Consumers and Citizens: Losers!!!

Surprise! Surprise! In a nation where occupational safety and pollution laws, regulations and enforcement are dispensed with as barriers to business, where Congress is actively considering a banking bill dramatically to reduce banks’ required level of underlying equity (read: stability) and pressing forward with another piece of legislation that exempts credit ratings companies and financial institutions from responsibility for data breaches (or even from having to disclose such breaches to those impacted!!!), U.S. citizens are stuck with the consequences. The massive corporate tax cut clearly benefitted the rich corporate world, but as ordinary “middle class beneficiaries” of that temporary individual tax cut are quickly discovering, they didn’t get much at all.

As Donald Trump misapplies a statute – the Trade Extension Act of 1962, intended to protect the United States from trade anomalies that actually threaten our national security – to impose a 10% tariff on imported aluminum and 25% on imported steel, the rest of the world is simply running out of patience with what are clearly Trump’s Art of the Deal bully tactics. That much-discussed possible exemption for Mexico and Canada – if they play ball with us on our NAFTA renegotiation – is nowhere near being real; those negotiations have long-since stalled over seemingly irreconcilable differences… and even if progress can be pushed, we are at best months away from any possible impasse resolution.

Just looking at the “steel” side of the equation, that tiny segment of the economy that might benefit from that tariff, according to Steel.org, “The U.S. steel industry operates more than 95 steelmaking and production facilities, producing 87 million tons in steel shipments in 2015… The steel industry directly employs around 140,000 people in the United States, and it directly or indirectly supports almost one million U.S. jobs.” That’s bragging? In other words, the American steel industry is a really tiny pocket of the U.S. labor market. Contrast these statistics to the number of workers in any U.S. relevant manufacturing segment (like automotive and construction) who are likely to find job cutbacks as consumer demand slackens from higher prices that impact all of us. Even Congressional Republicans are up in arms.

There is a private subtext there, a largely symbolic Congressional race in a highly gerrymandered district (the 18^th) in Western Pennsylvania. The 18^th is a Trump-supporting working class district in the heart of steel country, holding a mid-March special election to replace its Congressional delegate. Democrat Conor Lamb, a charismatic young former federal prosecutor, versus Rick Saccone, a Republican state representative. Under a Pennsylvania Supreme Court decision, the district will be un-gerrymandered for the November mid-terms, so the vote will only have a short term impact. Still, money from both parties is pouring into this campaign.

In a district that handily carried Donald Trump to victory, these candidates are neck-and-neck. Republicans and Democrats alike have cast this election as a litmus test for the sustainability of Trump’s hold on his working class, anti-globalization constituency. And Donald Trump knows that. He plans to come to the 18^th actively to campaign for Saccone in the days before the vote. Were those steel tariffs simply an act of Trump hubris? They certainly played to the locals as much as they were rather consistent with his Art of the Deal tactics. Damn the consequences for most of us!

Virtually every steel or aluminum-producing country on earth – from Canada to China… and the entire European Union – is in process to respond with reciprocal tariffs on U.S. goods and services. Oddly enough, it isn’t even China that is leading the charge; she is totally prepared to let American allies fight the battle. At a time when we need cooperation in our other strategic goals, such as pressuring and containing North Korea, our principal long-term allies in that quest, South Korea and Japan, are livid over those tariffs. It’s absolutely the beginning of a trade war in which the biggest losers will be American consumers and particularly workers in industries with a large export focus. In volume and hard dollars, like every aspect of American agriculture, the industry likely to take the first and biggest hits in this Trump-bully-ploy. Remember that lots of those folks are the mainstay of Trump’s base. See also my March 6^th blog, Populist Economic Tools – Boycotts and Tariffs. But wait, there’s so much more!

As China tries to hold back its obvious glee at these sequentially-failing American policies, literally watching the United States hand over power, influence and economic dominance step by step to China without China’s really having to do much at all, the rest of the world seems committed to learning to live without U.S. economic leadership… or even participation in the most basic form of modern trade agreements: multinational accords. A giant global “workaround.”

Donald Trump’s naïve and ill-crafted bully-negotiating style tends to work well only in situations where the “other side” is either unsophisticated or desperate (like his efforts in Trump University). He got his head handed to him in his dealings with high-profile financial players in Hong Kong in the mid-1990s “when a group of Hong Kong billionaires, including one who has been called the Donald Trump of China, helped rescue Mr. Trump from the verge of bankruptcy by investing in one of his properties in Manhattan.” New York Times (5/30/16). Trump ended up with a small fraction of what he thought he should own, and HK investors made out like bandits at Trump’s expense, when the New York real estate market rebounded in 2005.

This “inartful” experience is just a prime example of the litany of Trump failures when he is pitted against smart players with real bargaining power. But pig-headed Trump tends not to learn from his mistakes, refining his failures as victories – braggadocio lapped up by his fake-news-dependent followers. The hard numbers speak otherwise, as this trade war will soon illustrate… again. The departure of Trump’s key economic advisor and former Goldman Sachs COO, anti-tariff advocate Gary Cohn, simply underscores how Donald Trump believes he is smarter than anyone else anywhere… and really doesn’t need “advisors” at all.

Which actually brings me to Trump’s efforts to extinguish multinational trade accords (Trans-Pacific Partnership, NAFTA, etc.) and force the individual participants into bilateral (one-on-one) trade agreements instead, where under Trumpian arrogance, America’s huge economic power would rapidly bring these individual players to heel. Even countries that need our military umbrella (like Japan and South Korea), well before the new tariffs were even suggested, refused to play in that bi-lateral fool’s game. They simply said, “no.” The U.K., reeling from the potential impact of Brexit, began such talks, but such discussions have not remotely progressed to closure.

Instead, the rest of the world seems to be circling their wagons against the economic hegemony that Donald Trump thinks he can force them to accept. From being the economic leader of the global economy, the United States has become its principal antagonist. China’s “president for life” has to be laughing all the way to the bank. The March 9^th Los Angeles Times explains: “Trade ministers from 11 Pacific Rim countries signed a sweeping free trade agreement Thursday [3/8] to streamline trade and slash tariffs just hours before President Trump announced his plans to impose new tariffs on aluminum and steel to protect U.S. producers.

“Trump withdrew the U.S. from the Trans-Pacific Partnership last year, causing fears that it would not prosper without its most influential country. But the remaining 11 members pressed ahead, saying they were showing resolve against protectionism.

“The ministers dropped key provisions that the Americans had required on protection of intellectual property, among others. The renegotiated pact signed in the Chilean capital of Santiago was renamed the Comprehensive and Progressive Trans-Pacific Partnership.

“The pact covers 500 million people; it includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, which together account for 13% of the global economy. Its success highlights the isolation of the U.S. under Trump’s protectionist rhetoric on trade and his ‘America first’ philosophy.

“‘It leaves the U.S. at a disadvantage from both a trade and a broader strategic perspective,’ said Joshua Meltzer, senior fellow in the global economy and development program at the Brookings Institution. ‘It is now a trade bloc that discriminates against the U.S.’… Meltzer said the United States’ ability to shape the rules of trade in the Asia-Pacific region ‘is very much diminished.’”

What’s worse, a treaty originally conceived by the Obama administration to contain China’s growing economic power is now being offered to include China… and China appears to be “leaning in.” That leaves the United States as the odd man out… and unless it capitulates and accept the terms of a multinational agreement it no longer controls, achieving status simply as a global economic pariah… the economic enemy of those within that multinational trade agreement. We are the country that “gets contained.” Not China.

For American companies not wanting to be impacted by the resulting disadvantages, despite tax incentives to the contrary, there is every reason to contemplate moving significant U.S. operations to nations who are part of that new multinational accord. We call that “job loss and capital flight.” Or: “Dumb and Dumber”? And trust me, if past Trumpian practices endure, the President is more likely to “double down” than admit he has made yet another serious mistake!

I’m Peter Dekom, and I defy anyone to show me an example of a “know-it-all” leader, no longer even listening to his/her own expert advisors, who has successfully led a major company or country to the goals he or she aimed to accomplish.