Fiscal conservatives may be prepared to pounce, but they’ll need to hear me out. Fans of President Trump’s “fair trade” tariff policies may be ready to cheer, but they should also read further before jumping up and down. I’ll keep this very short before I change my mind.
I’m a free-trade-loving, fiscal conservative capitalist who thinks tariffs are the work of progressives who want to generate revenues any way they can to help fund their big government ambitions. For the last three years, I’ve written many articles calling on President Trump to back down from his tariff plans and promote stronger incentives for America-First business practices. If you want businesses and jobs to come back to America, cut taxes even more. If you want to promote industries like steel and agriculture, cut taxes and use our technological and logistic advantages to overcome the cheap labor offshore. There are ways to achieve the President’s goals without making Senator Chuck Schumer giddy over the adoption of his Chinese tariff plan by a Republican President.
But here we are. The trade war has been building up with trade skirmishes and economic battles for over a year and we’re now in the early stages of an all-out trade war. It’s not the call I would have made, but now that it’s happening, we have to go all out. Half-measures will fail. If we’re going to get back to the proper path of free trade and dominance of the global market from where we are today, then the fastest path is to ramp up pressure on China using Trump’s (well, technically Schumer’s) tariff technique all the way through.
The reality is this: China will blink first. For political reasons, the President needs them to blink before the 2020 election season, which means putting our economic might up against their economic size. They are already showing signs of weakness, from retail sales growth hitting a 16-year low to a yuan that was showing weakness even before the tariffs started making a real impact.
Some are expecting China to sell off Treasuries. They might. If they do, it won’t be out of retribution even though most mainstream media outlets will report it as such. They’ll sell off Treasuries (which they’ve been doing little by little for a while already) to prop up their currency, not to hit back at President Trump.
“China selling Treasuries is a risk, but it would have less to do with any retaliation they might pursue in response to tariffs and more to do with managing their currency,” said Gene Tannuzzo, deputy global head of fixed income at Columbia Threadneedle Investments. “But if the capital account is leakier than they want it to be and they have to defend the yuan, then they’d need to be selling Treasuries.’’
As Jeffrey Black and Xiaoqing Pi noted over at Bloomberg yesterday, China’s economy is showing weakness at the worst possible moment. This may be why President Trump is confident enough to make this risky play before his reelection.
Faltering credit and consumption at home coupled with a weaker global economy means China is running out of steady growth engines right when it needs them. The soggy data spurred expectations the government will need to boost stimulus to cushion the blow from the escalating trade war, sending Asian stocks mostly higher. The yuan was little changed.
After looking at all the data I could find, I may not like what the President is doing, but now’s not the time to lecture him on the tenets of free trade and global dominance through improved business atmospheres stateside. He’s going with tariffs, which means we go all out. It’s similar to how real war is waged. I may have been against the Iraq War, but once the first troops landed, I knew the fastest way to get them home was to completely annihilate the enemy as quickly as possible.
I posted something similar to this yesterday and felt a need to clarify my position again today. See, Doug. One critical exchange can have an impact. Thank you.
I don’t like trade wars, but if we’re going to have one, let’s do it right. No half-measures. We go in, make China’s economy feel the pain, and bring them to the negotiating table beaten and desperate. Just get it done quickly, please.