We know that no matter what happened in the trade talks in Asia Trump would have strutted around declaring it the greatest negotiation in history, saying that all the foreign leaders love him and he’s brought home gazillions for the American people. With Al the triumphant ceremonies we’ve seen over this interminable 10 months of his second administration, we can count on it being hype and should discount anything he says.
In reality, the trade talks with Xi Jinping were basically a short term truce at best. The NY Times:
When Xi Jinping walked out of his meeting with President Trump on Thursday, he projected the confidence of a powerful leader who could make Washington blink.
The outcome of the talks suggested that he succeeded.
By flexing China’s near monopoly on rare earths and its purchasing power over U.S. soybeans, Mr. Xi won key concessions from Washington — a reduction in tariffs, a suspension of port fees on Chinese ships and the delay of U.S. export controls that would have barred more Chinese firms from accessing American technology. Both sides also agreed to extend a truce struck earlier this year to limit tariffs.
“What’s clear is they have become increasingly bold in exerting leverage and they are happy to pocket any and all U.S. concessions,” said Julian Gewirtz, who was a senior China policy official at the White House and the State Department in President Joseph R. Biden Jr.’s administration.
Sounding almost like he was delivering a lecture, Mr. Xi said to Mr. Trump that the “recent twists and turns” of the trade war should be instructive to them both, according to a Chinese government summary of Mr. Xi’s remarks at the meeting in Busan, South Korea.
He was saying that he recent twists and turns should have taught the Orange fool a lesson. Unfortunately, he’s wrong about that. Trump can’t learn.
Krugman wrote about the bigger issues yesterday. Turns out the tacos aren’t that great:
He surveys the ways in which this tariff war has hurt the economy starting with higher prices. He explains the difference in that graph above pointing out that one of the reasons tariffs haven’t caused more inflation is only partly because businesses are “eating the tariffs” and is instead likely due to a wide range of legal tariff avoidance schemes by foreign exporters who figure out ways around Trump’s complex and ultimately stupid rules.
Other ways of avoiding tariffs may not be legal or may at any rate frustrate the tariffs’ goals. Goods from countries that are the subject of high tariffs may be laundered, transshipped via countries facing lower tariffs. Exporters may find ways to relabel what they sell, to qualify for lower rates. There’s surely some fraud involved — how could there not be, given the incentives? — but in any case the bottom line is that in practice tariffs haven’t gone up as much as you might have thought. And I don’t see any obvious reason to believe that tariff avoidance will go away. It will probably be a quasi-permanent feature of the system.
If this is the primary reason why the tariffs haven’t resulted in a huge spike in prices it’s good new because it means “the unwillingness of businesses to pass on tariffs has probably been a smaller factor in holding down prices than widely assumed” and we may not be looking at a big rise in inflation in the future.
Then there’s uncertainty and the “frozen job market”
The Trump tariffs were supposed to bring about a revival of U.S. manufacturing. That’s obviously not happening so far: Manufacturing employment is down, partly because some of Trump’s tariffs, notably on steel and aluminum, have substantially raised producers’ costs.
On the other hand, the tariffs haven’t caused large-scale layoffs, although several major employers including Amazon, UPS and Target have announced big layoff plans in the past few days.
The most striking thing about the labor market, however, isn’t large-scale job loss. It is, instead, the way the market has frozen, with very low rates of hiring. I wrote about this last week. The no-hire economy has made life very difficult for young people just entering the work force as well as for those who have, for whatever reason, lost jobs. It also greatly reduces workers’ bargaining power. A new report from the JPMorganChase Institute finds that wage gains have slowed sharply across the board, with young workers seeing the slowest wage growth since 2011. Against the background of accelerating inflation, this is a serious blow to U.S. workers.
And the uncertainty created by temper-tantrum tariff policy is probably the biggest single reason for the frozen job market.
He’s hopeful that the Asia tour has produced some stability. I’ll be surprised.
And then there’s the long lasting damage to the U.S and global world order:
Soon, I expect, Trump will be declaring victory after performing a climb-down on tariffs and touting make-believe investment numbers. He will proclaim that he won the trade war. Well, he didn’t.
The main benefit from these deals (assuming they happen and last for a while), is that the United States will stop hitting itself in the face. U.S. consumers, producers and workers have been the main victims of Trump’s tariffs. We could have achieved victory by not hitting ourselves in the face in the first place.
Furthermore, these deals cannot fix the more profound damage that six months of tariff madness has inflicted: the incalculable damage to U.S. credibility and, with it, to the global world economic order.
First, everything — everything — Trump has done on trade has, in addition to its illegality, been a violation of past U.S. agreements with other countries. So we emerge from the trade war as a nation that can no longer be trusted to honor its promises.
Second, if we look at the confrontation with China in particular, the end result looks like a demonstration of U.S. weakness and Chinese strength. China may offer some cosmetic concessions, promising to buy some soybeans or whatever. But the reality — which is obvious to everyone in the world except, possibly, some U.S. voters — is that Trump threatened extremely high tariffs on China but climbed down when China began curtailing exports of rare earths and other industrial inputs. China had the upper hand, and it played it.
In fact, I’d argue that China is now clearly winning its geopolitical conflict with the United States. America used to be able to count on support from its democratic allies. Now it has alienated them, and established a reputation for arbitrarily reneging on agreements. America used to have unmatched economic leverage. Now the world knows that China has more.
It’s similar to the way he dropped the big bunker buster bombs on Iran’s nuclear sites and proved that our biggest non-nuclear threat wasn’t really all that.
He just keeps showing the world that America is a big, stupid, giant that can’t be trusted.