Flying Down to Rio?

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While I am no President Trump fan — indeed, I regard The Boss as a deeply flawed president — intellectual honesty dictates that I should give him credit when credit is due. And I think that a recent meeting he had yielded some results that are worth reflecting upon. I refer to Trump's meeting on March 19 with Brazil's newly elected President Jair Bolsonaro. The two populist presidents appeared to get along well, as is perhaps to be expected from birds of a feather.

What was quite interesting was that The Boss announced he will designate Brazil a "major non-NATO ally" — interesting because the heralding of closer military ties, which is probably insignificant in itself, could lead to increased trade. Brazil is Latin America's geographically largest country, and its most populous (at well over 200 million people). Moreover, despite some poor performance during recent years, it is Latin America's largest economy, and the world's eighth largest, with a GDP of over $3.5 trillion.

Trump and Bolsonaro appeared to get along well, as is perhaps to be expected from birds of a feather.

The Boss even suggested that he would favor giving Brazil full NATO membership — totally bizarre, given his past skeptical remarks about the value of NATO and his seeming indifference to its cohesion and continued existence. In any event, NATO membership seems an unrealistic suggestion.

First, all the other 29 members of the alliance would have to agree, and clearly some of the current members — Germany and Turkey, to name but two — are run by leaders who hold Trump in deep disdain.

Second, Brazil currently spends only about 1.3% of its GDP on defense, and the requirement for a country being in NATO — albeit so far lightly enforced — is to commit to 2% of GDP to defense.

Trump has been good at raising tariffs and slowing free trade. The markets have not liked this.

Third, while Brazil's own erratic President Bolsonaro has expressed admiration for The Boss — no doubt a factor in the sudden warming of relations between the two countries — he has the Brazilian population to contend with. He is the first rightwing president the nation has elected in the 30 years since the military surrendered power. Since the US backed the military regime, many Brazilians are of course wary of American motives.

Still, this meeting and its results are a good first step toward a closer relationship with what is already an important international player with the potential to become a major power. The joke has been that Brazil has been and always will be a potential major power, but never an actual one. But perhaps the nation will finally eschew the sweet promises of socialism, settle into a centrist government with liberal economics, and thereby realize its true potential.

The real opportunity here, I would urge, lies not in the military but in the economic realm. We used to be Brazil's major trading partner. But China took that position a few decades ago, and still holds it. This is unsurprising, because China negotiated a free trade agreement with Brazil — something neither George Bush (who was quite good on free trade) nor Barack Obama (who opposed free trade until toward the end of his second term) even tried to do. This suggests an opening for The Boss, who half the time claims to favor free trade — although in the other half he bashes it, in gales of creative protectionism. He could at least open exploratory talks on the issue. Actually, there is probably a quick way to land a deal: ask for the same deal China got!

Perhaps Trump's ultimate desire to get a second term may lead him to not just talk about free trade, but to do something to actually advance it.

Brazil and America are a good fit for trading partners: we produce a lot of high-tech goods that Brazil needs, such as high-tech tractors and farm machinery. The Boss has been good at raising tariffs and slowing free trade. The markets have not liked this, and if the promised trade agreement with China falls through, the market will likely drop dramatically. And China, in retaliation to his tariffs, has switched buying soybeans and other agricultural goods from us to Brazil. This has made Brazil the world's largest exporter of soybeans, now eclipsing the US. The result — depressed prices for soybeans and other products, resulting in steep declines in many farm incomes — may well cost Trump crucial votes for his reelection. This — if it were combined with a stock market dramatically below what it is now — would likely cost him reelection.

So perhaps Trump's ultimate desire to get a second term may lead him to not just talk about free trade, but to do something to actually advance it. Who knows? Stranger things have happened, and The Boss is after all surpassing strange.




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The Boss Finally Discovers the Real Enemies!

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President Trump — The Boss, the man of steel — has an improbable target for his incandescent ire: the Koch brothers, billionaires famous (or infamous, depending upon your political predilections) for funding free-market-oriented Republicans.

What triggered The Boss was the fact that the Koch brothers have refused to support a Trump puppet Republican — one Kevin Cramer — in his fight to defeat Democrat Heidi Heitkamp for the North Dakota Senate seat. The Kochs use a PAC they help fund — Americans for Prosperity, or AFP — to support free-market Republicans. You know traditional liberal free-market thinking: free movement of goods, capital, and labor. That sort of view is antipathetic not just to high taxes and regulation but to protectionism, nativism, and unbounded government spending as well. It once was the defining ideology of the Republican Party (full disclosure here: I have in the past donated to the AFP). Cramer supports “fair trade” (which typically means “trade under tariffs and non-tariff barriers until we have equal trade balances”), and fully backs The Boss’s plan to provide $12 billion in subsidies to American farmers who are casualties in this administration’s worldwide trade war.

Trump played the nativist card by accusing the Kochs of being against “strong borders,” and bragged that he has never needed their money.

The Kochs have launched radio ads opposing this policy of subsidizing farmers to make up for the business they have lost from the tariff war. This lost business is the unseen economic downside of tariffs that protectionists can never quite grasp: tariffs may save some jobs, but they cost other jobs, elsewhere in the economy. When those jobs are lost, you then have to subsidize the people who were screwed over to save the original jobs — hell, you could have just subsidized the original companies that lost jobs!

Besides refusing to back Cramer, the Kochs have indicated that they are looking at several other close Senate races to see whom to support (if anyone).

The Boss is not amused at all this. In one of his signature blitzkrieg tweet attacks, he railed against the Kochs, calling them “globalists” — which is the current epithet that has replaced the old rightest term “cosmopolitans,” meaning people who have no patriotic loyalty to their own country, but only to the world — or their ethnic group spread out around the world, or their secret clan (the Illuminati!). He also called them a “joke in real Republican circles.” He played the nativist card by accusing them of being against “strong borders,” and bragged that he has never needed their money. The boss also crowed that the Koch brothers’ network is “overrated” and claimed, “I have beaten them at every turn.” Naturally, he suggested that the Kochs oppose tariffs because of selfishness: they don’t want their foreign operations taxed.

Oh, those rootless cosmopolitans! Such traitors, and all for money!

All this is insufferably rich. Trump — who has himself made a fair amount of money in business done abroad — is attacking a group of pro-business, pro-free-market Republicans who believe in free trade and balanced budgets. A group, please note, that has been supporting Republican candidates far longer than The Boss — who, until a few years ago, almost always gave his political donations to Democrats, including to “Crooked” Hillary Clinton. And The Boss had no problem with the Kochs’ spending millions to help get his tax bill passed.

This lost business is the unseen economic downside of tariffs that protectionists can never quite grasp: tariffs may save some jobs, but they cost other jobs, elsewhere in the economy.

The Kochs and their AFP organization should be commended for standing on principle and opposing the trade war, increasing government deficits, and nativism that The Boss represents. They were consistent when they supported his drive to cut regulations and taxes, and they are consistent now in opposing his protectionism, nativism, and indifference to deficit spending.

But The Boss, who cannot bring himself to view Vladimir Putin and Xi Jinping as enemies, now views these decent Americans as precisely that. This is puzzling, until one recalls Proverbs 29:27, which tells us that “an unjust man is an abomination to the righteous, but one whose way is straight is an abomination to the wicked.” This explains what we see here with perfect clarity.




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More NAFTA Nonsense

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President Trump’s irrational and infantile war on America’s NAFTA geopolitical allies and trading partners is heating up. Two recent articles illustrate this slow-motion train wreck.

First is a report on how vulnerable our agricultural sector is to Mexican tariff retaliation. The report is about how frightened American farmers are these days. Besides losing sales to China — what with its recent retaliatory tariffs on our export crops (especially soybeans) — the farmers are facing a major hit from South of the Border.

An economic fool — such as Trump — notices the grossly visible part of the economic picture, but overlooks other vital parts.

Looking at the percentages of crop products shipped abroad, the article notes that Mexico buys 7.0% of our soybean products, 14.4% of our beef exports, 27.2% of our fresh fruit exports, 27.9% of our corn exports, 36.3% of our pork exports; and a whopping 45.6% of our milk powder exports. Mexico has just started its round of retaliatory tariffs, hitting US exported cheese and pork. Iowa farmers, who account for a lot of America’s pork production, are already seeing prices decline as the foreign demand falls. In Missouri, ranchers are beginning to cut back the size of these herds, in anticipation of price drops.

Last year, America exported $138 billion in agricultural products abroad, and we had a $21 billion trade surplus. All of this brings up Frédéric Bastiat’s point about the seen and the unseen. An economic fool — such as Trump — notices the grossly visible part of the economic picture, but overlooks other vital parts. He sees the number of steelworker jobs decline, so he enacts tariffs that destroy jobs in other parts of the economy, of which he is stupidly oblivious — currently, in such companies as Archer Daniels Midland, Cargill, Pilgrims’ Pride, Sanderson Farms, and Tyson Foods. He also doesn’t see job losses in the American manufacturing companies that use steel, such as our automakers and industrial pipe makers.

Trump is not uniquely ignorant of economics. After all, Obama waged trade wars early on (and stopped when he saw the results). Even George Bush — generally quite solid on free trade — stupidly put a tariff on steel imports. But Trump is more of a protectionist than Obama and Bush combined — by far. And as another article notes, he has a narcissistic hair-trigger temper that leads him to freely insult allies, often by means of infantile tweets.

Trump’s asinine behavior has done something Trudeau’s incompetence has hitherto failed to do: unite all the Canadian people behind the man.

The article reports that after Canada’s PM Trudeau’s comments at the end of the recent G-7 meeting that Canada would not be pushed around by the US, Trump tweeted that Trudeau is “very dishonest and weak,” and was lying. Now, let’s stipulate that Trudeau is simply a putz. But the point is, he is a putz who is the freely elected head of the government of one of our closest allies, one whose territory forms a security shield for us, is our biggest trading partner, and has fought alongside us in all our modern wars. In short, he may be a putz, but he is our putz!

Trump’s asinine behavior has done something Trudeau’s incompetence has hitherto failed to do: unite all political parties and the Canadian people behind the man. Yes, it turns out that even the legendarily polite Canadians have had just about enough of Trump’s arrogance. And they have come to despise not only Trump but also such truculent advisors as Larry Kudlow (who whined that Trudeau “stabbed us in the back”) and Peter Navarro (who said “there’s a special place in hell” for the Putz Minister).

Actually, if Navarro had any intellectual honesty — a trait he conspicuously lacks — he would have said that there is a special place in hell for the unprincipled Kudlow. Kudlow, to his credit, spent many years advocating free markets, the benefits of widespread immigration, and (especially) the need for free trade. But the chance of working with the populist potentate Trump turned him into Trump’s trick — Stormy Kudlow, so to say — and now he publicly bashes free trade and immigration. A preacher I once heard told his parish that the Devil needs no new temptations to corrupt men; money, sex, and power still work demonically well. Like the so-styled Reverend Billy Graham, who was seduced by the power of the corrupt Nixon, Kudlow the self-styled reborn Christian has fallen for the power of the corrupt Trump. The world hasn’t seen such a tragedy since Dr. Faustus.

The most recent Pew survey shows that Canadian sentiment toward the U.S. has hit a 30-year low — only around two in five Canadians still respect us. Precisely who has stabbed whom in the back, Dr. Kudlow?




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Profound and Destructive

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President Trump’s destructiveness requires few words here. Consider how world stock and currency markets have been shaken by the resignation on March 6 of Gary Cohn, regarded until then as Trump’s chief economic adviser. Although not a trained economist, Cohn apparently had some sound instincts derived from years of financial experience. His departure apparently and ominously leaves more influence, or echo, to Peter Navarro — look him up with Google.

This latest example of destructiveness follows the one touched off by Trump’s March 2 tweet bewailing America’s loss of “many billions of dollars on trade with virtually every country it does business with” and heralding trade wars as “good, and easy to win.”

Trump views international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

I’ll spend more words on how profound Trump’s ignorance is. He considers a country’s excess of imports over exports a measure of loss. This measure applies even to trade with each foreign country separately. He counts China and Mexico among the worst offenders, deserving punishment. He does not understand the multilateral aspect of beneficial trade.

Nor does he understand how we gain in buying goods cheap from abroad. What difference does it make if steel and aluminum are cheap because of low foreign prices or because they grow cheaply on bushes at home? Money cost is a measure of opportunity cost, which means the loss of other goods when resources go instead to make the particular good in question. Opportunity cost reflects scarcity. Scarcity applies even to prosperous America, where we could enjoy still higher standards of living if food, clothing, shelter, entertainment, and other goods and services came costlessly and miraculously from heaven. Scarcity and how gains from domestic and foreign trade alleviate it are fundamentals of economics. The principle of comparative advantage goes far in explaining how.

The profundity of Trump’s ignorance goes beyond economics, extending even to the behavior of a decent human being.

Without understanding the academic presentation of the “absorption approach to the balance of payments,” everyone should be able to grasp its central idea, which is sheer arithmetic. If we as a country use more output for consumption and real investment than we produce, then the difference must come from somewhere — from abroad in the form of more imports than exports. A big item in this excess absorption, alias national undersaving, is government deficits. Yet Trump and Congress are complacent about increasing the deficit and debt by taxing less and spending more.

All too many politicians say that they are in favor of free trade if it is “fair trade” played on a “level playing field.” These slogans express Trump’s view of international trade as a game, a zero-sum game in which one player’s gain is another’s loss.

Trump does not understand how the price system coordinates economic activity, making most government planning about jobs and industries unnecessary and harmful.

The profundity of Trump’s ignorance goes beyond economics. It extends to diplomacy in domestic and foreign relations and even to the behavior of a decent human being. Yet his destructive economic ignorance remains prominent.




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