Donald Trump’s duplicitous ‘fair trade’ rhetoric

Donald Trump sometimes tries to claim he’s not really a crazed protectionist, merely a champion of what he describes as “fair trade”. The implication is that if trade was not “rigged” by cheating foreigners, he would gladly decommission his battery of new import levies.

So if China stopped its intellectual property piracy, its forced technology transfers, its restrictions on US access to its own market, its currency manipulation, we could have trade peace in our time. If Europe would only end its discrimination against American vehicle imports, we would all be able to get along famously. And so on, with the same applying to Mexico, Canada and every other country that has felt the lash of Trump’s anger on trade. But as Mitt Romney once put it, “such promises are as worthless as a degree from Trump University”.

It should be pretty clear by now Trump’s “fair trade” rhetoric is a study in diplomatic and commercial bad faith.

Today’s 10 per cent tariffs from the White House on a further $200bn of Chinese imports – hitting handbags, rice and textiles, along with several thousand other items – take the total value of trade affected by Trump to $250bn. That’s the value of roughly half the US imports from China.

It would be brave to bet against US tariffs eventually landing on the other half too, as Trump has explicitly threatened. Those who predicted the “grown-ups” in the White House would restrain the president and prevent a trade war breaking out do not look particularly prescient today.

The US claims China is not engaging with its trade concerns. Yet some in the White House privately say they are delaying imposing the full – previously threatened – 25 per cent tariff rate on imports to give US companies more time to shift manufacturing back from China to the US. It seems the real strategy is less about making global trade fairer, in Trump’s eyes, than in incentivising industrial “reshoring” onto American soil.

There is actually a reasonable case for penalising China for its flouting of the rules of multilateral trade, such as through overproduction, dumping overseas and the nation’s excessive restrictions on market access. But a policy of reversing the globalisation of supply chains really does ignore the foundational economic lessons of Adam Smith about the benefits of the division of labour, and of David Ricardo on the merits of a nation recognising its comparative advantage.

The primary loser from Trump’s trade deal will of course be the American consumer. The hypothetical benefits of more manufacturing jobs will be more than cancelled out by higher prices in the shopping malls.

The Trump administration has exempted consumer electronics such as smartphones after lobbying from companies including Apple which, famously, assembles its iPhones in China before importing them to the US.

Chinese bicycle helmets and baby high chairs were also exempted, which suggests someone in the White House, if not the president himself, intuits tariffs are likely to push up domestic prices – which may not be helpful ahead of US mid-term congressional elections.

But whoever it isdid not intuit enough. For the idea one can limit the domestic economic impact of tariffs by carving out exemptions for certain popular or sensitive products is naïve in the extreme. In this age of sprawling and complex cross-border manufacturing supply chains there are connections that are hard, if not impossible, to perceive.

As the Apple boss Tim Cook notes, there are iPhone components manufactured in the US which are exported to the China so it can be assembled. What if China imposes tariffs on those in response to Trump’s tariffs? That will likely push up US iPhone retail prices even if there are no direct tariffs imposed by Trump. Deliberately clog the arteries of trade and the economic damage will inevitably show up somewhere, perhaps where it’s not expected.

What will the impact be on the rest of the world, on growth? China is already retaliating and will probably match US tariffs dollar for dollar, at least as far as it can given its bilateral trade surplus. Europe has hit back on steel import duties with charges on Harley Davidson motorcycles and Florida orange juice.

The Bank of England has estimateda global trade war – in which everyone raises tariffs on everyone else by around 10 percentage points – would slow worldwide GDP growth by around 2.5 per cent over three years. That’s a serious economic loss in the context of a $90 trillion global economy. It would hold back UK GDP growth two per cent and the US equivalent around five per cent.

But such estimates, though reasonable, are also potentially misleading. As Maury Obstfeld, chief economist of the International Monetary Fund, recently warned: “The multilateral rules-based trade system that evolved after [the Second] World War... and that nurtured unprecedented growth in the world economy … is in danger of being torn apart”.

This regime rupture isn’t an outcome which one can reliably model based on historic economic relationships. It would put us in a wholly new and dangerous world. Trump says trade wars are “easy to win”. He’s wrong. But multilateral trade systems could be easy for a belligerent president to break. And we may find it terribly hard to put them back together again.

Trump's pride in his lies makes him even much more dangerous than we thought

Donald Trump tells lies. That's hardly news, of course. And certainly not fake news. According to The Washington Post, which is assiduously keeping count, the 45 US President has uttered or tweeted more than 2,000 false or misleading statements since swaggering into the White House. That's an average of around five a day.

But does Trump spew this waterfall of lies knowingly? Or could it be that he is just chronically ignorant and obscenely intellectually lazy? Or is it perhaps a case of cognitive impairment, as suggested in a recent book? Is Trump mentally unable to distinguish between fantasy and reality? A leaked audio recording of Trump recalling his talks with the Canadian Prime Minister Justin Trudeau at a private fundraising event in Missouri gave us a pretty strong steer on this. Trump bragged to his audience that he asserted something to the Canadian leader that he simply didn't know was true or not.

"I said, 'Wrong, Justin, you do [have a trade surplus with the US].' I didn't even know ... I had no idea. I just said, 'You're wrong.'" In other words, Trump has admitted that he lies knowingly and shamelessly. Indeed, the Missouri audio demonstrates that he's not merely shameless, but proud of his untruths. There are problems with psychological diagnoses from a distance, but it's worth noting that pathological lying and immunity to feelings of guilt are traits associated with psychopaths.

Is there anything more to be said about Trump's estrangement from truthfulness? Yes. And it's the fact that Trump is a political liar. The lies are not simply intended to deceive; they are, as the Russian dissident Masha Gessen has argued, a brute assertion of the primacy of power over truth. They indicate a conception of power that simply does not recognise the authority of truth.

Trump says something that is untrue, that people around him know is untrue, that he himself knows to be untrue, and which he knows they know is untrue. Why? As a statement of his authority and the absolute nature of it. As the Missouri audio also reveals, the job of his aides, when a lie is told by their master, is to locate some evidence that his assertions are, in fact, correct.

By forcing his spokespeople and subordinates to repeat, defend or rationalise his blatant falsehoods in public, he destroys their own reputations and their own sense of self-respect. This may, or may not, be intended as a means of binding them more closely to him. Given the rate at which personnel have been departing the Trump administration, it has arguably not been particularly effective in that regard.

Yet there’s ample evidence that Trump is also a calculated and manipulative liar. The timing of his tweets makes it plain that he frequently uses lies to create media frenzies, to distract from other uncomfortable stories, to whip up his voter base. His lies are thus a form of propaganda, of disinformation.

It's impossible not to summon to mind, writing all this, the repeated insistence of an apparently guilt-free Boris Johnson that the UK sends £350m a week to the European Union's coffers, even when the UK statistics watchdog has explicitly told him that this totemic Brexiteer claim is simply wrong.

How to cover shameless, political and calculating liars and propagandists such as Trump (and, on dark days, Johnson) represents an immense and complex challenge for the media. The instinct is to seize on the lie, to "fact check" an individual assertion and demonstrate why it's wrong. I've written plenty of such debunking articles myself of Trump's various statistical abuses.

Yet if the objective of the lie is to distract, to dictate the news agenda, one can't get away from the fact that this risks dancing to Trump's tune.

And what of the impact on the public? Some psychological research hints at a "backfire effect", where people become more entrenched in their wrong convictions, perhaps fed to them by Trump, when they are exposed to contrary evidence.

The validity of this finding has been contested by other researchers. But nevertheless, it's pretty clear that truth in America is under the cosh, led by the assaults of its liar-in-chief. Trump's US support base has not grown since the 2016 election, but it has not collapsed either.

Heartbreaking as it is for liberals to acknowledge, John Stuart Mill's classic philosophical justification for freedom of expression - "the clearer perception and livelier impression of truth [is] produced by its collision with error" - looks shaky in the face of the empirical evidence of recent years.

So what should the media's response be? The idea that journalists should simply report blatant lies neutrally along with contrary information, and let audiences make up their own minds, feels to most journalists like a dereliction of a fundamental responsibility to inform and be fair to the public.

One temptation is to take the lies for granted, to focus on policies. I confess I've felt that urge at times, when Trump comes out with yet more mendacious rubbish. Is one more debunking really going to achieve anything? But that’s surely an abdication of responsibility, too. For lies on this scale and with this malevolent intent corrupt the public realm and erode our democracy, which ultimately relies on some acceptance of shared truth.

They are an authoritarian attack on pluralist institutions - one that's disturbingly familiar from the last century of world history. "Contempt for truth goes hand in hand with political oppression," observes Lee McIntyre of Boston University.

However the media deals with them, we must never deceive ourselves into thinking that the brazen lies of Trump - and the lies of any politician in an open and democratic society - are harmless.

The stock market is not the economy

Live by the stock market boast, perish by the stock market boast. "The stock market has smashed one record after another, gaining $8 trillion in value," Donald Trump bragged in his State of the Union address only last week. "That is great news for Americans' retirement, pension and college savings accounts."

And now, with the US stock market down more than 6 per cent in just two days of trading? With around $1.6 trillion (£1.1 trillion) wiped off the value of US companies since Friday? What does that mean for the savings of ordinary Americans? What does that say about the economic prowess of the President of the United States who has presided over the drop? Where are the tweets from the braggart-in-chief?

Nemesis has followed hubris for Trump, at least when it comes to the stock market. And how richly deserved it is. Yet this is, sadly, no morality play. Trump's learning curve is our world. And it's not just in the US were stock markets are sharply down. Some $4 trillion has been shed from equity markets around the world in the past week. So what do these market sell-offs mean for the global economy? What do they mean for all of us? 

The first thing to do is to appreciate something that was apparently beyond Trump: that the stock market is not the economy. Stock markets can boom when GDP is stagnant, when wages are flat, when living standards are going nowhere. And they can fall when economies are picking up speed and life, for many people, is getting better. The latter actually describes the current situation.

Indeed, one popular explanation for the sharp sell-offs in equity markets in recent days among analysts is that it is actually a response to the strength of the US and global economy. There was a tentative sign last week that US average wages, after more than a decade of weakness, might finally be creeping back up to the rates of growth seen before the global financial crisis and the great recession.

The implication of that, so the logic goes, is that the US central bank, the Federal Reserve, will have to put up interest rates faster in order to stop the domestic economy overheating and inflation getting out of hand. Lower interest rates automatically boost the prices of financial assets, including stocks and shares, so higher interests should have the opposite impact. So what we are witnessing is a natural correction. And because the US economy is still the world's largest and because the US dollar is the global economy's "reserve" currency what happens there is impacting on financial markets everywhere.

Perhaps. Another explanation is that US financial markets, and to some extent those of the rest of the world, have been in the grip of irrational euphoria for some time. One often-cited gauge of the value of US markets, which compares large companies' earnings to their stock price, suggests they are more overvalued than at any time except before the turn-of-the-millennium internet stock slump and the Wall Street Crash of 1929. Another much-watched general market volatility index is spiking too.

That could suggest what we are seeing is not so much a natural, short-term, correction, but the bursting of a bubble. In other words, there could be much more to come.

So which is it? The answer is that it's impossible to say with any confidence. And the people who claim they know with certainty really don't. What we can say is that even if a stock market bubble is in the process of popping, that does not imply that the real economy - whether in the US, the UK or anywhere else - is set to implode too. It does not necessarily mean we are heading into another recession, where companies go bankrupt and people lose their jobs.

Equity markets have slumped before without causing a recession, most obviously after the internet bubble burst in 2000. The FTSE 100 fell more than 50 per cent in the following years, but there was no recession in the UK.

More recently, the Chinese stock market in 2015 dropped more than 40 per cent in months but its domestic economy was largely unruffled. In 1987 US stock markets plunged by more than 20 per cent in a single day - Black Monday - but there was no discernible impact on the real economy. The large stock market drops in 2008-09 coincided with the global financial crisis, but they were not the cause of the crisis itself. Responsibility for that genuine economic disaster lay with the fragility of the global banking system.

Equity markets do matter for ordinary people. But they matter in entirely different ways than Trump thinks and many commentators imply. The performance of the companies in an index matters for ordinary people over the long term. That's because the stock of companies is a repository for peoples' savings. And most people are not saving for tomorrow, or next week, but for decades in the future.

Public markets also matter because large listed firms in most countries tend to be major employers, significant sources of private investment and productivity-enhancing innovation. It's important that they the companies in them are subject to sensible regulation, feel competitive market pressures, that they have good corporate governance, that they invest for the future and the right financial incentives act on their managers. All those factors should concern us deeply.

But the short-term ups and downs in stock prices are largely meaningless - except, of course, if you're a speculator or a monumentally hubristic politician.

Brexiteers – read the 'Trump Trade Doctrine' and weep. A trade deal with Trump will harm Britain

Last September an economist called Peter Navarro and a billionaire private equity tycoon called Wilbur Ross published a document which attempted to justify the ways of the Republican presidential candidate Donald Trump to the world.

The pair also unveiled something they called “the Trump Trade Doctrine”.

The document made few waves at the time, mainly because few believed Trump would actually win the election.

But things have moved on somewhat since then.

Trump is in the White House, Navarro has now been appointed to head the President’s official National Trade Council and Wilbur Ross is set to be Commerce Secretary.

Given how things have unfolded, that document from last September deserves a little more scrutiny, not least from Brexiteers whose hearts are fluttering over Trumpian promises of a quick post-Brexit trade deal with the US.

From an economic perspective the Navarro/Ross paper is a joke; a catalogue of confusion and basic conceptual errors bound together by a conspiracy theory. “Magical thinking” is the description from Marcus Noland of the Peterson Institute for International Economics.

The document cites estimates that the “cost” of domestic US regulations is $2trillion, 10 per cent of US GDP. But this is disingenuous, not only because the figure is grossly inflated, but because it completely ignores the economic benefits of regulations.

The requirement to fit seat belts in cars costs money, but it also saves lives. Anti-pollution regulations push up businesses’ costs, but they also result in cleaner air. One can – and must – put a monetary value on these benefits. The US Office of Management and Budget has estimated that each dollar of regulation brings benefits several times the value of the costs.

Navarro and Ross say Trump will cut this regulation bill by $200bn without saying which regulations will be axed – or what benefits will be destroyed in the process.

But it’s on trade where the fallacies really flow.

Navarro and Ross assert that Value Added Tax imposed by America’s overseas trading partners (including Britain) on US imports amounts to a “backdoor tariff”.

This is simply nonsense given that the VAT is chargeable on all domestic sales – whether the product is imported or domestically produced. This is a tax on domestic consumption, not imports. There is no discrimination here.

The document talks as if “bad” trade deals like the North American Free Trade Agreement (Nafta) of 1994 and China’s full accession to World Trade Organisation membership in 2001 are responsible for the collapse in American manufacturing employment.

This is literally incredible. US manufacturing employment has been falling since the 1950s, long before these deals were struck. And over this period US manufacturing output has been rising, revealing that this is mainly a story of automation and rising productivity, rather than good American jobs being off-shored.

Some individual communities in America have undoubtedly suffered as result of shifting global trade patterns and China really did undervalue its currency for many years to boost its domestic manufacturing sector.

But the idea that multinational corporations colluded with foreign governments to poach high-paying US jobs is a paranoid fantasy, as is the idea that Trump ripping up trade deals will bring back low-productivity manufacturing jobs to America.

But perhaps the most disturbing element of the prospectus is that Navarro and Ross come across as unabashed “mercantilists”.

They appear to believe trade surpluses are an indication of national economic health and trade deficits are a symptom of a disease, a fundamental misconception that the father of economics Adam Smith sought to banish 240 years ago.

Which brings us to the “Trump Trade Doctrine”.

Here’s how Navarro and Ross describe it: “Any deal [that Trump makes] must increase the GDP growth rate, decrease the trade deficit, and strengthen the US manufacturing base.”

Increasing the GDP growth rate is innocuous; that’s what increasing trade does for a country, mainly through applying more competitive pressure to its domestic industry.

But decreasing the US trade deficit? That’s where alarm bells should ring. According to our own Office for National Statistics the UK ran a £40bn trade surplus with the US in 2015. Our surplus is, of course, America’s deficit.

That implies that Trump will not sign a trade deal with Britain unless the terms are so stacked in favour of US exporters that its bilateral deficit with us will fall. This means that the Trump White House will expect to export more to us than we export to them. So any UK firms exporting to the US should be scared, not heartened, by talk of a deal (manufacturers in particular given the third leg of the doctrine).

The ONS figures may not be right. For various technical statistical reasons, they may overstate UK exports and US imports. Other figures suggest trade flows between the UK and the US are roughly equal.

Yet, even if they are, why would the White House’s mercantilists not want to turn that balance into a hefty US trade surplus with Britain, to erode their own overall deficit? “America first” is not an ambiguous slogan. This is where zero sum attitudes to trade lead. Their gain is our loss.

One hope expressed when Trump won the US election was that when he entered the White House he would be forced to listen to people who actually know what they’re talking about.

But if this is the calibre of “expert” that Trump is now receiving this might even be even worse than him listening to his gut.

Guided by the likes of Navarro and Ross, Trump can be confidently expected to make decisions that will harm the livelihoods of all Americans, not least those “forgotten men and women” who he claims as his constituency.

And dollars to doughnuts, as they say in America, he will also make decisions that end up harming the economic interests of Brexit Britain.