A Fake Populist with Zero Understanding of International Trade: More Trump Oversimplifications

When it comes to articulation of thoughts, manifested through words and phrases, President Trump is of course off the charts as usual. During his latest trip to Europe, his statement regarding international trade and tariffs imposition was as follows: “EU is as bad as China.” My, the sun has risen!

For the record, I am neither a Europhile nor a globalist by any stretch of imagination. Globalization in its current format is benefiting a handful of countries – G20 at most. The so-called “free trade” is furthering impoverishing the masses of the 3^rd world while it’s robbing the manufacturing base of both developed nations as well as less developed or even underdeveloped nations.

En masse, “free trade” has proven to be neither free nor fair, in the true essence of the word. Additionally, globalization [in its current modern form] is further corroding the time-cherished concept of national sovereignty which one could argue traces its roots back to the Treaty of Westphalia in 1648. Keeping all this in mind, in walks Donald Trump:

It is my firm estimation that President Trump’s latest round of bold accusations against the EU and that, “EU is adopting a protectionist policy” is in fact a psychological projection of exactly what Mr. Trump and his team is clearly trying to achieve with most US trade partners.

I will neither judge the merit of President Trump’s economic nationalism [and his goals to negotiate and achieve trade balance], nor will I put down economic protectionism in its balanced and healthy form. After all, no truly patriotic American politician would dare argue against reaching an equitable, justifiable, and evenhanded trade balance with our allies and trading partners which would directly benefit the American labor. These were the basic foundations on which Candidate Trump took his stance and much to the delight of most Americans.

However, I am afraid the big picture [a macro-economic narrative that directly translates into micro-economic consequences in most middle-class American households] is much more complicated, complex, and convoluted than Mr. Trump’s rather simpleton, inarticulate blame assignment and arrogant sweeping statements. Besides, the various economic models of Western European nations have always been based on socialistic and fair economic values such as protecting the local labor force, supporting small businesses, and maintaining the export of goods and services in order to protect jobs at home, not exporting away people’s livelihood callously as the US has done to its own population during the past 30 years.

So what exactly is Mr. Trump’s point of reference? This is unclear and murky at best. The case of Germany comes to mind. The German economic norms, values, and practices could be argued as a great success both internally and externally much at the annoyance of Mr. Trump, judging by his own harsh rhetoric against Germany. Masked in pseudo-economic nationalism, Mr. Trump’s pseudo-protectionist verbal gestures and pretentiousness aims to disrupt and create fear and uncertainty among rapidly growing economies of Germany and China, just to name two examples. This has become a great source of annoyance and concern for the global economic movers and shakers, whether they are multi-national corporations or sovereign nations that are benefiting from the current globalization model which I beg to argue had an Anglo-American origination. When this model suited them, they had no problem imposing it on the rest of the world. But now with the rest of the world rapidly catching up, suddenly Mr. Trump and his backers assume they can move the goal post and re-write the rules.

Besides, the current globalized economic model is so complex and inter-dependent that even if there were to be any meaningful reforms or modifications, these alterations have to be so carefully and meticulously implemented [and negotiated] so there would not be any dangerous disruptions in the flow of commerce which directly affects three internal factors within all countries which are jobs, jobs, and jobs – a supposed mandate of Mr. Trump’s electoral battle cry. Additionally, an inevitable result of these trade wars which would push the prices up for everyone would be a hazardous hyper-inflationary situation in which the entire global economy would be negatively affected, not to mention increasing the chance of military conflict. If these tariffs are actually put into practice, which by the way are highly political from the US perspective, IMF tells us that it would cause the global economy $430 billion.

Let us be reminded of Carl Von Clausewitz’s advice, “War is not an independent phenomenon, but the continuation of politics by different means.” As our readers are aware, Von Clausewitz was a Prussian general and military theorist who stressed the moral and political aspects of war. I would argue that politics, economics, trade wars, and ultimately physical wars are all interdependent and interwoven and have a chain reaction/ domino effect.

Now, let’s look at some numbers and figures:

According to the World Bank, in 2016, US-China goods and services trade totaled approximately $650 billion. US exports to China were around $170 billion while Chinese exports to the US were around $480 billion. So clearly, we have a sizeable trade imbalance of around $310 billion.  Please take note that these are rounded figures.

Let’s look at the EU. Again according to the World Bank’s latest figures from 2016, US exports to the EU were around $501 billion while EU’s exports to the US were $592 billion. The US trade deficit in this case is only $92 billion, somewhat of a sizeable number although nowhere as close as the US-China trade imbalance. It’s noteworthy to mention that in 2016, EU was US’s largest trade partner.

As far as the size of the US and Chinese economies in 2016, according to the World Bank, US’s GDP was $18.57 trillion while China’s was $11.2 trillion and rising.

Shifting back to Carl Von Clausewitz’s advice in regards to politics, economics, and warfare, when it comes to NATO, Mr. Trump may have a point, although once again he is short-sighted as to the US benefiting from having become a defense (or better put offense) hegemon. According to NATO’s own figures, US spends 3.61% of its GDP on NATO which equivocates to a whopping rounded figure of $ 670 billion per year, making Washington a military leviathan that it has become during the past 70 years since the end of WWII. The passed defense budget for 2019 is an unprecedented $716 billion!

Back to NATO expenditures, surprisingly the 2^nd place goes to Greece which spends 2.38% of its GDP - a no wonderment why Greece is alienating Russia these days. The 3^rd place goes to the UK (2.21%), Estonia (2.16%), Poland (2%), France (1.78%), Turkey (1.56%), Germany (1.19%), Italy (1.1%), and Canada (0.99%). These are the top 10 NATO country spenders. Mr. Trump has also reiterated the same points of contention with Washignton allies in East Asia, primarily South Korea and Japan, in effect bullying countries to get them to pay more for “protection” – a classic mafia raison d’etre.

The big elephant in the room of course is China. Personally I think our Chinese counterparts are feeling the heat. Not too many days ago, we witnessed how the Chinese expressed their US tariff concerns by slashing tariffs on a range of imported consumer goods by nearly 8% to demonstrate that they play by World Trade Organization (WTO) rules. The Chinese are trying to create an image of economic good faith that their domestic market is finally opening up. These moves may seem too little too late for the Trump Administration who is hell-bent on bullying everyone, even US allies. Mind you, the aforementioned Chinese tariff cuts will only be on goods ranging from food to medicine. While a good start from the Chinese perspective, Mr. Trump is concentrating on industrial commodities such as steel and aluminum to boost US share of imports to China (and others) which would translate into US jobs in heavy industry, a problem area for the US since the 1970s when these highly lucrative jobs started fleeting.

In conclusion, Mr. Trump needs to learn to depoliticize highly complex international trade and commerce issues. If not doing so, it will neither be advantageous to his political survival in 2020, nor would it be beneficial to his constituents and in fact the entire American consumer base. After all, if trade wars are unleashed, everyone will end up paying more for many products and since the price of many US equivalents to many Chinese consumer goods are significantly higher, it would not drastically benefit domestic production which is supposedly going to benefit domestic manufacturers. In other words, trade wars would not have their intended consequence. Having said that, the trade deficits and imbalance that United Sates currently holds with many countries has to be addressed and solved in a meaningful fashion in the spirit of trade negotiations. The can cannot be kicked and further for another president to fix. In that sense, President Trump is serving a historical cause as phony of a populist that he is.