The October 5 issue of the Wall Street Journal contained two interesting comments that may be related.
One is part of a story titled “Trump Will Push Trade Policies as Helping Workers in U.S. Heartland” :
Mr. Trump has accused China in particular of politically motivated trade attacks aimed at swaying critical midterm elections this November, tweeting last month that “they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me.” China has denied the president’s claims, which were repeated by Vice President Mike Pence on Thursday.
So President Trump imposed tariffs on Chinese imports. The Chinese government retaliated with tariffs on American imports. Mr. Trump wants us to believe that this retaliation is an intervention in American elections. If that were the case, much of foreign policy would be interventions in somebody’s domestic elections.
As Madison noted in the Federalist No. 10, “enlightened statesmen will not always be at the helm.” Mr. Trump is not the first illustration. I will not comment on the “loyalty to me.”
In the case under consideration, the problem is not only faulty logic or fraudulent political statements; it also relates to something else that seems to be going on. Since 2007, most of the intellectual activity of Peter Navarro, Trump’s official trade adviser, has consisted in stoking the fires of war with China, as his book titles suggest: The Coming China Wars: Where They Will Be Fought and How They Can Be Won (2007), Death by China (2011, coauthored by Greg Autry), and Crouching Tiger: What China’s Militarism Means for the World (2015). For more on this, see my article in the Fall issue of Regulation, “Peter Navarro’s Conversion.”
The second interesting comment is taken from a story titled “Auto Makers Consider Shifting More Manufacturing to North America” :
Industry consultants say auto makers are growing increasingly nervous that more restrictions could emerge as Mr. Trump turns to trade talks with Japan and the European Union.
“These companies are now seeing that there is an element of political risk to operating in the U.S.,” said Johan Gott, a principal with global management consulting firm A.T. Kearney.
Hence the slightly exaggerated title of my post. But who knows?
READER COMMENTS
Thaomas
Oct 8 2018 at 10:03am
Elections have consequences. We made the wrong choice in 2016 and we, especially low income people, are paying the price.
Pierre Lemieux
Oct 8 2018 at 11:32am
It is even slightly worse than this, @Thaomas. One third of Americans (Americans entitled to vote) made the wrong choice and at least two-thirds are paying the price. See my article “The Vacuity of the Political ‘We’,” on Econlib.
Benjamin Cole
Oct 8 2018 at 10:37am
My experience in banana-land was (and is) that domestic government is weak, easily manipulated by other governments and large corporations.
Here is an interesting paragraph from NPR (cite below):
“The Chinese government has been forming global partnerships with Western thinktanks, recruiting key talent at networking events sponsored by the Chinese government and working with U.S. universities, says Michael Brown, managing director of the Pentagon’s Defense Innovation Unit in Mountain View, Calif. The unit was set up in 2015 to help the U.S. military capitalize on emerging commercial technologies.”
Certainly, it can be posited that global multi-nationals have a huge stake in using China as a manufacturing platform and also ardently desire access to a huge and growing market. With fiduciary obligations to shareholders that properly trump all other concerns, multi-nationals are powerfully vocal on China, usually by financing other organizations, such as the US Chamber of Commerce, academia, media and think tanks. They can give unlimited funds to US political campaigns. Oh, that.
If you are old enough, and American, it is bewildering to see the US Chamber of Commerce effectively become a mouthpiece for the Communist Party of China. But then, China is the bigger market and the (artificially) better manufacturing base—it in incumbent on multi-nationals to bow to new totems, accordingly.
So, in some regards the US is becoming more banana-ish. Is foreign policy effectively made offshore? By globalists?
So, did Trump start “start the trade war”?
That is a dubious premise. When did China play fair? Some posit that Trump only responded the persistent Sino cheating, that had gone unaddressed under Obama and Bush jr.
Fareed Zakaria calls Trump’s China tariffs justified, due to persistent China trade practices. Even Fareed Zakaria?
In conclusion, I say, “Yes, we have no bananas, but our government is becoming bananafied.”
https://www.washingtonpost.com/opinions/global-opinions/trump-is-right-chinas-a-trade-cheat/2018/04/05/6cd69054-390f-11e8-8fd2-49fe3c675a89_story.html?utm_term=.fa9566293812
https://www.npr.org/2018/10/07/654339389/china-makes-a-big-play-in-silicon-valley
Benjamin Cole
Oct 8 2018 at 9:39pm
Add on, for fun.
Think ahead 50 years. Will Ford, or Apple or Alcoa be based in the US, or Beijing?
Let us look at what first seems a silly analogy: NFL football.
Recently, the Rams have moved to L.A. from St. Louis, the Chargers to L.A. from San Diego, and the Raiders are leaving Oakland for Las Vegas.
Of course, before said teams moved, there was a lot of talk about how the teams were woven into the community, and so much wanted to stay put. It was an agonizing decision, made only after every effort was exhausted to stay, to leave for a new city.
All those teams were profitable where they were—they left because they could make even more money. I do not blame those teams. It is a good business decision.
Okay, so China is a much bigger market than the US, soon on the consumer side, and a better manufacturing platform. Why would a Buick, and then all of GM, not move the China? Apple? Johnson & Johnson? They have a fiduciary obligation to make as much money as possible, and properly so. They (should, anyway) have zero allegiance to US citizens.
This is interesting presently, as multi-nationals appear to be in charge of US trade policy (with some carve-outs by Trump).
Would the citizens of the US be justified in having a different view of multi-nationals than macroeconomists?
Pierre Lemieux
Oct 9 2018 at 11:26am
@Benjamin Cole: Your arguments seem premised on a few debatable protectionist ideas. One is that that trade barriers are good for the individuals in the country where they are imposed. Another one is that private capitalist firms cannot compete with those under the yoke of dirigistes governments. A related one is that individuals and firms pursuing their own self-interests are less efficient (“efficient” meaning producing more with less and charging less to consumers). Still another one is that there is no such thing as comparative advantage. Two centuries and a half of economic analysis have produced some good counter-arguments. My just-published article in the Fall issue of Regulation could be useful reading. My book What’s Wrong with Protectionism (Bowman & Littlefield, 2018) gives more theoretical background.
P Burgos
Oct 12 2018 at 5:20pm
US companies would moving their HQ to China would be terrible for shareholders- such a move would essentially entail a sale of shares to high ranking party officials for free (or at a very low cost).
Benjamin Cole
Oct 10 2018 at 12:24am
Pierre:
I think you have switched gears in your answer. We were discussing if America has become banana-fied, not my views on “free” trade.
I said yes, the US is becoming banana-fied.
In the classic Banana Republic, policy is effectively made outside of the national capital, by foreign corporate and foreign-government interests. Chiquita Banana gains power of eminent domain in a banana-land of uncertain property titles, etc. (BTW, domestic communists may be even worse for the residents of banana-land. That is another issue).
In the US, the foreign-policy making process has become globalized, and the US military something of a global guard service for multinationals. That is a modern version of banana-fication. Trump is something of a throwback. Voters may make the “wrong” decisions regarding trade, or getting out of Afghanistan. But in America, it no longer matters. Voters can vote any way they want, the globalization process will continue. The US, in this regard, is banana-fied.
“Dirigistes” is a great word. It also describes the economy of Singapore, btw.
Okay, back to my views on “free” trade.
Can US factories compete with factories in dirigistes economies? Probably not.
In Singapore or China, a company can get free land, free capital, and a permanent tax holiday if exporting (the VAT rebates). Free employee training, technical assistance, industrial park build-outs, special utility rates. And, possibly, labor repression in China.
I think the free traders are a bit glib to pass over all that, and say the results are fine and dandy. The way economies develop and re-develop is a fascinating topic.
The US finances consequent huge current-account trade deficits by selling assets or issuing debt. Very similar to early colonization models of…well, banana republics.
In conclusion, allow me to give you some very bad but earnest career advice: There are armies of free-marketeers and libertarians on a very crowded stage hollering about global free trade. Paul Krugman says the idea of free trade has been sacralized among macroeconomists, and he is proud of that.
But sparse to absent are the libertarians and free-marketeers who persistently pick up the cudgels on behalf of free property development (that is, no property zoning) or the decriminalization of push-cart and truck-vending in the US.
This is interesting, as Trump’s tariffs are but wrinkles in trade agreements, but property zooming has created horrendous rents all along the West Coast and some other cities.
And millions of Americans are prevented from starting up their own businesses by anti-push-cart laws.
The “safe zone” topic of free trade and minimum wage in libertarian circles is dispiriting.
Warren Platts
Oct 10 2018 at 12:23pm
It is pretty clear that is exactly what is going on. New York Times recently reported that the share of all export-dependent jobs that are threatened by Chinese tariffs within counties won by Trump is 8.1%, whereas the same stat for Clinton is only 3.2%–a factor of 2.5; I say we reciprocate and invoke economic sanctions on China designed to bring down the Communist regime. The laundry list of outrages that would fully justify such a move is too long to get into here.
dede
Oct 10 2018 at 9:57pm
“These companies are now seeing that there is an element of political risk to operating in the U.S.”
Ask any foreign banker with a branch in New-York how big the political risk is?
Apparently, most international banks still consider that the commercial risk of not being in New-York is larger but I keep on doubting about it every now and then…
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