Category Archives: Trade

LEAKED: Trump’s Next Shoe to Drop on US-China Trade, by Wolf Richter

Intellectual property theft is rampant in China, and the Trump administration may be preparing a series of punitive measures. The effects would dwarf the repercussions of the steel and aluminum tariffs. From Wolf Richter at

This is the big one. It makes steel and aluminum tariffs look like a game.

If this is true – it was leaked by a “source familiar with international trade” to the Nikkei Asian Review and isn’t based on a White House announcement – then it’s going to add a lot of fuel to the already heated trade dispute between the US and China, and may ultimately make the steel and aluminum tariffs look like a game.

To punish China for its intellectual property theft, including IP infringements such as counterfeiting, and to retaliate against Chinese investment rules that require technology transfers to Chinese partners in order to set up shop in China, the Trump administration is considering a proposal by the Office of the US Trade Representative (USTR) that would impose:

  • Tariffs on a large variety of Chinese products, including tech products and consumer goods like clothing.
  • Restrictions on investment by Chinese companies in the US, the first impact of which we have already seen by Trump’s order yesterday blocking all Chinese takeovers of large US tech companies.
  • And limits on visas for certain Chinese nationals.

The USTR also urged US allies, including Japan, to implement similar measures and synchronize their policies, according to the “source familiar with international trade,” cited by the Nikkei Asian Review.

Germany, Japan, and other countries have long fumed over the required technology transfers to Chinese partners. At the same time, Chinese companies, often state-owned, have been on a shopping spree in Germany, going after robotics know-how and other industries, which has caused a lot of soul-searching in the business community in Germany. Japan too “has long opposed China’s intellectual property practices,” as the Nikkei put it. Now the USTR has asked these countries to do something about it.

To continue reading: LEAKED: Trump’s Next Shoe to Drop on US-China Trade


Globalists and Nationalists: Who Owns the Future? by Patrick J. Buchanan

The nation-state refuses to go quietly into that good night. From Patrick J. Buchanan at

Robert Bartley, the late editorial page editor of The Wall Street Journal, was a free trade zealot who for decades championed a five-word amendment to the Constitution: “There shall be open borders.”

Bartley accepted what the erasure of America’s borders and an endless influx or foreign peoples and goods would mean for his country.

Said Bartley, “I think the nation-state is finished.”

His vision and ideology had a long pedigree.

This free trade, open borders cult first flowered in 18th-century Britain. The St. Paul of this post-Christian faith was Richard Cobden, who mesmerized elites with the grandeur of his vision and the power of his rhetoric.

In Free Trade Hall in Manchester, Jan. 15, 1846, the crowd was so immense the seats had to be removed. There, Cobden thundered:

“I look farther; I see in the Free Trade principle that which shall act on the moral world as the principle of gravitation in the universe — drawing men together, thrusting aside the antagonisms of race, and creed, and language, and uniting us in the bonds of eternal peace.”

Britain converted to this utopian faith and threw open her markets to the world. Across the Atlantic, however, another system, that would be known as the “American System,” had been embraced.

The second bill signed by President Washington was the Tariff Act of 1789. Said the Founding Father of his country in his first address to Congress: “A free people … should promote such manufactures as tend to make them independent on others for essential, particularly military supplies.”

In his 1791 “Report on Manufactures,” Alexander Hamilton wrote, “Every nation ought to endeavor to possess within itself all the essentials of national supply. These comprise the means of subsistence, habitat, clothing and defence.”

This was wisdom born of experience.

To continue reading: Globalists & Nationalists: Who Owns the Future?

Tariffs Are Not the Answer, by Ron Paul

Tariffs will not solve the main problems afflicting US business, the ones caused by the US government. From Ron Paul at

President Trump’s planned 25 percent tariff on steel imports and 10 percent tariff on aluminum imports may provide a temporary boost for those industries, but the tariffs will do tremendous long-term damage to the American and global economies. Tariffs raise the price of, and reduce demand for, imported goods. Tariffs ensure the preferences of politicians, instead of the preferences of consumers, to determine how resources are allocated. This reduces economic efficiency and living standards.

Some justify these economic inefficiencies as being worth it to save American jobs. This ignores how tariffs increase costs of production for industries reliant on imported materials to produce their products. These increased costs lead to job losses in those industries. For example, President Trump’s proposed steel tariff could cost nearly 40,000 jobs in the steel-dependent auto manufacturing industry. Tariffs also cause job losses in industries reliant on exports. This is especially true if — as is likely to be the case — other countries respond to President Trump’s actions by increasing tariffs on US products.

Many of President Trump’s critics do not themselves support true free trade, which is the voluntary exchange of goods and services across borders. Instead, they support the managed (by government) trade of NAFTA and the World Trade Organization (WTO). NAFTA and the WTO promote world government and crony capitalism, not free markets. Any libertarian or free-market conservative who thinks the WTO promotes economic liberty should remember that the WTO once ordered Congress to raise taxes!

Foreign manufacturers may make convenient scapegoats for the problems facing US industry. However, the truth is that most of the problems plaguing American businesses stem from the US government. American businesses are burdened by thousands of federal regulations controlling every aspect of their operations. The tax system also burdens businesses. Until last year’s tax reform bill, the US had the highest corporate tax rates in the developed world. The tax reform bill lowered corporate taxes, but the US corporate tax rate is still higher than that of many other developed countries.

The United States not only spends more on military weapons than the combined budgets of the next eight biggest spending countries, but also spends billions subsidizing the defense of developed counties like Germany, Japan, and South Korea. Bringing US troops home from these countries is an excellent place to start reducing spending on militarism.

To continue reading: Tariffs Are Not the Answer

Not Even the Pentagon Thinks Tariffs Are Needed for National Defense, by Ryan McMaken

Here is the other side of the steel tariff argument. From Ryan McMaken at

When politicians run out of good arguments, their last refuge is often the claim that what they want is “necessary for national defense.”

Given that there are no economic arguments in favor of tariffs, it makes sense that the administration has resorted to the political“national defense” argument instead.

So, even if the Trump administration were forced to admit that, yes, tariffs are bad for the incomes and standards of living for most Americans, they could still argue that everyone must make sacrifices for the sake of national security.

But do these arguments hold any water?

In a Defense Department memo, in response to the President’s tariff proposal, the Secretary of Defense states that the tariffs are not necessary:

… the US military requirements for steel and aluminum each only represent about three percent of US production. Therefore, DoD does not believe that the finds in the reports impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements

“The reports” mentioned here are Commerce Department reports pushing for the tariffs.

The Defense Department memo goes on to advocate for a far more limited tariff than what the Trump administration wants, stating “DoD continues to be concerned about the negative impact on our key allies regarding the recommended options within the reports … targeted tariffs are more preferable than a global quota or global tariff.”

The memo then concludes by noting that if the administration must have steel tariffs, it should at least wait on imposing aluminum tariffs.

Given that it is in the best interests of the Pentagon to overstate the security threats to the United States, the Department’s opposition to the scope and severity of the administration’s tariffs highlight just how truly unnecessary the tariffs are.

The DoD worries, as it should, that tariffs harm the American relationship with allies, and thus harm American security efforts.

Even worse, tariffs are harmful to domestic economic strength, which is the real source of both hard and soft American power internationally.

Implementing policies that are likely to diminish American productivity and competitiveness ultimately poses a direct threat to long term security efforts.

To continue reading: Not Even the Pentagon Thinks Tariffs Are Needed for National Defense

Doug Casey on the Coming War With China

Trade barriers often hurt the country that imposes them more than the ostensible target. They can also lead to wars: when goods don’t cross borders, armies do. From Doug Casey at

Justin’s note: Donald Trump may have just started a war.

If you read Tuesday’s Dispatch, you know that I’m talking about a trade war. You see, Trump just slapped a 25% tax on steel imports and a 10% tax on aluminum imports.

He did this because he wants to put American businesses first. But this plan may end up doing more harm than good. And that’s because Trump’s tough stance on trade could spark a global trade war. It could even lead to a shooting war with one of the most powerful countries on the planet.

You might find that hard to believe. But Doug Casey told me why this might happen during a recent phone call…

Justin: Doug, what do you think about Trump’s approach to trade?

Doug: Well, let me start off by saying the government should have zero to do with the economy in general, and trade in particular. No subsidies, no duties, no quotas—nothing of the sort. Most people don’t understand that import duties punish the whole country to “help” some uneconomic industry or group. At the same time, it allows them to persist in the practices that make them uneconomic.

And yes, I understand the chances of the government butting out are about zero. But it’s critical to voice correct principles, even if they’re disregarded.

Of course, Trump is correct in putting America first, as opposed to subsidizing other countries. But import duties don’t put America first. They damage it. The Smoot-Hawley tariffs were what really set off the last depression, because foreigners could no longer sell to us. That destroyed their economies, resulting in business failures and high unemployment.

Duties are always a disaster. When you have a duty on things from a foreign country, you violate all kinds of economic laws. You are, in effect, putting yourself under embargo. That’s number one.

Number two, the revenue on import duties goes to a government. It feeds the beast. This revenue makes the government bigger and stronger. So, it’s bad from that point of view as well. It always impresses me as strange when people talk about “we” in reference to the State, or the government. The State is a discrete entity—like General Motors, or the Catholic Church, or the Boy Scouts. It doesn’t care about you; it cares about itself. But, unlike those other organizations, it uses guns to enforce its will. You want to deny resources to it as a moral principle.

To continue reading: Doug Casey on the Coming War With China

Forget “Free Trade”–It’s All About Capital Flows, by Charles Hugh Smith

The flow of goods in conventional trade analysis has been supplanted by the flow of capital. From Charles Hugh Smith at

In a world dominated by mobile capital, mobile capital is the comparative advantage.
Defenders and critics of “free trade” and globalization tend to present the issue as either/or: it’s inherently good or bad. In the real world, it’s not that simple. The confusion starts with defining free trade (and by extension, globalization).
In the classical definition of free trade espoused by 18th century British economist David Ricardo, trade is generally thought of as goods being shipped from one nation to another to take advantage of what Ricardo termed comparative advantage: nations would benefit by exporting whatever they produced efficiently and importing what they did not produce efficiently. While Ricardo’s concept of free trade is intuitively appealing because it is win-win for importer and exporter, it doesn’t describe the consequences of the mobility of capital. Capital–cash, credit, tools and the intangible capital of expertise–moves freely around the globe seeking the highest possible return, pursuing the prime directive of capital: expand or die.
Capital that fails to expand will stagnate or shrink. If the contraction continues unchecked, the capital eventually vanishes.
The mobility of capital radically alters the simplistic 18th century view of free trade. In today’s world, trade can not be coherently measured as goods moving between nations, because capital from the importing nation owns the productive assets in the exporting nation. If Apple owns a factory (or joint venture) in China and collects virtually all the profits from the iGadgets produced there, this reality cannot be captured by the models of simple trade described by Ricardo.
In today’s globalized version of “free trade,” mobile capital can arbitrage labor, currencies, interest rates, regulatory burdens and political favors by shifting between nations and assets. Trying to account for trade in the 18th century manner of goods shipped between nations is nonsensical when components come from a number of nations and profits flow not to the nation of origin but to the owners of capital.

Trump Plays with Fire on Trade, by Peter Schiff

Trump’s tariffs will end up hurting more Americans than they help. From Peter Schiff at

With his announcement last week of broad tariffs on imported steel and aluminum, President Trump launched what could be the first salvo of an all-out global trade war. Seemingly itching for a fight, he gleefully tweeted that “Trade wars are good, and easy to win.” It seems like Trump thinks the conflict will play out much like Ronald Reagan’s 1983 week-long invasion of Grenada rather than the more telling quagmires that unfolded in Vietnam, Afghanistan and Iraq. He’s wrong.

Apart from overestimating America’s bargaining position, Trump and his supporters grossly misunderstand the nature of international trade and how Americans have benefited from a system that has allowed us to continually consume foreign goods on credit. While this “benefit” has also placed a cost on domestic industries, I don’t believe that Trump has any idea how a trade war can reduce current American living standards.

As justification for his surprise offensive, Trump likes to highlight how America’s gargantuan annual trade deficit (which has grown to more than $600 billion during his presidency) is simply the yardstick by which “stupid” American trade policies are subsidizing foreign economies. In his mind tariffs are just a means to take back what we have foolishly given away. As Trump explained via Twitter “ When we are down $100 billion with a certain country and they get cute, don’t trade anymore – we win big.” But does a country with a trade deficit really subsidize the country with the surplus? Or is it the other way around?

Let’s suppose you keep chickens at home, and your neighbor has a cow. Everyday you trade a half dozen eggs for a quart of milk. This is the nature of trade. You offer something that you have in abundance (that other people don’t) for something that someone else has in abundance (that you don’t). But let’s suppose you eat a few of your chickens and your egg production drops to four per day. You continue to get your quart of milk, but everyday your neighbor adds two eggs to the account that you owe. Theoretically, you will one day owe your neighbor a whole bunch of eggs.  But, in the meantime, does that two-egg deficit represent a benefit to you or your neighbor? Remember your neighbor still has to deliver the same amount of milk for less of a current payoff. He MAY get that deferred compensation down the road, but he’s not getting it now. And with every egg you go into the hole, the greater the chances that your neighbor may ultimately get stiffed.

To continue reading: Trump Plays with Fire on Trade