Exposing the Real Threat of Trump’s Trade War

BoomBustMarket's picture

Donald Trump’s Presidential campaign has several different platforms but the most important was his stance on trade. Donald Trump is a protectionist. He views the U.S. foreign trade policy over the last 25 years as a failure. With the passing of NAFTA and other free trade agreements millions of manufacturing jobs that have been eliminated. Donald Trump’s main target for unfair trade practices during the election was China. At one point during the campaign he even claimed that China was raping the U.S.

“We can’t continue to allow China to rape our country and that’s what they’re doing, it is the greatest theft in the history of the world.”

History has shown us that trade wars do not end well. If the Trump administration continues to pursue actions against trade partners, then we should expect global conflict to escalate.

Since Inauguration

During the election, President Trump claimed that during his first day in office he was going to declare China a currency manipulator. This has yet to occur. President Trump recently committed to supporting the long standing One China policy but his stance on Chinese trade remains unclear. Given the promises that were made to his supporters during the campaign we expect significant trade actions against China.

Chinese Trade with U.S.

In 2015 the U.S. trade deficit with China was $336.2 billion, a $23 billion increase over 2014. This massive deficit is a net number, total Chinese imports to the U.S. were $659.4 billion. According to the U.S. department of Commerce every $1.0 billion of U.S. export supports about 6,000 jobs. If we apply this same logic to China, then that means Chinese exports to the U.S. supports 4.0 million jobs in China. This is likely a low estimate as one billion of exports from China to U.S. should support more jobs in China.

The amount of jobs created in China from exports to the U.S. has two important implications. The first is that these jobs have been taken from the U.S. or somewhere else and moved to China. This is primarily what Donald Trump was campaigning against. The second implication is that the existing U.S. foreign trade regime is supporting millions of jobs in China. If the U.S. were to dramatically change its trade relationship with China those jobs might disappear causing higher unemployment and civil unrest in China. When the global economy slowed down in 2008 and 2009 a wave of civil unrest swept across Chinese industrial cities. We think a trade war with the U.S. and subsequent job loss would cause the same type of response given that the Chinese economy is already very weak.

Smoot - Hawley Example

History if rife with examples of trade war leading to real conflict. The most obvious example is the Smoot – Hawley Tariff Act of 1930. This act was passed during the great depression in an effort to protect domestic industry. While the act was not the primary cause of the great depression it contributed significantly to its worsening. The Act and actions by other countries reduced American exports and imports by more than half during the depression. The reduction in global trade isolated countries like Japan who reacted to the economic deadlock with war. The Smoot – Hawley act helped stoke the flames for World War 2. Countries, including the U.S., have been going to war for millennia to protect their economic interests.

Other Targets for Trump

Unfortunately for investors China is just one example. In addition to strong statements against China Trump has also criticized Mexico, Japan and Korea. Mexico was a large beneficiary of the NAFTA agreement at the expense of U.S. manufacturing. While Mexico is less of a military threat than China the threat of a trade war with Mexico is real. The country is already suffering from lower petroleum revenues and a trade war with the U.S. would further exacerbate these issues.

Uncertainty Continues

As with most things related to the Trump Administration it remains unclear what the trade policy towards China will be. Trump threatened a trade war with China during the election. Since the election, he seems to have backed off from declaring China a currency manipulator. What remains clear is the impact that a trade war would have on the global economy. International trade would decline and the loss of jobs in China would cause civil unrest. Obviously, the financial markets would not react well to a trade war or real war with China.


Originally posted on Boom Bust Market.

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shovelhead's picture

Smoot-Hawley was a try at locking the barn door after the horses escaped.

The real driver of the depression wasn't even the stock crash, which was minor compared to the numbers of the vendor financed boom in export manufacturing that collapsed when post war Europe couldn't pay it's bills.

David Stockton outlines this little known and even less understood aspect of the Depression in his book 'The Great Deformation: The Corruption of Capitalism in America' with more numbers than you'll want to ever see unless you're an accountant with a fetish.

If you ever needed proof that Bernanke was an utter moron 'expert' on the Depression, Stockman's your guy.

Dragon HAwk's picture

Print as much as you want of your own Chinese Money and exchange it for everybody elses Money, what a racket been working for them for years

Kayman's picture

What a propaganda piece. "Chinese Imports Create Jobs in the United States."  "Trade Deficits Don't Matter." ????

"History has shown" quislings are a dime a dozen, like this author.

1. China is a currency manipulator. Up until a couple of years ago China worked hard to keep the Yuan from rising, now they are busting their guts to keep the Yuan from becoming the Mexican peso.

2. A few longshoreman jobs and trucking jobs dragging containers throughout the US is a drop in the bucket compared to manufacturing jobs and the service jobs that go with them.

What a stupid fucking article. 

BoomBustMarket's picture

You clearly didn't read the article.

 

Where does it say "Chinese Imports Create Jobs in the United States."  "Trade Deficits Don't Matter." ?

The article actually talks about the amount of jobs that exports create and implicitly says that trade deficits DO matter

Winston of Oceania's picture

Well stated Sir well stated indeed. You cannot accumulate capital in your own county without exporting products in sufficient quantity to others. You cannot pay off debt without accumulating capital to eliminate the principle that is hamstringing you with service to said debt. In case any out there don't get it yet, DEBT = SLAVERY perpetual fucking SLAVERY.

Money_for_Nothing's picture

China was allowed to do stuff because it was perceived to be in the interest of Oligarchs. That situation has faded if not gone away entirely. China is in a similar position to Germany at the start of WW1. China wants to push its internal problems onto the rest of the world. China is likely to break up in a civil war. Other nations are not going to let China or any other country control major sea lanes.

Winston of Oceania's picture

WWI was instigated by the French by duping the Russian Czar into declaring war on Austria Hungary forcing Germany to sides according to the treaty between the two Central powers. NOTHING ELSE!!! The French wanted Eslass and Lothingren stolen from the German people for the second time in history.

shovelhead's picture

So you think Nicky need to be urged to defend his Slavic neighbors against those troublesome Europeans who were allied with his wannabe railroad building to Turkey cousin?

Follow the money. A subdued Serbia would make all the Kaisers dreams come true.

Rail lines were the pasts pipe lines of today. Layers of layers in that onion.

caconhma's picture

The WWI was all about the City of London, France, the USA  banking mafia intention to destroy four competing with them Empires (German, Russian, and Austro-Hungarian, and Ottoman).

The Russia Tzar Nicky was an idiot but most importantly Russia has owned huge amount of debt to British and French banks. To get these credits, Russia had to sign a secret agreement that, in case of any hostilities, Russia will join militarily England and France. This was similar to the Ribbentrop-Molotov Pact secret Appendix that started Hitler and Stalin attack on Poland leading to the WWII.

barysenter's picture

This isn't a trade war. Its a negotiation. A trade war would be any response other than consent to millions of pounds of methylamine annually shipped from China to cartels in Mexico, to poison 2 continents.

TePikoElPozo's picture

i might sign this petition - if i wanted to get my family on the FEMA camp list

LawsofPhysics's picture

LOL!!!  You posted at ZH, you are on the list motherfucker.

TePikoElPozo's picture

correction, the owner of this wifi that i'm stealing is on the list