Trade War Favors the United States

Thanks to my dad for sending along this piece from stock guru and madman Jim Cramer about the trade war with China.  I’ve been writing a great deal lately about economics (including the “Lazy Sunday IX” and “Lazy Sunday X” compilations), and I share Cramer’s nuanced view of the trade war and Trump’s tariffsGlobalization of capital is not an unalloyed good.

Cramer gives a nuts-and-bolts rundown of this latest round in the trade war with China.  Monday saw a big selloff in the market, as investors panicked about China slapping tariffs on American goods.  As Cramer points out, the biggest loser is Apple, which is also reeling from a loss in the Supreme Court that will allow a class-action monopoly suit to go ahead against the tech giant.

The two other companies that will most be affected are Boeing and Caterpillar.  Cramer points out—as does President Trump—that there is a huge backlog of potential customers waiting to purchase jets from Boeing, and Caterpillar made a deal with the devil, so screw ’em.

Otherwise, the Chinese dragon looks a lot more like a paper tiger.  In addition to blocking imports of liquefied natural gas—like jets, a product that the rest of the world is clamoring to import from the United States—China targeted a laundry list of foodstuffs:

…[W]hen the Chinese unveiled their retaliation list it was pretty pathetic. I am going to list some of them because you are going to know how little ammo they really have. Here’s the guts of the list: beans, beers, Brussels sprouts, cabbage, carrots cauliflower, broccoli, cucumbers, potatoes, sweet potatoes, rabbit meat, frog legs, almonds, cashews, apples, pineapples, dates, figs, mandarin oranges-mandarin!-hazelnuts, pears, macadamia nuts, whey as in curds and whey although curds aren’t on the list, eggs, butter, pasta, rice, corn, eels, trout, chickens, turkeys, peanuts, cakes, wine, wheat and then here’s some odd ones: televisions, DVRs, and cameras.

Note that those farm products are the necessities of life.  The production of televisions, DVRs, and cameras, as Cramer notes wryly, has been wiped out Chinese competition already, so they’re absurd non sequiturs.

I had a friend lament the collapse of the soybean farmers because of the trade war.  While I sympathize with the farmers, one could be forgiven for thinking this an example of missing the forest for the soybeans.  Someone else will buy the soybeans, and our generous farm subsidies will dull the pain of any major losses.

That’s all to say that soybeans and temporary market disruptions are a small price to pay to restore the American economy and to hobble China’s.  China is a far more serious geopolitical and economic threat than the Russian boogeyman (not to say Russia isn’t a threat), yet we’ve kow-towed to their authoritarian corporatism for decades, with ruinous results.

Yes, some products will cost more.  I spoke with a repair technician about doing some work on an old saxophone, and he said, “Your buddy Trump is why parts are so expensive.  As soon as the trade war started, prices for parts jumped 1000%.”  Based on the value he placed on my pawn shop Noblet, I’m assuming he’s engaging in a bit of genuine hyperbole.

Regardless, the technician lamented the decline of the once-great American instrument-making industry (huge in Elkhart, Indiana), saying that parts are made in China and other countries, with only a few horns still assembled in Indiana.  He mentioned, too, that Gretsch “sold its soul to the devil” as a result of cutting corners and relocating abroad to save costs.

Again, his fixation was on the high price of parts—but those parts could be made here again, at a higher-quality and lower cost.  Elkhart could once again become the global capital of instrument manufacturing, and saxophones wouldn’t be cheap, leaky Chinese toys.

In the short-term, the trade war will be painful for some investors (although Cramer argues that this latest round will calm down as early as today, with investors getting over their textbook-based fear of a Smoot-Hawley Tariff situation), and in the long-term, trade wars tend to produce only losers.

But in the Chinese case, it’s worth some short-term pain, and the disruption of reallocating resources, to regain our economic dominance against China.  Anything we can do to hobble their rise is a net benefit for the United States, East Asia, and the world.

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