I’ve said that George W. Bush had to have been a worse President than Donald Trump because he lied us into war and Trump didn’t.
Well, Trump did. Trump has. Trump has unilaterally declared a trade war, based on nonsense, and a lot of people are going to be hurt by it.
And it’s all based on lies. (Sculpture by Kimber Fiebiger.)
First. A trade deficit isn’t money you have to borrow. It lowers your cost of goods sold. It’s deflationary and allows you to sell finished products for less than before. It makes the whole global economy more productive and efficient. This idea that we “owe” China for its trade surpluses is, simply, a lie.
Second. Trump is going to war on behalf of industries that deserve to fail. Coal hasn’t been a growth driver since the 19th century. Steel hasn’t been vital since World War II. Supporting failing industries is bad industrial policy.
Third. Trump is going after China in precisely the wrong way. If he did want to hurt China economically, he would open the H-1B visa floodgates and encourage every Chinese student coming here to remain. What drives economic growth in the 21st century, as I’ve said many times, is human capital, trained and willing minds. Freedom is our trump card in any conflict with China. Sending them down the demographic cliff while we stay above it, remaining youthful by bringing in the world’s best and brightest, is the only way we’re going to stay in the economic game.
This intellectual mercantilism continued into the 20th century. The great innovations of that time, including the computer, transistor, the integrated circuit and Internet, were developed through the military budget. They were, in effect, state secrets until we decided to commercialize them, and on our terms. We didn’t just run roughshod over other countries in this, but over our own inventors. Hedy Lamarr’s “discovery” of WiFi was buried until decades after her patents expired, for reasons of state. (Immigrants. They get the job done.)
Now, here’s the bigger truth. No one wins a trade war.
Jim Cramer, whom I normally respect, is going on-and-on about how we’re about to “win” this trade war, about how China is about to “capitulate.” That’s insane. It is spin given to him by “billionaires” like Wilbur Ross (who it turns out isn’t really a billionaire) and bankers like Steve Mnuchin (who should have lost everything during the 2008 crisis but who, like every other banker, got bailed out).
Everyone loses in a trade war.
A lot of small Chinese businesses are going to go under because of this, and the Chinese stock averages reflect the fact. But so are a lot of American businesses, and our stock market still doesn’t reflect that fact. Retailers, especially, are going to be hurt. Consumers are going to be hurt by rising prices created by taxes, because that’s what tariffs are, and that’s who pays them – consumers. Our tech industry is going to be slammed because China makes our parts and most of the products – look at your iPhone. We deliberately moved those industries there to avoid paying people a decent wage here or dealing with the waste created in making chips. They have us over a barrel.
Trump’s trade war is persuading China, and the Chinese people, to do precisely the opposite of what Trump wants. China has already been moving production requiring low-skill labor offshore, to countries in Southeast Asia and Africa, and this accelerates the trend. The bargains that we were formerly getting are going to go to Europe, which is going to be able to compete with American products more closely. Countries from Latin America to Africa to Asia are going to be cozying up to China, looking for loans and cheap goods, and they’re going to become China’s allies, not ours.
Your next iPhone is going to cost a lot more. So is your next Amazon Echo device, and the appliances Amazon wants to connect to it. The Internet is going to be increasingly balkanized, making it less usable by the Cloud Czars, and encouraging them to build more data centers overseas.
All this for a few thousand steel jobs and coal jobs that shouldn’t be saved in the first place.
Trump’s trade war is going to do to American workers what Bush’s Iraq war did to thousands of American families. Devastate them.