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Economic coercion for dummies

Published by digby on June 12, 2019

Economic coercion for dummies

by digby

This WaPo op-ed gets to a subject that has me obsessed these days— Trump’s barely sentient economic worldview:

Dear President Trump, 

Hi, we’ve never met, but I have been keeping close tabs on you for quite some time. I like to joke that my field of study, global political economy, is a countercyclical profession: When times are good for me, they are challenging for others. And hey, as predicted, thanks to you business has been booming for me!! 

If I could get serious for a moment here, I write about a lot of things for Spoiler Alerts. I am a generalist, so I know a little bit about a lot of things. Some of these columns are me just speculating on things. Some of them are silly. On occasion, however, I do write about something that I can claim some kind of deep expertise, the kind of knowledge that comes from thinking about a subject for more than 10,000 hours. This is one of those columns.
My deep area of knowledge is about economic coercion. I wrote my PhD dissertation, which became my first book, about economic sanctions. I have written a lot of peer-reviewed articles on the subject. Then I thought I was out, but U.S. policymakers keep pulling me back in. I’ve co-authored think tank reports on this. I keep up with the literature. I am writing a paper on this topic this very week! What I’m saying is, I know some things about economic coercion. 

And I hear you really like the tariffs! At least, that’s what my Post colleague David Nakamura says in his latest story:

A sense of relief among Republicans and business leaders after President Trump postponed his tariff threats against Mexico gave way Monday to growing unease over whether he had internalized the risks of his economic warfare — or was emboldened by the showdown. 

Trump signaled the latter as he called in to CNBC to declare victory in his negotiations with the Mexican government, trumpeting an immigration deal and boasting that his willingness to wield the specter of tariffs had made the difference. 

“As soon as I put tariffs on the table, it was done. It took two days,” Trump told the financial news network. “ . . . If we didn’t have tariffs, we wouldn’t have made a deal with Mexico.”…. 

Confident that he had forced Mexico to take steps on border security that it had resisted for decades, Trump pivoted to his trade war with China and, in the interview, appeared to threaten more tariffs on the world’s second-largest economy if President Xi Jinping refuses to meet with him at the Group of 20 summit in Osaka, Japan, in late June.

I get that you might not be completely serious here. You were calling in to a CNBC show and talking tough. Who hasn’t done that in their adult life? And let’s be honest, you make a lot of threats and often fail to carry them out (still waiting for you to sue the New York Times, big guy). Maybe this is just you venting in response to the widespread perception that your tariff threat did not yield much. I am sure this must be frustrating what with your vice president saying you did such a great job! 

But I will choose to take you seriously this time, and make the following warning: You are drawing the wrong lessons from the past week. 

Think of it this way: The United States holds significant economic leverage over Mexico. Its economy is now hard-wired to cater to the U.S. market and a supply chain dominated by U.S. firms. Disrupting that would be significant. Despite the threat of tariffs, however, it appears that Mexico agreed to little more than moves it had already agreed to in previous rounds of negotiations. It’s telling that you managed to come up with a tariff idea that even your trade representative, Robert Lighthizer, did not want. And Lighthizer loves him some tariffs. 

You keep claiming on Twitter that there are some supersecret deals for Mexico to buy more agricultural goods or agree to more concessions in the future. The thing is, that’s not really what the Mexicans are saying. Because you have leverage, the Mexican negotiators are being polite and offering you the diplomatic courtesies necessary for you to claim a Potemkin victory lap. That’s it 

But — and I cannot stress this enough — China will not make similar concessions. China is a great power. The Chinese state is far stronger than the Mexican state. Most importantly, you have guaranteed that China will anticipate a lot more future conflict with the United States, which means they will not want to make even minor concessions. You have placed far harsher sanctions on far weaker adversaries like Venezuela and Iran and have yet to get any acquiescence from either of those countries. What makes you think China is an easier nut to crack? 

One last point. You are correct to presume that a booming economy is a good time to risk big economic costs to prosecute a trade war. But consider that prolonged sanctions and trade wars inevitably lead to a drying up of foreign and domestic investment. This happens because of increases in perceived risk. And all your sanctions, tariffs and threats of trade wars are doing the same. Neither tax cuts nor interest rate cuts will be able to counteract those moves. 

Full disclosure: I do not want to see you reelected. So I get if you think I am proffering disingenuous advice. But I would rather not see a recession blow an even bigger hole in the nation’s balance sheet than your fiscal policy is already doing. So hopefully you will listen to me. 

If you don’t, you will very likely be out of a job in 19 months and nine days. 

All the best! 

DWD

He will not listen. He doesn’t understand what is being said. He thinks all the countries in the world owe America vast sums of money and the way to get it back is to slap tariffs on them or otherwise economically threaten and coerce them into bending to America’s will.

I’m not kidding. That’s what he thinks.

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