Thoughts on Trade

The Dow Jones has shed nearly 1,000 points over the last couple weeks, ostensibly over fears of an escalation of trade tensions between Trump and our major trading partners, some of whom have begun imposing retaliatory tariffs of their own. (Though who really can say exactly what moves the stock market on any given day or week—talk about fake news).

Trade wars seldom work out very well, but if anyone might be able to win one, it would be someone totally intimidating, inflexible, irrational, and bull-headed. In other words, someone like Trump—and maybe only Trump.

But don’t take my word for it. Check economist Irwin Stelzer, no Trump fan nor a trade protectionist in any way, shape or form, in the latest Weekly Standard, where he makes the case that Trump might indeed win the trade disputes he has incited. It might even be “easy” he says:

Germany’s economy is heavily dependent on its auto industry, which employs 117,000 workers, and exports about 800,000 vehicles per year—323,000 of them to the United States. It is shielded from foreign competition by the E.U.’s 10 percent duty on auto imports. Daimler has already issued a profit warning because of the U.S. threat, and the Ifo Institute, a Munich-based think tank, estimates that U.S. tariffs on automobiles would lower German GDP by €5 billion, or 0.16 percent of GDP. “No other country would suffer higher absolute losses from such a tariff as Germany,” says Gabriel Felbermayr, director of the Ifo Center for International Economics. Merkel just doesn’t have enough chips to get into a serious game of raise and re-raise with America. . .

About Trump’s opening China moves:

Serious poker players regard this opening round as penny-ante stuff. Fifty billion dollars is less than half of one percent of the GDPs of both countries. But the betting and the risks are getting interesting. Trump has put on the table chips representing a 10 percent levy on $200 billion of Chinese goods, doubled to $400 billion if China retaliates. Also coming soon will be bans on exports of U.S. high-tech products to China, unless the regime ends its theft of intellectual property.

Unless the parties agree to call off the game before the next cards are dealt, we will soon find out which player has the most chips. If Trump is a cool enough player to ignore whining by some American firms, he has the chips with which to win. . .

After ticking off several specific factors, (read the article at the link if you want to get into specifics), Stelzer concludes:

In short, America can win this game. Whether the president can draft a peace treaty that accomplishes his primary goal of ending China’s massive theft of U.S. intellectual property and subsidization of the industries it is positioning to dominate the future is another question. . . Looking at his hand, Trump is convinced that, as songwriter Leonard Cohen puts it, he has drawn the card that is so high and wild he will never have to draw another to earn the acclaim he so badly needs. As Ronald Reagan put it when asked his strategy against our major adversary at the time, “We win, they lose.”

Americans would even forgive Trump the inevitable claim that he invented that phrase.

Stelzer is a cold sober economist, and ever the realist. File this one away for further reference, especially when the hysteria ratchets up, as it surely will.

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