Monday, January 23, 2017

Will Trump start a trade war?

President Trump has been in office for 48 hours now and so far we have seen the following:

  1. Plans massive tariffs on imports (especially if the White House "believes" that the jobs were stolen")
  2. Reduce regulation by 75%
  3. Shut down PBS -- that was Saturday and I've not seen anything more about that since

Aside from the weekend fight over the number of attendants at the inauguration, and I mean the entire weekend. When it was obvious from photograph that the thing was poorly attended.  The reality is that a large number of people would go to Washington for the "show" and Trump didn't deliver (there were no A or B list stars at his show ) so what's the point!

Once the images were out there was little doubt that it was fewer than Obama in '08.  So fine, let it be! BUT if this is all it takes to take Team Trump off its message (of a new administration) they will get bogged down quickly.  The idea that massive tariffs will be a huge win for Americans is hard to swallow -- after all its American who will pay more for their iPhones and tablets.

The shutting down of PBS (which cost US$ 445 million per annum), seems to be aiming for the wrong objective when you say you want to cut the massive government expenses of 3.8 trillion -- $445 million is equal to 0.002% of the federal government's annual expenses about the same as Planned Parenthood -- these cuts are about perception and not reality.

If the US government imposes huge tariffs on imports (which it is free to do) it will also have to leave the World Trade organization -- as that institution has set limits to punitive damages.  It is hard to say if that is Team Trump's objective, but since he's made no bones about leaving NATO (to Putin's joy) that too can be a goner.

The question is what is the impact of a trade war with China, Mexico and Canada?  That's the real key here.  Two facts are certain, inflation will increase in the US as prices rise to accommodate these rising costs.  The long term is harder to figure out.

There's a lot of goodwill that about to leave the negotiations.  If I were Canada I would look to other markets to buy goods.  In effect, Canada and Mexico have close their borders to other nations favoring the US (and each other) it would be easy for these situations to change -- Air conditioners from China or Korea could be given favorable treatment (or at least remove duties), other duties that have protected north American manufacturers could also be reconsidered.

Attacking the US policy directly will never work, instead stealth is called for instead.  It doesn't penalize your customers (and voters) while impacting manufacturers of the country seeking to impose duties -- by making other goods cheaper, and hence more attractive


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