Trump’s Trade War

The US/China trade war has been the biggest economic topic that has gripped the world. It would seem the US President is hell bent on cutting Chinese imports into the US and just recently, he announced a 30% tariff on solar panels and washing machines. Solar panels and washing machine. It does not seem like a well thought out strategy. Especially for a country like America that needs alternative energy and a country that probably has a washing machine in about 90% of the households. The Chinese Ministry of Commerce has expressed its dismay over this.

The irony is that Trump has done this a few days before the World Economic Forum meeting in Davos. This move will be seen as short sighted and senseless. The Davos elites espouse a “one-world” economy and oppose capital and trace controls.

The Davos elites believe in a theory of free trade based on a 19th century British economist David Ricardo’s idea of “comparative advantage.” The theory says that countries should focus on the things they do best and not try to do everything themselves. The theory does away with self a sufficiency in core industries like agriculture, manufacturing and mining instead it encourages countries to share by trading the goods they make for goods made by others. The idea is that both sides will be better off because they will get the best products at lower prices.

It is a nice idea, but it is naive. Why? Because comparative advantage cannot be a static thing. It sounds more like something that someone conjured from thin air after reading The Secret. If the theory was somehow good enough to work, then Japan would still be exporting tuna fish and nothing else. No TVs, no cars, no steel and no computers. It would have stymied the economy of Taiwan. Globalists also think that money should flow easily between countries. This is something close to what the European Union was based on when it was formed.

Trump is on his own mission. He is clearly not interested in making friends, nor is he interested in playing fair with others. Some would say he is trying to create an insular imperialistic US. Trump seems to be of the notion that if he can block imports of certain goods into America, he will open up opportunities for those goods to be manufactured in the country itself. Global economies don’t work that way. Countries import goods not because they can’t manufacture them on their own, but because they may lack the raw materials or the expertise to do so and it might turn out cheaper to import goods.

Donald Trump has said that we should expect more tariffs, especially with regards to steel and aluminium. China has been the biggest exporter of these materials, but these tariffs aren’t created exclusively for China. Tariffs on specific goods will affect other countries who export to the US, not just China.

A lot of countries are tired of the United States of America having the kind of power it has in the world. Having the US as the global pinnacle is something that countries like China and Russia are trying to move away from. If Davos participants had it their way we would have a global currency and an economic and political policy that everyone subscribes to. That sounds like the end of the US dollar hegemony, and more like what “gold standard” proponents envision the world should be.

The US is not budging on the issue of tariffs and China is retaliating with its own set of tariffs. If this blows up into a full-scale trade war, a lot of the emerging markets will suffer given the trillion in Dollar denominated debt they have. If emerging markets aren’t able to earn dollars from exports, it will be hard for them to pay off their debts. China could retaliate in other forms like buying fewer US Treasuries and substituting that with gold. This may very well be what they are doing now. This is the reason why the US dollar has been weak and why gold prices are rising.