China: hold my beer.
China announced new tariffs on 128 American imports yesterday, primarily targeting agricultural products such as pork, nuts, fruit, and wine. In a statement, the Chinese government said it was imposing the new tariffs "in order to safeguard China's interests and balance the losses caused by the United States' additional tariffs."You don't have to be a reader of Cold Spring Shops to see this coming. "Chinese tariffs will hit a wide range of American-grown fruit as well, including apples, oranges, watermelons, strawberries, raspberries, cranberries, cherries, grapes, and pineapples." And ginseng. "Ginseng growers in Wisconsin are worried about the future of their business after a tariff went into effect overnight in China." Canadian ginseng farmers will see an export opportunity, never mind that connoisseurs of the stuff have awarded Wisconsin the blue ribbon for quality. There's no futures market for ginseng, which is going to make life interesting for people who dislike futures markets. (Farmers cannot hedge against a price drop by contracting now for delivery in September. Sometimes the speculators guess wrong.) The retaliatory tariffs might also affect the Foxconn factory deal. "Ginseng growers throughout central and upper Wisconsin are hoping that their own deal with tech giant Foxconn can help them reach new markets."
I may have been groggy this morning, but I thought I heard the tariffs also included scrap metal. That's priceless. Our steel producers complain about Chinese steel dumping, and somehow the feedstock goes overseas, gets recycled into steel, then sent back here: and all those transportation costs aren't enough of a trade barrier for the domestic industry? Sad.
Meanwhile, Stephen Moore expands on the second-best-optimal-trade-war argument. "In recent weeks, Trump apparently delivered two big and underappreciated victories as a result of his threat of stiff tariffs and renegotiated trade deals." Somewhere, Pyrrhus is nodding.
First, Seoul has agreed to reduce long-standing non-tariff trade barriers that have reduced American exports to South Korea. Though the details are still sketchy, it appears that the Koreans will buy more Ford and General Motors cars and trucks and other U.S.-made products. This can be only good news for American workers. The Koreans have also agreed to increase reimbursement rates to American drug and vaccine producers.Perhaps, also, Mr Moore is correct on national security grounds. "You can't have free trade with a country that steals $500 billion and arms your enemies. Period. End of argument. Why couldn't George W. Bush and Barack Obama figure this out?" He continues,
Even The New York Times begrudgingly conceded that the deal the president secured "represents the type of one-on-one agreement that Mr. Trump says makes the best sense for American companies and workers." The Koreans called it "significant progress" in the U.S.-Korea trading relationship. But make no mistake about it: The nation that made concessions here was Korea, not the U.S.
Also in recent days this week, China folded in response to Trump's jarring announcement of a record $50 billion in tariffs on Chinese products. China at first reacted by threatening to retaliate with barriers on American soybeans, wheat, blue jeans and bourbon. The American financial markets tumbled and some bears even moaned we were facing a 1929 crash.
Trump was announcing to the world that if you want to continue to have open access to America's multitrillion-dollar consumer market — and nearly every nation in the world, most of all China, needs that passport — you are going to play by rules that benefit Americans, abide by the rule of law and promote American security interests.Singeth the skald, Praise ice when you're across it, and (more expensive?) beer when it's drunk.
Yes, this is a dangerous game Trump is playing for sure. He risks upending three decades of progress in opening markets for international trade that have benefited the citizens of the world in lower prices for nearly everything. He may be risking another 1930s-style trade tariff war that shut down global trade and cratered the world in depression.
If that happens, Trump's trade strategy will have clearly backfired.
But Trump recognizes what many of the globalists don't: the enormous leverage America has on the world economic stage. He told voters that he can get a much better deal for American companies and workers. He punched China in the nose with the tariff announcement, and guess what? China, at least for now, has backed down.