President Trump’s Trade War…victors, targets and victims. - Ali Velshi - Chief Economic Correspondent - NBC News - Anchor for MSNBC - Monday 7/16

President Trump’s Trade War…victors, targets and victims.
Ali Velshi
Chief Economic Correspondent
NBC News
Anchor for MSNBC
Monday 7/16

 

According to the allegedly iron law of supply and demand, when customers start clamoring for a product, you should expect to see its price rise.

So it demands some explaining why, in the midst of record-breaking sales of American soybeans, to our longtime best customer China, and lots of other old and new buyers, the price of soybeans should drop dramatically.

The answer in 3 words, Trump’s trade war.

When President Trump decreed a 25% tariff on $34 billion worth of Chinese products, the Chinese responded with tariffs of their own.  Among the targeted American products, soybeans. China loves American soybeans. They bought more than $14 billion worth of them last year, roughly 7 times as much as our #2 customer Mexico.  In the weeks before the tariffs took effect last month, Chinese buyers tried to beat the trade war clock by investing in their New Year’s Tofu early…and why wouldn’t they with their US suppliers in something akin to a going out of business sale?  Low prices beat the prospect of overstocked shelves of unsold beans, once America’s #1 soybean customer was effectively priced out of the market.

US farmers also had to offer bargain prices to new customers, who normally buy soybeans from Brazil.  They too were stocking up early, expecting that the tariff on US beans will direct Chinese buyers to Brazil, leaving lesser importers to scramble for China’s leavings.

Now the world’s soybean consumers are stuffed, preparing to ride out the trade war, with no need to buy American.  For US soybean farmers, the rest of 2018 looks grim, and everything thereafter looks uncertain.

And do you want a bitter laugh?  Everyone expects the mega-rush on cheap American soybeans to give a big boost to the economic numbers for 2018’s second quarter.  And everyone expects Donald Trump to claim this bump-up to be evidence that his whole economic plan is working.

How will he explain the wider effects of a deflating soybean market in Quarters 3 and 4 and beyond?  Well, he’s got 3 more months to think of a plausible lie.

When Trump started his tariff program, back in January.  He said his tariff would protect the domestic solar industry and grow jobs.  In fact, the added costs for solar installations directly due to the tariff’s bite on imported parts have raised retail prices, slowed retail sales and forced significant cuts of many solar-related payrolls.

But anything that slows the momentum for solar power helps sustain Trump’s friends and funders in the oil, gas and coal industries.  Some suspect that was the point to the tariff intervention.

But what are the goals of the wider trade war?  Who are tariffs supposed to benefit? Who are they supposed to punish?  And how are both of those “supposed to’s” working out?

In military wars, there is a tendency towards mission creep, giving the war an ever-growing set of goals even if that complicates the meaning of success and necessitates often exponential growth in costs.  You start out trying the punish and expel Al Qaeda from the Tora Bora mountains and 17 years later, you’re still in Afghanistan fighting the Taliban, ISIS, and the limitations of America’s governing allies.

In that context 2 trends are already clear in President Trump’s trade war: the tempo of mutual escalations is increasing and so is the magnitude of the escalations.

Just days ago, Trump announced $200 billion worth of tariffs against Chinese products, starting in September.  If precedents count, China’s likely to match, by targeting other American products. Those tits-for-tats alone are expect to knock as much as 10% out of the annual growth rate in China and the US and other innocent parties like South Korea and Japan who trade with both.

All wars produce collateral damage.

 

READING ROOM

Ali Velshi was born in Nairobi and raised in Toronto.  He is the Chief Business Correspondent for NBC News and and co-anchor with Stephanie Ruhle of Velshi & Ruhle on MSNBC.   He was CNN’s Chief Business Correspondent, Anchor of CNN’s Your and a co-host of CNN International’s weekday business show World Business Today. In 2013, he anchored at Al Jazeera America until joining MSNBC last October.  He is the author of 2 books, a winner of a National Headliner Award for Business & Consumer Reporting and a 3-time nominee for an Emmy Award.  

https://www.washingtonpost.com/business/economy/in-symbolic-rebuke-senate-votes-to-seek-congressional-role-in-president-trumps-tariff-decisions/2018/07/11/def7d556-851a-11e8-8553-a3ce89036c78_story.html?utm_term=.c7bee98671c4

https://www.nytimes.com/2018/07/11/business/china-trade-war-rare-earths-lynas.html

https://www.nytimes.com/2018/07/11/business/brexit-and-trade-wars-are-quietly-undermining-the-markets.html

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

https://www.nytimes.com/2018/07/09/opinion/trump-tariffs-tofu.html

https://www.brookings.edu/blog/the-avenue/2018/03/06/why-the-rust-belt-economy-will-suffer-in-a-trade-war/

https://www.nytimes.com/2018/05/14/business/zte-trump-china.html

 

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