it, compared to most contemporary commentators, and thinks about what that means, rather then pretending it doesn’t exist.

    45. Trent Telenko Says:

      Brian,

      See this from the NRO’s White House reporter —

      Smooth Sailing Ahead for Trump
      By CONRAD BLACK
      May 14, 2019 5:43 PM

      And in the trade dispute with China, where even the Democratic Senate leader Chuck Schumer sides with the president, the U.S. cannot lose. China’s tremendous economic progress is based on debt-financed infrastructure, dumping cheap goods abroad, especially in the United States, and requiring industrial-intelligence disclosure from sophisticated foreign companies that seek access to Chinese markets. Everyone agrees that China cheats and ignores World Trade Organization rulings, and practically every trading nation in the world applauds the U.S. president’s stance in this dispute. Eighty percent of the U.S. GDP is domestic commerce, and with a year to reorient itself, it could practically end all imports. China is a debt-ridden house of cards built on what is still a 40 percent command economy, rotten with official corruption in a country with few natural resources and 300 million people who still live as their ancestors did a thousand years ago.

    46. Trent Telenko Says:

      Brian,

      This article marks the most significant shift.

      The US National Security establishment has decided China is a peer competitor that will give them decades of large defense budgets.

      And the China lobby has now, suddenly, decided to showcase that the Chinese don’t have such a big and developed economy after all —

      China’s Economy: Not So Big After All
      New research suggests that China’s economy is only half the size of America’s—and growing much more slowly than officially reported.
      March 12, 2019
      by Salvatore Babones
      https://nationalinterest.org/feature/chinas-economy-not-so-big-after-all-46887

      China’s economy isn’t what it used to be (at least as recently as last week). Four intrepid economists—Wei Chen, Xilu Chen and Michael Song of the Chinese University of Hong Kong, along with Chang-Tai Hsieh of the University of Chicago—have taken a fine-toothed comb to Chinese economic data to try to tease out China’s true rate of economic growth since 2008. Not surprisingly, they found that China has been over-reporting its growth rate by an average of 1.7 percentage points every year.

      Shave off a little growth every year for the last dozen years ago, and the cumulative effect is that China is now overstating its true GDP by nearly 20 percent.

      The four economists’ “forensic examination” of China’s GDP figures relied on hard-to-fake data like tax receipts, nighttime light intensity observed from satellites, electricity generation, railway cargo and merchandise exports to estimate China’s true growth rate since the 2008 Global Financial Crisis. Their estimates are both much more volatile and nearly always lower than the figures reported by China’s National Bureau of Statistics.

      China’s 2018 GDP on China’s official statistical website shows that ¥93.15 trillion translates to around $13.4 trillion in U.S. dollars. That compares to $20.5 trillion for the United States, valuing China’s economy at about 65 percent of the size of America’s. Of course, China has more than four times the population of the United States, so in per capita terms China is still way behind at $9,800 compared to nearly $63,000 for the United States.

      No one except the Western news media and the Communist Party of China ever believed those figures, but now we know they are fake. The four economists’ new figures, published Thursday in one of the Brookings Institution’s working papers, suggest that both GDP and GDP growth in China are far below what the headlines say. Assuming that China was accurately reporting its GDP figures back in 2008, the new estimate for 2018 would be $11.1 trillion, or only about 54 percent of the size of the American economy….

      See the rest at the link.

    47. Gavin Longmuir Says:

      “Eighty percent of the U.S. GDP is domestic commerce, and with a year to reorient itself, it could practically end all imports.

      I wish that were true — but it is far too hopeful. It took Germany & Japan decades to rebuild after WWII. It has taken China decades to build its industry. Even though the US has not lost a physical war, we have been on the losing end of a long trade war which has wiped out something like 50,000 factories. It will take the US many years to replace that infrastructure and the human skills which drove it — and that is assuming that we can cut back on the excessive regulations which make it difficult to build anything in the US. Let’s get started!

      And really — so what if China’s GDP figures are over-inflated? US real unemployment figures are understated. All government figures should be treated with caution. But the fact is that China indisputably has much modern infrastructure — excellent freeways & toll roads; great airports; thousands of miles of heavily used 150 mph high speed train tracks; modern manufacturing plants. While China has problems, it has nothing equivalent to the degraded state of today’s San Francisco or Seattle, and no equivalent to the US underclass. China is a worthy competitor, and should not be dismissed lightly. Rather, we should rise to the challenge of levelling the trading playing field, and meeting the Chinese industrial challenge head-on.

    48. Mike K Says:

      Both comments are true. I have wondered about China’s “Ghost Cities” for some time. I have not been there. Just too long a flight. My daughter has been there several times and has friends who live in Shanghai. They went out to breakfast one morning and her friends told her to avoid the fluffy looking muffins as they put detergent in them to make them fluffy and appealing. The recent Heparin scandals are related.

      The raw material for the recalled heparin batches was processed in China from pig’s intestines by the American pharmaceutical firm Scientific Protein Laboratories.[3][4][5] The U.S. Food and Drug Administration was quoted as stating that at least 81 deaths were believed to be linked to a raw heparin ingredient imported from the People’s Republic of China, and that they had also received 785 reports of serious injuries associated with the drug’s use.[6] According to The New York Times, “problems with heparin reported to the agency include difficulty breathing, nausea, vomiting, excessive sweating and rapidly falling blood pressure that in some cases led to life-threatening shock.”[4]

      Upon investigation of these adverse events by the FDA, academic institutions, and the involved pharmaceutical companies, the contaminant was identified as an “over-sulfated” derivative of chondroitin sulfate, a closely related substance obtained from mammal or fish cartilage and often used as a treatment for arthritis.[3][7] Since over-sulfated chondroitin is not a naturally occurring molecule, costs a fraction of true heparin starting material, and mimics the in-vitro properties of heparin, the counterfeit was almost certainly intentional as opposed to an accidental lapse in manufacturing.

    49. Gavin Longmuir Says:

      Mike K: “I have wondered about China’s “Ghost Cities” for some time.”

      My guess is that many of the “Ghost Cities” are similar to the “New Towns” that the Brits built after WWII. In the UK case, they needed to move people out of densely populated bombed-out cities so they could rebuild them. Reasonably enough, they started by building infrastructure, houses, factory sites around villages outside the cities — because they needed places for people to live before they could move them. At some point, those British “New Towns” must have looked like “Ghost Cities”, with empty roads and empty houses. Now many New Towns are thriving, and in some cases overshadowing the cities which spawned them. East Kilbride outside Glasgow and Livingston outside Edinburgh are two well-known examples of successful New Towns built post-WWII in Scotland.

      In china’s case, they are moving people from the countryside to cities. It is no surprise that they need to build the city first. Of course, there is photographic evidence of failed real estate developments in China which are empty and deteriorating. That is probably a different phenomenon.

    50. Mike K Says:

      There is also the issue of central planning, which is still an issue with China.

      Will the population grow and will the economy support moving those farm families to cities ?

    51. David Foster Says:

      “American Life is Improving for the Lowest Paid”

      …says The Economist

      https://www.economist.com/united-states/2019/05/18/american-life-is-improving-for-the-lowest-paid?cid1=cust/ednew/n/bl/n/2019/05/16n/owned/n/n/nwl/n/n/NA/240955/n

    52. Mike K Says:

      More evidence of the Deep State and its ties to China.

      Former State Department senior official tells China to wait out Trump.

      A former official in the Trump administration has said that China can weather the storm brought by the trade war with the United States but might have to “keep steady, keep their heads down and wait” for change in the White House.
      Susan Thornton, former acting assistant secretary of state to US President Donald Trump, told a gathering in Shanghai on Wednesday that she hoped a trade deal between the US and China could be concluded by next month.
      But the reality was that it would “take a while” for China and the US to talk about cooperation again, Thornton, who in 20 years rose to become the US State Department’s chief negotiator for East Asia and Pacific affairs, told the South China Morning Post.
      “I want to be optimistic,” said Thornton, whose 27-year career in Washington ended in July. “I tell all our foreign counterparts they should keep steady, keep their heads down and wait. [They should] try to not let anything change dramatically.”

      Treason ? FARA violation ?
      A former official in the Trump administration has said that China can weather the storm brought by the trade war with the United States but might have to “keep steady, keep their heads down and wait” for change in the White House.

      Susan Thornton, former acting assistant secretary of state to US President Donald Trump, told a gathering in Shanghai on Wednesday that she hoped a trade deal between the US and China could be concluded by next month.

      “If this sceptical attitude towards talking diplomacy continues in this administration, you might have to wait till another administration,”Thornton said at an event held by National Committee of US-China relations and Shanghai’s American Chamber.

      China bought these people like Saudis used to buy retired State employees.

    53. MSimon Says:

      Americans Are Not And Will Not Be Paying the Chinese Tariffs

      http://classicalvalues.com/2019/05/americans-are-not-and-will-not-be-paying-the-chinese-tariffs/

      Watch the video there, it is quite good.

    54. David Foster Says:

      MSimon…could you briefly summarize his argument for those who don’t want to spend the time to watch the video?

    55. miguel cervantes Says:

      hey simon how have you been, the problem is there are some products that are unelastic, and hence you can’t find a suitable price substitute,

    56. Gavin Longmuir Says:

      David F — I don’t find videos an efficient way of communicating and have not watched that one, but some people much prefer to listen than to read.

      The written pieces I have seen on the same topic say that a tariff is merely a tax — the US government takes money from those Americans who buy tariffed Chinese imports (assuming China raises the price by the amount of the tariff), and gives that money back to other Americans in a multitude of ways, everything from NASA contracts to welfare payments. Net effect of a tariff on Americans as a whole — Zero.

      The situation is further complicated by the reality that China is reducing some of its taxation on some exports so that exporters can keep the price to Americans constant, despite the US tariff. In that case, the net effect is that the US government is effectively taxing the Chinese government — to the benefit of Americans as a whole.

      To the extent that tariffs on Chinese imports eventually lead to onshoring of some of those products, then jobs are created within the US and the multiplier effect comes into play, again benefitting Americans as a whole.

      The Free Trade Extremists of course counter that some Americans will be hurt by having to pay higher prices for tariffed Chinese imports. Those same Extremists did not seem to worry when other Americans were hurt by losing their jobs because of Chinese imports.

      The overall situation is that the costs & benefits of international trade are a lot more complex than the over-simplified Ricardoan Comparative Advantage analysis — especially when one side foolishly pursues a form of unilateral free trade and the other side pursues an aggressive policy of beggar-the-competitor mercantilism, with all its strategic overtones.

    57. David Foster Says:

      Gavin…what really happens will depend on the particular product and on the vendor/customer situation in that market, but in general:

      1–if exporters maintain their current price levels, then end customers and channel participants will search for alternative sources. Assertions I’ve seen about how much more *sneakers* are going to cost ignore the fact that there a lot more places that sneakers are made than in China, and still more in which they *can* be made with a little leadtime.

      So…

      2–Chinese exporters will need to either reduce their prices or lose market share, unless they are sole-source suppliers of a unique product.

      3–In many cases, companies will find that it is now economically reasonable to produce the product in the US. The benefits of tariff avoidance are added to the very significant benefits of shortening & simplifying the logistics chain.

      Both Williams-Sonoma and Stanley Black & Decker have recently made announcements about their increased focus on US manufacturing.

      4–Increased automation to reduce labor cost differential of US manufacturing; see my post about the sewing robots.

    58. Gavin Longmuir Says:

      David — As you say, there are a lot of different aspects which come into play for different products. For example, iPhones come from China. But how many people really need a new iPhone anyway? For most of us, that is an easily-postponable purchase. And if Apple wanted to maintain market share, it could easily absorb any tariff by reducing its anomalously high markup on iPhones. It becomes very difficult to predict what the impacts of a tariff will be on a specific item, especially over the longer term.

      The new idea for me in the discussions about tariffs is the concept of a tariff as a transfer mechanism. Since the US government is going to spend every penny it gets (and then many, many more), whatever revenues it gets from imposing a tariff is essentially taking from Peter to give to Paul.

      Of course, the absence of a tariff is also a transfer mechanism, albeit more complex and with an international component: the lack of a tariff takes from Peter (whose job is lost to imports), gives some of what Peter lost to Paul (in the form of lower priced imports) and the rest to Ms. Chin (who gets a job in China making what Peter used to make). Nothing in trade is simple!

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