Trump Attacks American Trade

Donald Trump Golfing. Photo by Steve Jurvetson.

Last night, President Trump announced a new plan to pressure Mexico on immigration. He did so via tweet:

International markets immediately dropped, removing billions of dollars of wealth from the planet as businesses and commodities lost some of the value they held due to stable trade.

The announcement came on the heels of Trump sending a Statement of Administrative Action on “New NAFTA” – the US-Mexico-Canada agreement – to Congress, pressuring them to pass it.

“New NAFTA” is fundamentally the same as the old NAFTA. There are a few very minor changes involved, with the greatest changes associated with theoretical events which are likely to never occur. It was to be a triumph of style over substance, a chance for the President to celebrate a victory without having to do much. Instead it appears that the USMCA is now being threatened by the person who stands the most to gain from it.

Canada is America’s greatest trading importer, with Mexico second. Census data shows that we sold more than $260 billion in goods to Mexico last year, and almost $300 billion to Canada. The risks associated with reciprocation from Mexico are great, particularly in an atmosphere where Canadians are already frustrated with America’s recent moves on trade and may not side with us during a US/Mexico dispute.

Also of note is AMLO. He is also a nationalist, albeit one who leans hard toward traditionally leftist fiscal policy. AMLO rose to the leadership in Mexico in part because of his fiery rhetoric against Trump’s domination efforts. He has since been more of a partner on immigration matters than his predecessor, Nieto, was.

The Mexican President has, to date, demonstrated that he prefers the financial benefits of free trade to the political benefits of rebuffing Trump on the issue. This move by the American President risks reversing that calculation.

Only if Trump truly believes that the tax monies coming into the U.S. government are a demonstration that tariffs make a profit does his threat to raise tariffs make any sense from a fiscal point of view. There is strong historical precedent for such a view; it is a standard position for hard left and autocratic governments. It is either fundamentally ignorant, failing to recognize the financial damage done to private persons and enterprises as the bulk of the tariff costs are passed on to them; or fundamentally anti-American, in that the notion of individual wealth is being discarded in favor of communal wealth with guardianship by the Federal authorities.

What the decision does, however, is put immigration back into the national spotlight. Trump, facing significant political fallout from the Mueller report and focus on the many criminal activities of his associates and potentially criminal activities of himself and his family, desperately wants a diversion to an issue about which he believes his base feels more strongly than anything. The issue might have been disaster relief, but recent GOP efforts to block any disaster relief have undermined that potential pivot point. What remains is immigration, and this is his hamfisted way of shifting the narrative.

Using trade for a political issue can be effective… but it causes real damage to economies. It is not merely Mexico which is the focus of trade issues with America, either; we are stalled in trade talks with China, with that country – the one from which we purchase the most goods – contemplating a strategic disengagement from trade with America due to the ongoing trade war. Japan, our fourth largest trading partner, is trying to expedite new talks to avoid a car tariff threatened by Trump, and Japan’s Prime Minister Abe is already facing significant political pressure to fight back rather than capitulate; Trump did not help the American trade case when he supported dictator Kim Jong Un, an enemy of the Japanese, while on Japanese soil.

The markets have recently faced a Treasury bond yield curve inversion, which is when the short-term 3 month return rate is stronger than the ten year return rate. This, historically, augurs a recession. There are few times which would be worse to ramp up on a trade war. Trump appears to be ramping up on multiple trade wars simultaneously.

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About AlienMotives 1062 Articles
Ex-Navy Reactor Operator turned bookseller. Father of an amazing girl and husband to an amazing wife. Tired of willful political blindness, but never tired of politics. Hopeful for the future.