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The Wrongologist

Geopolitics, Power and Political Economy

Saturday Soother – Trump Mexican Tariff Edition, June 1, 2019

There’s No Escape Today:

More tariffs! This from CNN:

“President Donald Trump threatened on Thursday to impose new tariffs on Mexico if the country does not step up its immigration enforcement actions, combining his boiling border-related frustrations with his preferred method of punishing foreign countries.

Trump said in a White House statement that the first round of tariffs would begin on June 10 at 5% ‘on all goods imported from Mexico.’ The statement said Trump would carry out his threat under authority from the International Emergency Economic Powers Act and that he would lift tariffs only ‘if the illegal migration crisis is alleviated through effective actions taken by Mexico.’

The statement warned further that if Mexico does not act as Trump demands, tariffs would go up to 10% by July, 15% by August, 20% by September and reach a permanent level of 25% by October.”

Mexico probably does need to do more to stop migrants crossing their country.

OTOH, they like America, have rules that safeguard migrants. It’s doubtful that the Trump administration has studied those rules or cares about them, any more than they care about ours.

According to Forbes, The US imported $346.5 billion in goods from Mexico last year and for the first three months of 2019, they increased 5.4%. At that rate there would be $365 billion imported in 2019. At a 5% tariff, companies would have to either raise prices or take an $18 billion hit to profits. And it is companies and eventually consumers that will pay these new Trump tariffs, not the exporting country as Trump consistently misrepresents.

This is why the DOW fell 355 points on Friday.

Trump used the International Emergency Economic Powers Act as his legal basis to place tariffs on Mexico. It’s a Cold War-era law that actually vests the presidency with absurdly broadly defined, near-dictatorial powers in many areas. But, prior presidents, even Reagan and Bush 43, never conceived in their wildest dreams of using them except in an ACTUAL emergency. And they didn’t.

Trump doesn’t care, he sees a hammer, and decides that it isn’t for driving nails; it’s for breaking Mexican kneecaps. Matt Yglesias explains that there’s an easy climb down for Trump in this. Migration from/through Mexico is very seasonal, peaking in the spring, and declining sharply in the summer.

Trump will probably pretend to get some concessions from Mexico and declare victory in a couple of months. His moron supporters will surely applaud that.

At some point, Democrats will have to frame these and Trump’s other tariffs for what they are: a national sales tax on imports. Dems need to start explaining to the public that these tariffs are a national sales tax on everything from Mexico, including cars and components for US car manufacturers. Maybe saying this:

“Trump is making Americans pay a sales tax on imports until illegal immigration stops. How will Americans paying higher taxes force Mexico to stop illegal immigration?”

That’s how it should be framed.

Enough! We’ve been Mueller ’ed and Trump ’ed all week, and it’s time for your Saturday Soother!

On the first day of June, Wrongo hopes that you are in short sleeves, and thinking of getting outdoors, and that doesn’t mean shopping at the mall.

Let’s start by brewing up a vente cup of Hawaii Kau Champagne Natural from Paradise Roasters ($19.95/12 oz.). This coffee tied for the highest rating in Coffee Review’s May 2019 tasting report of Hawai’i-grown coffees. They say that its tropical and floral aromas lead into a sweet and complex dessert-like cup.

Paradise has experimented with yeast fermented coffees that produce a more intense and complex flavor than traditional methods. It evokes Champagne, fruity but dry, and not effervescent. They only roast this coffee on one day: June 3rd, 2019. So you have been alerted to act fast.

Now, move outside, assuming you live in a part of the world that isn’t suffering from rain or tornadoes. Put on your wireless headphones, and listen to a Philadelphia-based Irish band, BarleyJuice, play their tune, “Weekend Irish”:

Sample Lyric:
And the blood runs deep,
When the booze is cheap,
Long as you ain’t got an agenda to keep,
You can be a Weekend Irish, hey!
Aye, aye, we’re the Weekend Irish

And we’ll raise a hand,
To the motherland,
Best part of being an American,
To be a Weekend Irish

Those who read the Wrongologist in email can view the video here.

The Wrongologist does not condone identity politics, unless it involves weekend singing, dancing and drinking.

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Saturday Soother – July 28, 2018

The Daily Escape:

Quote by John Maynard Keynes posted on the wall at the School of Economics, St. Petersburg State University, Russia – 2018 photo by Conor Morrissey

Welcome to the weekend. US GDP hit 4.1% for the second quarter of 2018. Trump was out there on Friday saying that the economic winning has only just begun, and that it’s due to the GOP tax cuts, and his moves to impose tariffs on our trading partners. He neglects to mention this year’s $1 trillion budget deficit that he and the GOP created. That’s what’s fueling our current growth, and it won’t last.

Speaking of tariffs, NPR reports that US ham and other pork products now face very high Chinese tariffs of between 62% and 70% after retaliatory tariffs by China. What happened next shouldn’t be surprising:

In recent weeks, the US Department of Agriculture has reported zero weekly export sales of pork to China….So our exports to the country have pretty much collapsed.

Does this mean cheaper bacon for America? As we have heard, “Trade wars are good and easy to win”. Apparently, the Stable Genius can bring home the bacon, but he can’t sell it abroad. Thoughts and prayers to all the pork producers who got conned.

US farm subsidies were about $23 billion last year. A year ago, the Trump administration proposed a $4.8 billion cut to that. Now he’s increasing the subsidy by a one-time $12 billion to make up for the effects of his tariffs.

OTOH, in the EU, farm subsidies for the 2021-2027 period are scheduled to be reduced by five percent to $420 billion. Maybe there will be some additional winning for our farmers, assuming we can export more to the EU. But the US isn’t above criticism: US dairy producers now have a whopping 1.39 billion-pound surplus of cheese; 4.6 pounds per American. Wrongo is doing his part to cut into the surplus, what about the rest of you?

And at the same time there is overproduction, there’s growing risk to our health due to overuse of antibiotics on dairy farms. America shouldn’t give up its food security and become dependent on other countries, but it’s time for clear(er) thinking about our agricultural policy.

The big news on Thursday night was that Trump’s former attorney, Michael Cohen, is now saying that Trump knew beforehand about the June 2016 meeting between his top campaign staff, his son and Russians promising dirt on Hillary Clinton. If true, it would add a lot to a case of Trump obstructing justice.

We’ll see if Mueller ever makes a case in the court of justice, vs. only in the court of public opinion.

Are you fed up yet with being told “what you’re seeing and what you’re reading is not what’s happening”? Or having Trump say that Putin is a good guy? Or, that North Korea is no longer a threat, that Canada is our enemy? Or, that some black football players hate America? Or, that immigrants are ruining everything? That our allies are out to get us, and there was no collusion!?

This takes Wrongo back to Cohen. Maybe he has the lead-up to the June meeting on tape as well.

In any event, we’ve closed the book on another hard week. Time to kick back, get soothed, and stare vacantly at all of the yard work we aren’t getting around to doing.

To help you relax, let’s open a cup of Martinez, California’s States Coffee & Mercantile’s new Reserve Cold Brew ($12/24oz. bottle). It is brewed from Tanzania beans, and is a ready-to-drink bottled black coffee. The brewer says it is richly sweet, with an umami undercurrent, and that adding whole milk mediates the umami impression, while amplifying the chocolate and spicy floral notes.

Wrongo says, go for it! Add ice and milk, and chug a couple to get your day started.

Now, settle back and listen to Ana Vidovic playing “La Catedral” by Agustín Barrios Mangoré on solo guitar. Mangoré, who died in 1944, was a Paraguayan virtuoso guitarist and composer, regarded as one of the greatest performers on the guitar. “La Catedral” is considered one of the most colorful, and difficult, works in the guitar repertoire. It is Barrios’ tribute to Bach:

Those who read the Wrongologist in email can view the video here.

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Monday Wake Up Call – April 9, 2018

The Daily Escape:

Canada Warbler

Are you worried yet? Last week ended with the stock market falling off the cliff. The Dow was down over 700 points, but recovered slightly to lose “just” 572 points. With the stock market, no matter what you plan on investing in, there are always risks. Before you do decide to get into this industry though, it is important to understand that there are some things you should know about stocks. It only makes sense to do your research into this before committing to anything. The volatility of the stock market makes it essential that you swallow your ego and seek professional guidance based on thorough and extensive research. Stocktrades can be of service to anyone looking to up their game and make sure their choices are as safe as possible. You’ll never be able to have a 100% success rate, with the risks summed up by recent events involving the President. Trump caused this by seemingly being pissed that the Chinese would fight back after his in-your-face tariff announcements.

Now, the Dow Jones average is down 9% from its January high.

And the administration couldn’t seem to get its messaging straight. Former TV pundit Larry Kudlow, now Trump’s economic advisor, told reporters on Wednesday the threat of trade sanctions was only a negotiating tactic. A rally of more than 3% followed. But Trump upended that notion on Thursday, ordering a review of even larger tariffs. So, on Friday, Kudlow said the opposite, claiming he had just heard about the additional $100 billion in tariffs Trump announced on Chinese imports.

From Bloomberg:

The Republican president’s renewed ramblings on trade dominated US equity markets this week, with a tweet-induced swoon on Friday leaving the S&P 500 Index 1.4 percent lower than where it started on Monday.

And there goes Trump’s reputation as the stock market president. A retired former colleague of Wrongo’s at the big NY bank is all over Facebook touting the Donald’s success at driving the stock market, but this chart from Bloomberg shows he’s wrong. It compares Trump’s first 444 days with the first 444 days of other presidents:

So, what to do? Do investors ride the roller coaster that is the Trump approach to trade, and watch Mr. Market deal with it by hammering their 401k? Or do they jump into cash and lock in a loss? From Benjamin Studebaker:

Theoretically, a full blown trade war with China could be really damaging. If the US and China were to stop trading tomorrow, the total value of US-Chinese trade lost would be about $648.5 billion. That’s about 3.5% of US GDP and 5.7% of China’s.

US inflation would increase, since American consumers will try to substitute more expensive goods for those they can’t import from China. Chinese unemployment would rise, as non-Chinese firms relocate from China to other developing countries to evade the tariffs.

The US wouldn’t be hurt as badly, because after a while, firms would find new locations to operate from. But the trade war won’t create many new American jobs – the offshore firms would either stay offshore, or they’d automate production in North America. The Chinese would be more lastingly damaged, as there isn’t a consumer market large enough to replace America’s.

That’s what Trump means when he says that trade wars are “easy to win” for the US. We can damage China more than China can damage us. Studebaker concludes:

But make no mistake–such a trade war would be highly disruptive. In 2009, the US economy contracted by 2.8%. A full blown trade war would blow this figure out of the water. It would be political suicide for the administration.

Trump’s stated goal is to get China to negotiate to protect US intellectual property rights. This is why his proposals have been relatively small – he’s not looking to break Beijing, just to bring it to the table.

If Trump can get China to make a deal with him, he can pass this off as a major foreign policy achievement. And because the stock market has been in panic mode, any positive result could make Trump look good in the eyes of his supporters.

OTOH, his supporters, like my former Bank colleague, think everything Trump does looks good.

Maybe the trade war won’t happen. But, maybe Trump should remember what Luke Skywalker said in the Last Jedi:

This is not going to go the way you think…

The “Art of the Deal” guy should know there are two sides to any negotiation.

So, wake up, Mr. Market! Stop jumping off a cliff with every tweet. To encourage you, here are Elvis Costello and the Attractions with their 1978 hit “Pump It Up”. Maybe it will give Mr. Market an idea about the right direction for the stock market:

Sample Lyrics:

Pump it up, until you can feel it

Pump it up, when you don’t really need it

Those who read the Wrongologist in email can view the video here.

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Monday Cartoon Blogging – March 12, 2018

Wrongo and Ms. Oh So Right have safely returned to the Mansion of Wrong after our week in warmer climes. The timing of our travel was perfect! We were away during the two nor’easters that dumped 18” of snow on the Mansion, and we are back before the next snow on Tuesday. Here is a picture of sunrise on the day we pulled out of our FL rental:

On to cartoons. Trump will try to show North Korea’s Kim the art of the deal without using his hands:

This, by a right-wing cartoonist, makes Trump look like he knows something about tariffs. That’s untrue:

Trump baffles some of the base, but others get the picture:

The GOP is still in denial about Trump’s steel tariffs:

Jefferson Beauregard Sessions redefines the “Golden Door” of American immigration:

Trump’s decision to again allow importation of elephant parts shows his character:

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Will Tariffs Bring Prosperity?

The Daily Escape:

Detail of art painted on a truck, Pakistan – 2017 photo by Caren Firouz. South Asian “truck art” has become a phenomenon, inspiring gallery exhibitions.

Will new tariffs help our economy? The view of a typical Trump supporter:

Some of us are happy about these tariffs because it starts a long overdue conversation about trade: Everyone knows that the press, congress, economists, and the multinationals love existing policy, and that most of them couldn’t care less about trade imbalances. If this is the only avenue our democracy has to change trade policy, then we’re all for it.

Yet, the conventional wisdom is that Trump’s tariffs on steel and aluminum will do more harm than good. There are several concerns. To the extent we need steel and aluminum to use in our domestic production, it will cost more, and prices will have to go up, assuming that the manufacturers are unwilling to lower their profit margins. Ultimately, those increased costs hit the American taxpayer.

Another concern is retaliation. Our trade partners can block our exports, or charge retaliatory import tariffs of their own. Just 12% of US GDP are exports, so we’re less exposed to that threat than other economies that have a larger percentage of their economies dependent on exporting. However, jobs can be easily lost if China, Brazil, or the Euro Zone block some of our exports.

Trump’s rationale for new tariffs is two-fold. First there is a national security risk caused by diminished capacity in sensitive industries. Second, good jobs will come back to America if we produce more stuff.

Let’s deal with national security first. No doubt we have surrendered some of our strengths in sensitive products and technologies. But, it’s not a critical issue for steel or aluminum. We can get them from many countries that are currently our allies.

Artificial intelligence, advanced semiconductors, and software are an entirely different matter. There are legitimate national security-based rationales for restriction in those areas.

But, we are in trouble with some of the exotic steels that the Defense Department uses in weapon systems. For example, the Belgian firm Fabrique Nationale is the prime contractor for a lot of the high end small arms. Some of these specialty steels are only manufactured in annual production lots. Trump’s tariff won’t shift the production of those exotic steels to domestic sources.

So even in the few cases in which a tariff might serve a national security purpose, the Trump tariff will fail.

And while the Chinese dump steel below cost on global markets, most others (Canada, Brazil) do not, and we buy a lot more from them than we do from China. And there is no scenario whereby Canadian steel exports are a “national security” risk, Trump’s primary rationale. And the Trumpets seemingly can’t see the difference between primary aluminum (China exports nearly none) and semi-manufactured aluminum products, such as bars, plates, and wire rod, which they export a lot.

But, don’t foreign governments subsidize their steel industry? China does. However, that means that China is essentially giving us cheap steel. The question for Trump is: Will we gain enough jobs in our domestic steel industry to outweigh the losses to us in higher prices across all industries?

Maybe, but it hasn’t worked that way in the past.

Tariffs help lazy and/or incompetent businesses. Imposing new tariffs will just put off the day when the toxic combination of bad management, lack of investment, poor infrastructure, and bad government causes these protected industries to implode.

If you are a manufacturing company that is internationally competitive and well run, how would you like it if your steel and aluminum suddenly became 25% more expensive? All to protect some other lazy SOB who hasn’t invested in his plant in 20 years?

The correct response should be to find out why your product isn’t competitive, and then fix it. Much of American industry has done that, by automating, by moving abroad for cheaper labor, or to be closer to raw materials.

Ultimately, Trump’s tariffs will just postpone the day when our uncompetitive sectors must modernize, or go under.

And that result is always a net loss of jobs.

The best think tank idea is to establish tariffs (or quotas) based on the amount industries pay their labor in foreign countries vs. what US employers pay. If the foreign country’s prices are lower, than a tariff would kick in. This would help us with US firms who manufacture overseas. They would have the choice of paying higher wages to US laborers, or paying a tariff on their imports to the US.

Trump’s message is: If you want unfettered access to the US market, make it here. If the US consumer pays more, that is a price he’s willing to take to have the manufacturing base.

This is a debate worth having.

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