Behind the Scenes in the Trade War

  Donald Trump

Donald Trump has a love/hate relationship with sanctions and trade wars. He flipflops on Russian sanctions faster than a short order cook making pancakes. He resisted applying Congressionally-approved sanctions against Russia for their illegal annexation of Crimea and military occupation of eastern Ukraine, railed against sanctions against Russian meddling in the 2016 election (a reality which taints his victory) but was quick to OK sanctions against the use of internationally banned nerve agents to take out former Russian espionage agent in England. 

                                                                                            Recep Erdogan and Vladimir Putin

Bowing to evangelical pressure to force the release of an American missionary in Turkey accused of spying and engaging in terrorism, false charges perhaps, Trump was quick to impose economic sanctions on Turkey in response. Turkey’s already over-leveraged economy, with its currency down by almost 40% against the U.S. dollar, tanked a further 12-13% after the U.S. move. Recep Erdogan, Turkey’s strongman president, immediately made strong entreaties to Russia and hinted about reducing or even eliminating Turkey’s role as a NATO member.

Trump probably could have effected the Presbyterian Pastor Andrew Brunson’s release through some standard back-channeling, but the President exploded with his economic attack… bully tactics Trump adores. Erdogan immediately used Trump’s onslaught to rally his nation around him, quickly blaming the United States for all that is wrong with his country’s completely mismanaged economy. That too many American banks had major exposure against Turkey’s credit woes serious dropped the share value of many U.S. financial institutions almost immediately. The U.S. stock market plunged. 

Meanwhile, Trump’s trade war with China has escalated. That China has built so much of its economic progress based on pilfered access and use of patented American technology is a terrible secret. China’s hacking of American governmental and corporate data servers has been monumental, even if most of the hacking scandals have centered around Russia – perhaps because of their dramatic impact on our political system – with a bit of attention placed on North Korean efforts. But in hard dollars, the Chinese efforts have been the most costly to the United States.

Xi Jinping  

As Trump drills down on China, the trade war has devolved into PRC bureaucratic efforts to make the import of U.S. goods and services much more difficult (noting, for example, that agricultural goods delayed eventually rot and become worthless). China just does not import enough U.S. goods for tariff increases to matter than much. But China’s pledge to surpass the United States as the global technology leader by 2025 is not without obvious irony, since so much of China’s technical ability is based on purloined U.S. tech. There can be no doubt that Mr. Trump’s castigation of China’s industrial espionage practices, their requirement of information-sharing when U.S. companies want access to the PRC marketplace, is valid. But it equally clear that in mounting trade wars, especially as they related to higher tariffs and other trade barriers, there are never any winners.

When you combine (a) the hit on U.S. financial institutions because of our making a bad situation in Turkey worse with (b) the escalating trade sanctions with China and much of the rest of the world, we seem to be inching ever-closer to a global recession, one that will slam the United States really hard hard. Both China and the United States are claiming that each can outlast the other. Behind the scenes, Republicans are panicking, knowing that a recession would kill them at the polls, while tough-guy China, particularly President Xi Jinping, is beginning to show some underlying weakness as well.

“If the trade war escalates — and Mr. Trump has shown no sign of backing down — some worry that the public’s faith in the economy could be shaken, exposing the nation to much more serious problems than a drop in exports. New economic data on Tuesday [8/14] showed slower growth in investment and consumer spending, and there are fears that the financial crisis in Turkey could spread.

“China’s leaders have argued that they can outlast Mr. Trump in a trade standoff. Their authoritarian system can stifle dissent and quickly redirect resources, and they expect Washington to be gridlocked and come under pressure from voters feeling the pain of trade disruptions.

“But the Communist Party is vulnerable in its own way. It needs growth to justify its monopoly on power and is obsessed with preventing social instability. Mr. Xi’s strongman grip may be hindering effective policymaking, as officials fail to pass on bad news, defer decisions to him and rigidly carry out his orders, for better or worse.

“Beijing has already had to shift course once, edging away from threats to match American tariffs dollar for dollar. Confronting the possibility that the tariffs may remain for months or years and that Chinese access to the American market could tighten further, Mr. Xi does not appear to have settled on a strategy for limiting the damage or for persuading Mr. Trump to negotiate a deal.

“Some inside the government have argued China should be more aggressive and put Mr. Trump on the defensive, while others have proposed concessions to address American complaints, said Chen Dingding, a professor of international relations at Jinan University in the southern city of Guangzhou… He said the debate was ‘a healthy development’ because it would ‘inform the public and make policymakers better.’… Others said it reflects indecision or political weakness on the part of Mr. Xi, who seemed unassailable in March when the Communist leadership abolished the presidential term limit.” New York Times, August 14^th.

China has faced quality control embarrassments on tainted products and has watched the trade war drop its currency by 9% against the U.S. dollar. But in the United States, as the trade disputes continue with no sign of abatement, business confidence measures are plunging. Whatever minor uptick that might have spurred share prices after the massive GOP-corporate tax give-away are now long gone. Reality at what Donald Trump really means to the U.S. economy is finally taking hold.

I’m Peter Dekom, and I fear that the United States could easily learn a powerful lesson that no one benefits from a trade war… even if other nations suffer as well.