Tuesday, July 10, 2018

How to Lose a Trade War [feedly]

How to Lose a Trade War
https://www.nytimes.com/2018/07/07/opinion/how-to-lose-a-trade-war.html

How to Lose a Trade War

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President Trump talking about fair trade at the Group of 7 summit last month.CreditDoug Mills/The New York Times

Trump's declaration that "trade wars are good, and easy to win" is an instant classic, right up there with Herbert Hoover's "prosperity is just around the corner."

Trump obviously believes that trade is a game in which he who runs the biggest surplus wins, and that America, which imports more than it exports, therefore has the upper hand in any conflict. That's also why Peter Navarro predicted that nobody would retaliate against Trump's tariffs. Since that's actually not how trade works, we're already facing plenty of retaliation and the strong prospect of escalation.

But here's the thing: Trump's tariffs are badly designed even from the point of view of someone who shares his crude mercantilist view of trade. In fact, the structure of his tariffs so far is designed to inflict maximum damage on the U.S. economy, for minimal gain. Foreign retaliation, by contrast, is far more sophisticated: unlike Trump, the Chinese and other targets of his trade wrath seem to have a clear idea of what they're trying to accomplish.

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The key point is that the Navarro/Trump view, aside from its fixation on trade balances, also seems to imagine that the world still looks the way it did in the 1960s, when trade was overwhelmingly in final goods like wheat and cars. In that world, putting a tariff on imported cars would cause consumers to switch to domestic cars, adding auto industry jobs, end of story (except for the foreign retaliation.)

In the modern world economy, however, a large part of trade is in intermediate goods – not cars but car parts. Put a tariff on car parts, and even the first-round effect on jobs is uncertain: maybe domestic parts producers will add workers, but you've raised costs and reduced competitiveness for downstream producers, who will shrink their operations.

So in today's world, smart trade warriors – if such people exist – would focus their tariffs on final goods, so as to avoid raising costs for downstream producers of domestic goods. True, this would amount to a more or less direct tax on consumers; but if you're afraid to impose any burden on consumers, you really shouldn't be getting into a trade war in the first place.

But almost none of the Trump tariffs are on consumer goods. Chad Bown and colleagues have a remarkable chart showing the distribution of the Trump China tariffs: an amazing 95 percent are either on intermediate goods or on capital goods like machinery that are also used in domestic production:

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Is there a strategy here? It's hard to see one. There's certainly no hint that the tariffs were designed to pressure China into accepting U.S. demands, since nobody can even figure out what, exactly, Trump wants from China in the first place.

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China's retaliation looks very different. It doesn't completely eschew tariffs on intermediate goods, but it's mostly on final goods. And it's also driven by a clear political strategy of hurting Trump voters; the Chinese, unlike the Trumpies, know what they're trying to accomplish:

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What about others? Canada's picture is complicated by its direct response to aluminum and steel tariffs, but those industries aside it, too, is following a far more sophisticated strategy than the U.S.:

Except for steel and aluminum, Canada's retaliation seemingly attempts to avoid messing up its engagement in North American supply chains. In broad terms, Canada is not targeting imports of American capital equipment or intermediate inputs, focusing instead on final goods.

And like China, Canada is clearly trying to inflict maximum political damage.

Trade wars aren't good or easy to win even if you know what you're trying to accomplish and have a clear strategy for getting there. What's notable about the Trump tariffs, however, is that they're so self-destructive.

And we can already see hints of the economic fallout. From the Fed's most recent minutes:

[M]any District contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity; contacts in some Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy. Contacts in the steel and aluminum industries expected higher prices as a result of the tariffs on these products but had not planned any new investments to increase capacity.

So Trump and company don't actually have a plan to win this trade war. They may, however, have stumbled onto a strategy that will lose it even more decisively than one might have expected.



 -- via my feedly newsfeed

China resets the tone of US-North Korea talks [feedly]

China resets the tone of US-North Korea talks
http://www.atimes.com/article/china-resets-the-tone-of-us-north-korea-talks/

China resets the tone of US-North Korea talks

Beijing appears to have leveraged its influence on Pyongyang to set back recent progress towards peace on the Korean Peninsula

 JULY 10, 2018 3:06 PM (UTC+8)
Image of US President Donald Trump, China's leader Xi Jinping and North Korea's Kim Jong-un. Photo: Getty Image
Image of US President Donald Trump, China's leader Xi Jinping and North Korea's Kim Jong-un. Photo: Getty Image

Nobody expected a rapprochement between the United States and North Korea would be easy. And few likely expected China to take advantage of the diplomatic opening to further advance its geo-strategic interests in region.

But US Secretary of State Mike Pompeo's recent setback in Pyongyang, where North Korean state media effectively referred to America's top diplomat's overtures as "gangsterism", showed that's the case on both fronts.

The US and North Korea, of course, are still technically at war and it was only a few months ago that US President Donald Trump branded North Korean leader Kim Jong-un a madman. Kim retorted by referring to Trump as "incurably mentally deranged."

Such calumny and slight was set aside when Kim and Trump met for a historic summit in Singapore in June. But Pyongyang's inimitable anti-US rhetoric was back on the vitriolic airwaves after Pompeo's third visit to Pyongyang earlier this month.

On July 7, the official Korea Central News Agency (KCNA) lashed out against what it called Pompeo's "unilateral and gangster-like demand for denuclearization" which it said ran "counter to the spirit of the Singapore summit meeting and talks."

The statement came after Pompeo, who notably did not meet with Kim during his highly anticipated visit, had said the talks were "productive" and that significant progress had been made "in every element."

US Secretary of State Mike Pompeo (L) and Kim Yong Chol, North Korean senior ruling party official and former intelligence chief, depart following two days of meetings at Park Hwa Guest House in Pyongyang on July 7, 2018.Pompeo held talks in an elegant Pyongyang guest house for a second day with North Korean leader Kim Jong Un's right-hand man Kim Yong Chol. / AFP PHOTO / POOL / Andrew Harnik
US Secretary of State Mike Pompeo (L) and North Korean senior ruling party official and former intelligence chiefKim Yong Chol depart following two days of meetings at Park Hwa Guest House, Pyongyang, July 7, 2018. Photo: AFP

The following day, US Republican Senator Lindsey Graham blamed China for the debacle, saying "I see China's hand all over this. We're in a fight with China." Graham linked North Korea's statement to the intensifying trade war between US and China.

Trump followed up with tweets critical of China's role in the debacle, saying in a heated post: "We agreed to the denuclearization of North Korea. China, on the other hand, may be exerting negative pressure on a deal because of our posture on Chinese Trade – Hope Not!"

While both Trump and Graham are likely right that Beijing had a hand in North Korea's recalcitrant statement on Pompeo, the turn is likely part of a wider strategy to supplant America's geopolitical dominance in Asia rather than a reaction to the tiff on tariffs.

A breakdown in the still incipient US-North Korea talks could drive a diplomatic wedge between the US and South Korea, where hopes are high for a normalization of relations between the two long-separated Koreas.

South Korean President Moon Jae-in is known to want a formal peace treaty with the North, one that will pave the way for other agreements on trade and bilateral cooperation. After Pompeo's visit, that prospect in the short-term again looks remote, and many South Korean policymakers are likely to blame the US for the reversal.

In May, Chang Dong Young, who served as unification minister in a previous government and is currently a lawmaker, openly blamed hardline US National Security Adviser John Bolton for problems in talks between the various players with interests on the Korean peninsula.

North Korea's leader Kim Jong Un (L) walks with US President Donald Trump (R) at the start of their historic US-North Korea summit, at the Capella Hotel on Sentosa island in Singapore on June 12, 2018.Donald Trump and Kim Jong Un have become on June 12 the first sitting US and North Korean leaders to meet, shake hands and negotiate to end a decades-old nuclear stand-off. / AFP PHOTO / SAUL LOEB
North Korean leader Kim Jong-un (L) walks with US President Donald Trump (R) at the start of their historic US-North Korea summit at the Capella Hotel on Sentosa island, Singapore, June 12, 2018. Photo: AFP/Saul Loeb

Such criticism has been muted since the Trump-Kim Singapore summit but could easily flare up again with North Korea's apparent return to confrontational official rhetoric.

North Korea's reaction to Pompeo's visit also underlined the fundamentally different interpretations of the purpose of the talks. The US wants North Korea to comply with a "complete, verifiable and irreversible denuclearization" before lifting sanctions and normalizing bilateral relations.

The North, on the other hand, wants a formal declaration ending the 1950-53 Korean War, which ended in an armistice, not a peace treaty.

Such an accord, signed by the signatories of the 1953 armistice – with North Korea and China's so-called "volunteer forces" on one side and US-led United Nations forces on the other – would give Pyongyang the recognition and prestige it desires and in its ideal scenario pave the way for the withdrawal of US forces from the Korean peninsula.

North Korea still sees weapons of mass destruction as its only life insurance. Leaders in Pyongyang are cognizant of the US-orchestrated violent overthrows of Saddam Hussein in Iraq and Muammar Gaddafi in Libya.

After Trump's backtracking on his predecessor Barack Obama's nuclear deal with Iran, there is little reason why Pyongyang would trust Washington's promises of "security guarantees" in exchange for denuclearization.

Many nuclear missiles with North Korean flag. 3D rendered illustration. Photo: iStock
Nuclear missiles with North Korean flags in a 3D rendered illustration. Photo: iStock

Indeed, there are no signs yet that North Korea is moving in that direction. 38 North, a website dedicated to Korean Peninsula analysis run by the Washington-based Stimson Center think tank, reported on June 21 that commercial satellite imagery of North Korea's missile engine-testing Sohae Satellite Launching Station near the Chinese border shows "no apparent activity related to dismantlement."

The report appeared to contradict Trump's post-Singapore summit tweets that, in apparent reference to Sohae, said North Korea is "destroying their engine site. They're blowing it up."

Other satellite imagery indicates that North Korea has finished work on a secondary cooling system for its five megawatt reactor at the nuclear research center situated at Yongbyon north of Pyongyang.

According to 38 North, "the North's nuclear cadre can be expected to proceed with business as usual until specific orders are issued from Pyongyang."

China's leading role in the US-North Korean diplomatic dance became obvious when in March Kim made his first foreign trip since taking power after the death of his father Kim Jong-il in December 2011. Until then, many observers felt that the younger Kim had deliberately avoided visiting China.

In May, Kim made a second surprise trip to China ahead of his Singapore summit with Trump. Few missed the symbolism of Kim arriving and departed from Singapore aboard an Air China jet plane.

While Beijing says it's committed to peace on the Korean peninsula, any deal will need to meet its terms. The Global Times, a daily tabloid under the auspicious of the Chinese Communist Party's People's Daily, said in a June 4 op-ed that China's involvement in any deal to formally end the Korean conflict was essential, otherwise it would be invalid and could be overturned.

North Korean leader Kim Jong-un with Chinese President Xi Jinping. Photo: AFP
North Korean leader Kim Jong-un with Chinese President Xi Jinping. Photo: AFP

KCNA's reference to Pompeo's demands as "gangsterism" made clear that Pyongyang wants much more than just the suspension of joint US-South Korean military exercises, which Trump announced after the Singapore summit before substantive talks can advance, to start dismantling its nuclear deterrent.

KCNA referred to Trump's suspension of the joint exercises as "highly reversible" and that the drills could be "resumed anytime at any moment" without "scraping even a rifle." So why should North Korea unilaterally give up its arsenal of nuclear weapons in exchange for nothing more than vague US promises of security guarantees?

According to an April statement by South Korean leader Moon, North Korea had dropped its demand for the withdrawal of the 28,000 US troops now stationed in South Korea as a precondition for its denuclearization.

In light of recent events and rhetoric – and in the absence of any official statement directly from Pyongyang – that pledge can no longer be taken at face value. Indeed, the KCNA statement cryptically said that "it seems that the US misunderstood our goodwill and patience."

China has also long desired for US troops to leave South Korea. The US, on the other hand, has maintained that the withdrawal of its troops is a non-starter, though North Korea and China will argue that the troops would need to leave as part of any final peace agreement.

If no such agreement materializes and Washington is blamed by Seoul for the failure, it could possibly lead to more interaction between China and South Korea in pursuit of alternative avenues out of the decades-long stand-off between the two Korean states.

That divide-and-rule agenda could explain why North Korea's mouthpiece media undiplomatically referred to Pompeo's overtures as "gangsterism", while the American diplomat maintained after his Pyongyang visit that the denuclearization talks were still on track.



 -- via my feedly newsfeed

Stiglitz:American Democracy on the Brink

American Democracy on the Brink

Jun 29, 2018 JOSEPH E. STIGLITZ

In just the past few days, the US Supreme Court has handed down a series of rulings favoring corporations over workers, and right-wing extremists over the majority of Americans. With the Court following Donald Trump down the path of racism, misogyny, nativism, and deepening inequality, it would appear that yet another pillar of American democracy has crumbled.

NEW YORK – The center is not holding. After US President Donald Trump's election in November 2016, millions of Americans and others around the world took solace in the idea that strong institutions and the US Constitution would protect American democracy from his predations. But events over the past few days suggest that America's institutional shock absorbers are not as robust as advertised. Within the Republican Party, which controls all three branches of the US government, the siren song of tribal politics is drowning out any remaining fidelity to America's constitutional traditions.

The clearest case of institutional rot can be found in the US Supreme Court. In the space of just a few days, the Court has issued four divisive rulings that appear to have been designed to entrench illiberal Trumpism for years to come. Making matters worse, on Wednesday, Justice Anthony M. Kennedy, the Court's longstanding swing voter, announced his retirement, paving the way for Trump to appoint another justice who has been hand-selected by the right-wing Federalist Society.

The Court's rulings this term have all but confirmed the widely held view that it is no longer acting as a wise and impartial adjudicator of the inevitable disputes that arise in any society. Instead, it has become merely another instrument for advancing an extreme right-wing agenda, one that has subjected the United States to minority rule.1

Recall that, in the 2016 election, Trump received three million fewer votes than Hillary Clinton, and Republicans held onto the Senate, even though Republican candidates received fewer votes overall than Democratic candidates. Similarly, in the US House of Representatives, Republicans won a majority far larger than their actual share of the total vote, owing to partisan gerrymandering after the 2010 census. In 2000, the Supreme Court handed the presidency to George W. Bush, who, like Trump, won fewer votes than his opponent. Now it has upheld the Republicans' gerrymandering, as well as Republican legislation that has suppressed voting among groups more likely to vote for Democrats.

OF, BY, AND FOR THE CORPORATIONS

The Court's first egregious decision this week came on Monday, in the case of Ohio v. American Express. In a 5-to-4 decision, the Court upheld anti-competitive contracts that American Express imposes on merchants who accept AmEx credit-card payments. As I pointed out in an amicus brief to the Court, AmEx's arguments in defense of its anti-competitive practices were totally specious.

The decision, written by the Court's most predictably right-wing member, Clarence Thomas, betrayed a deep misunderstanding of economics, and reflected a rigidly ideological, pro-business stance. All told, the ruling amounts to a major victory for monopoly power. Major corporations that engage in similar anti-competitive practices will now be able to entrench their market dominance even further, distorting the economy and increasing America's already glaringly high levels of inequality.



Equally perverse was the Court's ruling in Janus v. American Federation of State, County, and Municipal Employees. In another 5-to-4 decision, the Court prohibited public-sector labor contracts from requiring that government workers contribute dues to unions that are negotiating on their behalf. In a country already suffering from a massive imbalance between employers and workers, the Court has loaded the scale even further in favor of the former. Selfish workers will now be able to free ride on their colleagues' efforts to bargain for improved working conditions and higher pay; and if there are enough of such workers, unions will be further weakened for lack of funds.

The purpose of unions is to take political positions that will advance the interests of workers. And to ensure that the political positions they take reflect the views of a majority of workers, unions hold democratic elections. The five conservative justices who signed the opinion, however, offered the galling argument that forcing workers to pay to support views with which they disagree is a violation of their First Amendment free-speech rights.2

It is worth remembering that in Citizens United v. Federal Election Commission(2010), the Court decided that the First Amendment permits corporations to make unlimited contributions to political campaigns. So, in the eyes of the Court's conservatives, corporations may support views that run contrary to a majority of their shareholders and workers – who had no say in the matter – but unions may not express views that are opposed by even a single dues-payer.1

CULTURE WAR "JUSTICE"

The Court's conservatives offered another perverse reading of the First Amendment in National Institute of Family and Life Advocates v. Becerra. In yet another partisan, 5-to-4 decision, they ruled that a state cannot force a licensed reproductive-health center to inform patients of the availability of abortion options. According to this view, freedom of speech includes the freedom not to say certain things, even if one is purporting to be a legitimate health-care provider.

Under this extremist view, cigarette companies do not have to disclose that smoking is bad for one's health, and banks need not disclose the full extent of their charges. In these and other situations in the past, the Court struck a balance between free speech and other equally important rights. But in the case this week, there was no balancing whatsoever. The reason is simple: The Court, as a tool of the extremist right, is advancing a Republican campaign against a woman's right to make informed decisions concerning her own health.


For years, Republicans at the state level have been rolling out measures to make it harder for women to get an abortion – or even to learn about it – and these policies have proven particularly harmful to the poor. But now that Kennedy is retiring, the right to abortion itself, recognized in the landmark case of Roe v. Wade (1973), will be in the conservatives' crosshairs. If it is overturned, Republican-controlled states across the country will suddenly have the power to deny women's longstanding 14th Amendment right to privacy and control over their bodies.

The fourth alarming decision this week came in Trump v. Hawaii, in which the Court's conservative majority upheld Trump's executive order banning entry to travelers from a number of predominantly Muslim countries. The Court ruled that Trump did not abuse his authority to control immigration in the interest of national security. Yet, as Trump himself has indicated on many occasions, protecting national security was not really his intent when crafting the ban. As Associate Justice Sonia Sotomayor made clear in her blistering dissent, Trump's own incendiary tweets show that his real goal was to keep Muslims out of the US.

To be sure, the Court was reviewing the third revision of Trump's travel ban, which had been expanded beyond Muslims to include bans on North Koreans and Venezuelans. But the administration's changes were obviously meant to disguise Trump's true motives. The administration's claim that a ban is necessary because it is too difficult to vet people from these two countries is laughable. North Koreans, in particular, have been vetted with a fine-tooth comb for decades, given that there has never been a peace agreement formally ending the 1950-1953 Korean War.

And, of course, if Trump's goal is to protect national security, one wonders why Saudi Arabia – whose citizens were responsible for the September 11, 2001, attacks – is not on the list. The answer is obvious: Trump wants to maintain his and his family's lucrative relationship with the Kingdom's rulers.

Now, if the Court's perspective is taken to its logical conclusion, Trump can simply defend any outrageous action he takes on the dubious grounds of "national security" – the alibi beloved by all fascist dictatorships. The Court's conservatives have signaled that they will turn a blind eye to policies motivated by racial or religious animus. And, presumably, they would have no problem supporting Trump' trade war, which he has also launched in the name of national security.

TYRANNY OF THE MINORITY

The four major decisions handed down by the Supreme Court this term are each disturbing in their own way. America already has the highest level of inequality among advanced countries, and the Court has now empowered monopolies and corporations, while gutting the power of trade unions to reach collective bargains that benefit the working and middle classes.

But, beyond that, the way the Court arrived at these four decisions has launched a new political war. Since America's founding, successive governments have struggled to craft norms that would steer the country away from extremism. Heeding the wisdom of America's founders, most US leaders have understood the risks posed by ruling parties that abuse their power, leading to the establishment of an array of processes and institutions to prevent majoritarian diktats. For example, in the US Senate, the filibuster rule sets a floor of 60 votes for passing major legislation, precisely so that the majority party cannot run roughshod over the minority.

But then Republicans started ignoring these norms. The US Constitution requires that the Senate provide "advice and consent" on presidential appointments, and the norm had long been that only truly unqualified candidates should be rejected. But during Barack Obama's presidency, Senate Republicans used the filibuster with abandon to block candidates with whom they disagreed on issues such as abortion. As executive-branch vacancies began to pile up, Senate Democrats, then in the majority, had no choice but to end the filibuster rule for presidential nominations. Even at the time, the dangers of such a move were clear. An extremist president, supported by a compliant Senate, could appoint almost anyone to any position.

Today, we are now witnessing what happens when the system of checks and balances is torn asunder. After retaking the Senate in 2014, Republicans refused even to consider Obama's highly qualified centrist candidate for the Supreme Court, Merrick B. Garland. And last year, after their obstructionism paid off with Trump's victory, the Republicans ended the filibuster for Supreme Court nominations, in order to confirm Trump's pick, Neil M. Gorsuch, to succeed Antonin Scalia (who by that point had been dead for 14 months). Now that Justice Kennedy's retirement has opened another vacancy on the bench, Trump will be able to pack the Court for at least a generation. After that happens, we will most likely be in a situation in which a majority of Americans has no confidence in the Court whatsoever – to say nothing of the other branches of government.

THE DYING OF THE LIGHT

The US Constitution provides that Supreme Court justices "shall hold their Offices during good Behavior," which implies a life-long tenure. But in 1789, people simply did not live as long as they do today. And so, over the years, Republicans have gamed the system by appointing young, sometimes dubiously qualified justices in an attempt to pack the federal courts. The fact that Democrats have not tried to do the same suggests that they, at least, take seriously the responsibility of finding the most qualified candidates.

Given the decisions that the Court handed down this season, it is now obvious that the US needs a constitutional amendment to set term limits for justices. That won't be easy. But it is imperative to restore the Court's legitimacy as a fair arbiter.

The only alternative is to expand the size of the Court, which does not require a constitutional amendment. That is what former President Franklin D. Roosevelt famously tried and failed to do when a narrowly divided Court threatened to obstruct his New Deal reforms. But breaking the "norm" of nine justices poses its own risks, because once that threshold has been crossed, the extremist Republican Party will have yet another tool for packing the Court.3

Another important lesson to be drawn from the Supreme Court's just-completed term is that the rule of law, so often held up as the backbone of American society and its political economy, is perhaps not nearly as sturdy as many imagine it to be. The "law," after all, can and has been used by the powerful to oppress the weak. And, as we are seeing today, it can also be used by a minority to put its foot on the throat of the majority.

Even if Fox News and other forms of right-wing propaganda persuaded a narrow majority of Americans to support the arguments offered by the Court's conservatives, its recent decisions would be questionable. And yet all of them will have far-reaching implications. As Duke University law professor Jedediah Purdy rightly noted, they form "part of a longer historical arc: the dismantling of the legal legacy of the New Deal and the creation of law for a new Gilded Age." In other words, the Court is steadily changing the rules of the game in ways that will alter the nature of American society for the worse.

Trump is taking America down the path of racism, misogyny, nativism, prejudice, and protectionism, while pursuing economic policies that serve the very few at the expense of the overwhelming majority. He and his Republican lackeys are undermining America's system of checks and balances, as well as its truth-telling institutions, from universities and research institutions to the media and intelligence agencies.

The judiciary is supposed to provide a check when others cannot. Now that the Supreme Court has cast its lot with Trump, US democracy is truly in peril.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. His most recent book is Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump.

--
John Case
Harpers Ferry, WV
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How To Avoid a Trade War [feedly]

How To Avoid a Trade War
https://www.project-syndicate.org/commentary/china-europe-reaction-trump-trade-tariffs-by-dani-rodrik-2018-07

DANI RODRIK

Economists typically argue against focusing excessively on the losers from freer trade, and they decry the tendency to overlook the beneficiaries on the export side. They should not be prone to the same fallacy now, by ignoring that US protectionism surely will generate some beneficiaries as well in other countries.

CAMBRIDGE – Defying common sense as well as business and financial elites, US President Donald Trump seems to relish the prospect of a trade war. On July 6, his latest trade restrictions – 25% tariffs on about $34 billion of Chinese imports – took effect. They were promptly met by retaliatory tariffs on an equivalent volume of US exports to the Chinese market. Trump has threatened further measures against China, as well as tariffs on automobile imports from Europe. And it remains possible that he will withdraw the United States from the North American Free Trade Agreement if Mexico and Canada do not agree to amend it to his liking.




Trump's kneejerk protectionism does little to help the working class that helped elect him. Disaffected congressional Republicans and unhappy corporations that have supported him on other matters may yet rein him in. But those who, like me, thought Trump's bark would be worse than his bite on trade are having second thoughts about where all of this might lead.

But before we get too carried away with doomsday scenarios on trade, we need to consider other countries' incentives as well. Trump may well want a trade war, but he cannot have it on his own. A trade war requires other economies to retaliate and escalate. And there are compelling reasons why they should not do so.

In the usual scenario, trade retaliation occurs because countries have economic reasons to depart from low tariffs. The canonical historical experience unfolded during the early 1930s, when countries were caught in the Great Depression with high unemployment and inadequate policy remedies. Counter-cyclical fiscal policy was not yet in vogue – John Maynard Keynes' General Theory was published only in 1936 – while the Gold Standard rendered monetary policy worse than useless.

Under the circumstances, trade protectionism made some sense for each country on its own, as it shifted demand away from foreign goods and thus helped support domestic employment. (Of course, for all countries taken together, protectionism spelled disaster; one country's expenditure shift was more than offset by others' own shifts.)

Economists also consider another scenario that focuses on the so-called terms-of-trade effects of tariffs. By restricting trade volumes, a large country or region can manipulate the prices at which it competes in world markets to its advantage. An import tariff, in particular, would tend to depress the world prices of imported commodities, while raising their tariff-inclusive prices – with the home treasury reaping the difference in tariff revenues.


If Europe, China, and other trade partners were to retaliate in response to Trump's tariffs they would simply reduce their own gains from trade without reaping any of the advantages of protectionism. And they would be doing Trump a favor by lending surface plausibility to his complaints about the "unfairness" of other countries' trade policies vis-à-vis the US. For the rest of the world, raising trade barriers would be a case of cutting off one's nose to spite one's face.Neither scenario makes much sense today. Europe and China are not particularly interested in depressing world prices of their imports or in the resulting revenue. Employment considerations are not a major issue, either. While some countries in the eurozone suffer from high levels of unemployment, there is nothing that protectionism can do for these countries that expansionary fiscal or monetary policy (the latter by the European Central Bank) cannot do better.

Besides, if Europe and China want to uphold a rules-based multilateral trade regime, as they say they do, they cannot mirror Trump's unilateralism and take matters into their own hands. They need to go through the World Trade Organization and wait for formal authorization to reciprocate, without expecting a quick resolution or that Trump will have much respect for the eventual ruling.

In short, both self-interest and principle counsel restraint and no (immediate) retaliation. This is the time for Europe and China to stand tall. They should refuse to be drawn into a trade war, and say to Trump: you are free to damage your own economy; we will stick by policies that work best for us.

Provided other countries do not overreact, Trump's protectionism need not be as costly as many accounts make it sound. The value of trade covered by the measures and countermeasures resulting from Trump's trade policies has already reached $100 billion, and Shawn Donnan of the Financial Times reckons that this figure could soon reach more than $1 trillion, or 6% of global trade. This is a large number. But it assumes retaliation, which need not occur.

More important, what matters is incomes and welfare, not trade per se. Even if the volume of trade takes a big hit, aggregate economic performance need not suffer much. Some European airlines favor Boeing over Airbus, while some US airlines prefer Airbus over Boeing. Trade restrictions may result in a total collapse in this large volume of two-way trade in aircraft between the US and Europe. But the overall loss in economic welfare would be small, so long as airlines view the two companies' products as close substitutes.

This is not to minimize the costs that specific European and Chinese companies may incur as the US market becomes more closed. But for every exporter forced to seek alternative markets, there may be another domestic firm presented with a new economic opportunity. As US trade shrinks, there will be also fewer American competitors and less US competition.

Economists typically make the point in reverse, when they argue against focusing excessively on the losers from freer trade, and they decry the tendency to overlook the beneficiaries on the export side. They should not be prone to the same fallacy now, by ignoring that US protectionism surely will generate some beneficiaries as well in other countries.

Trump's protectionism may yet result in a global trade war, with eventual economic consequences that are far more serious than the self-harm it entails at present. But if that happens, it will be as much the result of miscalculation and overreaction on the part of Europe and China as of Trump's folly.
DANI RODRIK

Writing for PS since 1998
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Dani Rodrik is Professor of International Political Economy at Harvard University's John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy, Economics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

 -- via my feedly newsfeed

Sunday, July 8, 2018

China's unicorn Calvary

‘It’s Almost Like a Ghost Town.’ Most Nursing Homes Overstated Staffing for Years



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'It's Almost Like a Ghost Town.' Most Nursing Homes Overstated Staffing for Years // NYT > Business
https://www.nytimes.com/2018/07/07/health/nursing-homes-staffing-medicare.html

Payroll records for more than 14,000 facilities show that the number of nurses and aides at work dips far below average some days and consistently sinks on weekends.
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U.S. Opposition to Breast-Feeding Resolution Stuns World Health Officials



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U.S. Opposition to Breast-Feeding Resolution Stuns World Health Officials // NYT > Business
https://www.nytimes.com/2018/07/08/health/world-health-breastfeeding-ecuador-trump.html

Trade sanctions. Withdrawal of military aid. The Trump administration used both to try to block a measure that was considered uncontroversial and embraced by countries around the world.
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