by Edwin A. Sumcad –
My opening statement: All Americans should be aware of what to expect in a trade war. As of now, they are not.
For their own good, Americans should stop freaking out because of concocted and false reports against the President, his family and the presidency that convert them into a cadre of Trump attackers that help the nefarious attempt of the Left and the Deep State to unseat a duly elected President of the United States in a bloodless coup
All Americans should have realized by now that every news published or reports aired by the Media against Trump – against this President who is trying very hard to do the best he can to clean up the swamp and to mend the broken system so that this country can be great again — is truly ill-motivated, and therefore absolutely bogus. This is reality that stares back in the face, opposite of the delusional world those anti-Trump enemies of the state is trying to create in order to blindside each and every American they could get to join their losing cause to win the coming 2020 presidential election.
Here is why every American should stay calm and act normal in the midst of this man-made storm brewing in the horizon which is as fake as porn star Stormy Daniels’ bitchy accusations about Trump: No right-thinking Americans should believe any of those fake news against the President of the United States and imperil their own safety and that of their families, as well as this country’s national security now under attack from the Left and their accomplices in Congress, from Pelosi to a rotten sushi you want to avoid to eat in a restaurant in the middle of the desert of Arizona where the late Sen. John McCain who in his last breath died with a curse on his mouth against Trump.
The words of those statements I just made are important to support those openings. I will lay them out as much as possible, and as clear as the summer blue sky in summer as much as I can. Clarity is what journalists owe to serious readers of published happenings that affect their lives.
First on Sen. McCain: The curse the late Senator have in mortis causa against the President of the United States would have been justified if McCain died a hero. But he did not die as a war hero. He died of cancer. To Trump – and at least to me – McCain was a bad politician who died of a disease which seemed to have been intended for a treacherous political maverick who should have died as a war hero to correct a distorted reverence of his name he truly did not deserve, thanks to the Fake Media.
A lot of Americans haven’t realized that McCain was our enemy’s prisoner of war in Vietnam for more than five years. After his release the Fake Media welcomed him as a “hero” instead of a traitor.
McCain had been suspected to have allegedly capitulated with the enemy in order to survive that long as a prisoner of war. Had his captivity been investigated after his release, he could have given information to the enemy that led to the death of hundreds if not thousands of American soldiers in Vietnam and elsewhere in order to survive in the camp. He was the enemy’s prize POW because his father was John Sidney “Jack” McCain Jr., a United States Navy admiral.
What do you think the enemy would do to further their war cause if they captured an American soldier like McCain? As a POW the enemy treated him differently from the rest of war prisoners. That alone should have been suspicious and should have triggered an inquiry for the sake of American soldiers who were captured and/or died in Vietnam because of war prisoners like McCain who might have betrayed them. But the Fake Media did a good job of faking him as a war hero. As a Republican the Fake Media even supported McCain when he ran for President in 2008 because he campaigned like a liberal Democrat. We might say Obama did not really win that presidential election hands down when McCain just beat himself out of the race!
As to the question of patriotism, and in politics loyalty to the cause of the Republican Party, Sen. McCain was neither bird nor beast – just a foul-smelling bat flying blindly in an instinctive sonar impulse without direction.
Lastly, treachery is never a stranger to Sen. McCain. He was always a traitor to the Republican cause. He scuttled the Republicans’ only opportunity to wipe out Obamacare off the statute book when he was the lone Republican who voted against replacing the Obama Affordable Act. He did that not out of principle but out of spite because even to his grave his hatred of President Trump was hell-bound.
Back to the trade war where my assessment of the outcome is different from the grim prediction of the anti-Trump pundits: As the current US-China tariff war escalates, the nagging question now is who has the winning edge – Trump or Xi? My answer is, definitely Xi, since then, for China.
Chinese President Xi Jinping’s advantage for China has been going on for decades, but not anymore when Trump became President of the United States. This advantage has shifted to the United States.
China’s advantage was only then, but now, not anymore. As you probably notice this early on, I state my findings and conclusion as to the probable outcome of this trade war, before my analytical evaluation of this subject unfurls. This is a surprise change of presentation to highlights the difference between my assessment and that of what Americans currently read in Washington Post, New York Times and their kind, or watch in CNN and MSNBC televisions talk shows and the other anti-Trump copycats channels.
Many prognosticators or economic seers who have their academic handle secured on fiscal and monetary policies, more specifically on how tariffs affect the economy, have their own scholarly guts spelled out there like an authoritarian omen in the sky which may be contrary to my view. My view is inspired from what I learned from my studies of the World Bank on GATT (Government Agreement on Tariff and Trade) and regional trade negotiations, which may be opposite and contradictory to what the American public has been exposed to all the opinions of those anti-Trump economic skeptics and cynics.
But although economic analyses differ or as opposite as the North and South poles are, none of the opposing views is right or wrong. There is no right or wrong in economic principles being analyzed. What only matters is the application of those principles which is often subject to a comparative challenge.
And why is that so, it is because when we talk about trade war, what we are dealing with is an economic analysis of fiscal and monetary policies with a range of variables wider than the Gulf of Mexico. I might point out that among them is the open-ended conflict between interest rate and inflation, as the economy absorb a tariff shock. In this area economists do analysis as an examination where they proceed from viewing the anatomy and anatomization of the subject as they analyze, whereas when the analysis is referred to as a form of study for the purpose of general information and dissemination, the scrutiny quickly translates into opinion and judgment.
I take the simpler form of these two analytical versions in order to touch base with the ordinary American readers and that is writing this analytical report aimed at forming a public opinion and judgment as to whether Trump or Xi has the edge in this much-talked-about tariff war. Right now for the US, definitely Trump has the winning edge.
The first incontrovertible fact to leg-up this statement is that the timing of the trade war is in Trump’s favor. The US economy right now is at its strongest, which means it is positioned to absorb the shock of an economic downturn, the worst that could be expected in a trade war.
Next to high prices or inflation, the loss of jobs in the economy is a dreaded result the consumer-population has to bear both in China and in the United States as the trade war worsens.
It is bad for Xi whose leadership is the weakest in years. His leadership in domestic affairs was recently attacked in the “Lianghui”, a meeting of the Chinese Communist Party, known as a “rubber-stamp” legislature composed of powerful political advisors critical of how Xi uses his power that merited an enmity with the United States, the mightiest economic and military power on the planet. In China, the Chinese leadership recently discovered that Trump is different from Bush, Clinton or Obama Xi and his predecessors have been dealing with. That’s where China’s first miscalculation lies.
As a policy of containment and survival, China does not want war with the United States right now – not yet anyway – as it expands, solidifies and strengthens its position of influence in the Middle East, Europe and in the South China Sea for world dominance. Once Xi’s questioned leadership jeopardizes this global set-up and nips in the bud this Chinese international strategy, the watchers of the Communist Throne where he sits right now will be upset if not so mad and unforgiving. Communist regimes have repressive traditions of executions of leaders. Heads are expected to roll into the basket as the Guillotine of the People’s Republic Of China drops on the necks of those responsible for China’s failed leadership.
Thus as this trade war with the United States is becoming a threat to the Chinese economy and China’s national security, Xi’s political power for life could end at a wink of an eye before this trade war trends to its worst.
Similarly, President Trump is facing domestic opposition from the left-leaning “Demonrats” of Congress (this term came out from the mouths of Conservatives) led by low IQ Speaker Nancy Pelosi and obstructionist Sen. Chuck Schumer followed by their underlings like Russian-collusion-obstruction-obsessed subpoena clowns Jerry Nadler and Adam Schiff, and of course not to speak of impeachment crazies like Rep. Maxine Waters and the leftish socialist-Palestinian Triad Ocasio-Cortez-Omar-Tlaib representing the Left’s Jihad in Congress.
By the way my categorization of Nancy Pelosi as a low IQ Speaker of the House is not without justification. Just minutes before she, Schumer and some “Demonrats” meet with President Trump for an infrastructure pow-wow in the White House, Pelosi gathered first her entourage to discuss Trump’s impeachment and at the same time accused Trump of a criminal “cover-up” on national television. Trump learned about this just minutes before the meeting. Stunned and surprise, the timing of the Pelosi attack pushed Trump off the reel. Trump stepped into the meeting room visibly disgusted, then walked out.
How can President Trump work with those “Demonrats” who when just minutes before the meeting, were conspiring and planning to impeach him? Only a low IQ Speaker of the House would expect the President of the United States to meet with her and cooperate with her legislative agenda for infrastructure at the same time she and her entourage were accusing him of a criminal “cover up” and planning to impeach him.
It is quite odd for Speaker Pelosi to present grandiose infrastructure plan to President Trump when she cannot even plan anything for her district in San Francisco where just lately it was reported that countless number of homeless camped in dark alleys and street corners, stink with their urine and feces, and dying of drug-addiction and diseases now spreading all over the city. Pelosi is just a low IQ politician incapable of brain work and with a speech disorder, stutters when she speaks which to me indicates a very confused mind of a donkey who as Speaker of the House is carrying a load on her back.
Obviously, Pelosi’s low IQ is a mismatch to Trump’s higher IQ. Again like a politician who thinks like a two-legged donkey, Pelosi was even shock when President Trump walked out of the conference room. That means Pelosi has no idea why Trump has to step out from this gathering of “Demonrats” in the White House.
Before the camera, low-IQ Pelosi uttered a prayer for the President as if Trump’s walk out was inspired by a demon and like one of the witches of Eastwick she wanted to exorcise the President. So sick, my wife, a journalist, said as she and I were watching this donkey-like Pelosi burlesque unfolds in our television screen.
By the way the scientific lowest IQ scores of a person are as follows: Moron – 51 to 70. Imbecile – 26 to 50, and Idiot – 0 to 25. While Trump’s high IQ borders with that of a genius, I leave to the public the opportunity to judge how Schumer’s and Pelosi’s low IQ scores read. I have an idea how low it is, but I have no confidence to say that it is not between 0 and 25. Remember Mueller’s expertise in issuing double negative statements? He has no confidence to say that Trump did not commit obstruction of justice otherwise he said if I have, I would have stated it in my report that he was innocent.
Consequently, this unhinged and almost insane resistance against Trump and his presidency by this radical group led by Pelosi and Schumer whose presence in Congress is a total waste of our tax money, is probably as intense and frustrating as what Xi is facing right now from China’s Communist Politburo, but the difference is that President Trump is at the height of his leadership that translated into a powerful economy with growth rates never experienced before in the history of the United States in such short period of time ever. It is the opposite of Xi’s weakening leadership which is visibly declining fast as bad time erodes his power and control of the Communist Party.
If we are talking of national leadership in peril between these two presidents, we have a clear scenario that tips the balance of the scale of comparative advantage in President Trump’s favor as he programmed to raise the tariff to a whopping 25% on a $200 billion worth of Chinese export to the United States. As of this writing, he already started it at 10% and to rise to 25% depending on how the tariff war behaves or moves on from day to day.
Xi’s leadership in China is not only exposed to imminent danger — like the possibility that as President he will be booted out of office and banished into the dustbin of history, that is if he escapes the communist guillotine for failure — but if Trump is determined to win the trade war by imposing more and more tariffs on Chinese goods no US President has ever imposed before as the trade war drags on, “Beijing will experience such unbearable pressure that it will finally lead to the collapse of the Chinese Communist regime”. This freak-out quote comes from a Chinese political and economic analyst who was so worried about the outcome of economic US-China confrontation, fearful that by calculating the odds, China is going to lose the war to the United States.
Let’s talk about economic pain the two countries will suffer in a trade war in terms of job loss. If no compromised trade deal will come out in the middle of this year or immediately thereafter, the United States will suffer an estimated job loss of 250,000 annually as China imposes a round of tariff increase on a $50 billion worth of US goods.
On the other hand, the Chinese will lose an estimated 700,000 jobs and even more as China faces the next salvo of US tariff increases President Trump applies on more Chinese goods worth $200 billion as he is determined to win this trade war with China. I have said before in many of my previous writings that no country on this planet can beat the United States in any kind of war, economics or nuclear.
On the economy, the United States happened to have an unemployment rate that lately dropped to a record low of 3.8%. This unemployment rate is not only sustainable according to market expectations, but even continues to drop as Trump’s growth policies nourishes and bouys up a healthy economy. The nation has a reservoir of jobs to battle China calculated to last up to the end of the trade war or capitulation, whichever comes first.
As of March this year, the US has a 149.862 million jobs, and by April this year, 150.988 million jobs on record, topping an increase of 1,126,000 jobs occurring just early on this year. Losing 250,000 jobs in the first tariff exchange with China, the United States does not have to do anything as the side effect of joblessness is only a ripple in the economy. The hurt is not as painful as touted with alarm. It is just a mosquito bite.
If China has no response to President Trump’s 25% tariff on the $200 billion Chinese exports to US, 3 million Chinese will lose their jobs in China, according to the studies and findings of Haibin Zhu at JPMorgan Chase & Co. This negative impact is profoundly severe to the Chinese economy that is grappling with slower growth and massive debts.
Assuming that China retaliates against Trump’s 25% tariff on Chinese exports worth $200 billion, a computed 5.5 million Chinese jobs will be lost. This is approximately a 1.3% points cut off growth of domestic products, a massive economic loss to China.
For China to deflect this economic catastrophe, I go along with the theory as a matter of practical economic principles applicable to this situation that China has to adjust its monetary policy, and devalue its currency by approximately 12% to offset the adverse effect on GDP, thereby “narrowing the net job losses down to 0.9 million” as econometrically calculated. However, the cost of this devaluation is high as we do the figures – “about $332 billion in capital outflows which is more than one tenth of the nation’s foreign exchange reserves”, studies show. But only “a cheaper Yuan would help the economy weather such (the) shock.” Furthermore, there is this specter of “massive capital flight” caused by the 2015 devaluation shock that took some time for the economy to recover.
In the meantime, China’s Central Bank and the US Federal Reserve are in standby preparing for economic antidotes when the trade war shrinks economic growth while high prices raise the red flag of inflation. Those monetary entities have to manipulate interest rates up and down like how musicians play the trombone to spur investment and at the same time stop galloping inflation and/or prevent recession.
Economists usually worry about inflation because it reduces the value of purchasing power that leads to so many economic woes. But that is an extraneous topic to discuss here.
Suffice for me to say that inflation – the right rate of inflation — is needed for economic growth. The US inflation rate at about 3-2% is just about right to sustain the current robust economy. Because inflation is a tricky topic to talk about, discussion of inflation in an economy that engages extensively in international trade like that of US and China is only what is relevant here.
To start with, in an inflationary international trade, prices of goods may rise relative to those of other countries, thus causing imports to increase, exports to fall and national income becomes lower resulting in the balance of payments difficulties. Balance of payment problem rises its ugly head when payments for imports are greater than receipts from exports. This is the US experience with China which President Trump is trying to correct.
The Chinese enjoyed this trading disparity for so many years. It is public knowledge that in international trade the Chinese get away with infractions of the international rules of WTO (World Trade Organization) especially in the areas of IP and TOT (intellectual property and transfer of technology). As a result, in this bilateral trade exchange between the two countries, US pays $539.5 billion for Chinese goods, while China only pays $120.3 billion for US goods. The resulting balance of payment deficit imposes a tremendous pressure on US International Reserves. Compared to previous US presidents, the wiser, smarter and more courageous President Trump is very much aware of this irregularity and he has the initiative and resolve to correct this anomaly as well.
While the Chinese’s immediate objective in winning the trade war against the US may be described as solitary, i.e., to defend and protect their ill-gotten gains in international trade, the US immediate objective is three-pronged: First to balance or narrow down the trade deficit with China, second, to open Chinese market to US agricultural products and lower their tariff, and third, to make subsidies transparent on Chinese products to allow US to slap off-setting duties on those subsidized Chinese products, an anti-dumping measure to protect the US industries similarly producing those products here in the United States (the infant industry argument).
I only worry about stagflation, not even about a galloping inflation that stirs old famous dead monetarists in their grave. The worst stagflations are not those that are obviously classical, but those that are nameless otherwise known as “de fact stagflations”.
Stagflation occurs when persistent high inflation combined with high unemployment and stagnant demand in a country’s economy. This is caused by distortions in the price mechanism or pricing system independent of supply and demand (cost-pushed inflation or demand-pulled inflation).
The basic economic principle applicable in the study of inflation to be avoided is that economic growth requires increased spending marked by high aggregate demand that stimulates productivity. In effect, economic growth is in fact inflationary where employment rate is high.
But when the opposite happens where inflationary growth rate exhibits a high rate of unemployment – not employment — and aggregate demand is stagnant, stagflation occurs. The slump leads to recession as what we experienced in the 1970 oil crisis. The rising prices were not on the goods itself but from the cost of oil relative to the production of goods all over the world where oil had to be imported from OPEC.
The price distortion that could come from trade war could emanate from the elasticity of goods slapped with high tariff. Elasticity is when the demand or supply of product or service changes relative to price. Goods classified as necessities are less affected by price changes and therefore tend to be inelastic. It means that even if prices increased, consumers still buy the product because it is a necessity viewed from this simplified illustration. Whereas when the product is less essential, it is less bought when the price increases. These goods tend to be elastic.
For example, let us examine the Chinese imports of soybeans from the US worth $14 billion. This tends to be inelastic because soybean is a basic necessity in China.
Soybeans is an intermediary good in the chain of Chinese food production like tofu, Abura-age, Cheonggukjang, Doenjang, Douchi, soybean oil, soy sauce and the like. But the bulk of soybean imports goes mostly to pig feeds. China has the largest number of pigs in the world and pork is an essential part of the Chinese diet. The impact of a 25% tariff on the price of soybeans on Chinese consumers is severe because prices of goods associated with soybeans increase in tandem with the tariff rate imposed on imports of soybeans from the US.
Contrast this to Chinese exports to US consisting of industrial goods that are subjected to tariff spike. These are elastic in the sense that there is nothing in those Chinese exports that cannot be produced here in the United States. In effect, this even favors the growth of local industries.
The latest threat from China is to cut off rare earths metal supplies to US technology and defense industries recently published in Globaltimes editorials. Rare earths is vital to producing weaponry and expected to undercut the US military.
But it would be a bad decision for China to go to that route. US could retaliate by wiping out Chinese corporations in US and elsewhere. Look what the US did to China’s giant technology corporations Huawei and ZTE accused of spying in the US and Canada for the Chinese government. If nothing comes out in terms of a better deal to ease up the trade war, the days are numbered for those Chinese corporations.
If China uses earths metal as a weapon in the trade war, it will make US less dependent on China as it develops its mining of this elements here in the US and elsewhere, and turn itself into becoming self-sufficient. When OPEC weaponize oil for profit, it was OPEC versus the whole world led by the United States. Alternative energy developed faster than OPEC-member countries had expected, and the US became self-sufficient of its energy need. There was a recession-effect in the US and the world over, but OPEC did not buckle down the knees of this nation – it was OPEC that was forced to kneel down so to speak, or lose their oil revenue and kill the fragile economy of OPEC countries too dependent of imports from US and other countries.
The next devastating weapon China may use against the United States is external debts. US has $22 trillion debt of which 5% ($1.123 trillion) China owns. But I really don’t think China will go that far. It would be suicidal for China to weaponize credit because it would cut both ways. But definitely US will win in that area of economic Armageddon. Anyone can research to find out that what I am saying is true. Just imagine if the US respond by a simple default or forfeiture of US’s debt to China. The on-going trade war will become a miniature, and at most will not only become just a speck in the eye, but will become totally irrelevant or nonexistent.
Trade war no longer exists at that point because we might as well talk about World War III that would wipe out humankind on this planet.
Having said that, I don’t think that Trump’s and Xi’s madness as cynics accused them to have in this final stage of their economic and political confrontations, would ever slide that far into the edge of human extinction.
Overall, there is no doubt that this limited trade war with China that President Trump had planned and executed to correct this endemic anomaly in international trade is a strategic move that honors his promises to the American people since day one when he became President of the United States, to make USA the greatest nation on the planet.
This trade war with China also reflects Trump’s commitment to restore world order starting from the repair of the broken world trading system of which China deserved to be called out and punished as a rogue trading partner operating with impunity for many years within the WTO. If as a result of this trade war China reforms and behaves accordingly, the world will be thankful to President Trump for restoring the world trading system back to order. This is how great this President is that goes beyond any virtual comparison and/or defies the ordinary man’s imagination. #
© Copyright Edwin A. Sumcad. Access nationalwriterssyndicate.com June 4, 2019.
The author is a journalist-cum-development economist with a scholarship-licentiate at UNADI (UN Asian Development Institute), formerly a development and research auxiliary of the United Nation’s Economic and Social Commission for Asia and the Pacific (UN ESCAP) headquartered in Bangkok, Thailand, for specialized studies on Fiscal and Monetary Policy under the UN-ILO-IBRD-IDA Development Program (United Nations-International Labor Organization-International Bank for Reconstruction and Development, and the International Development Association).
Sumcad is a lawyer, and also holds degrees in Philosophy & Letters, Litt. B. Journalism, and M.A. Economics (Master of Art in Development Economics). He was formerly specialist-economic-legal advisor on trade negotiations and regional industrial cooperation in the UN-sub-regional ASEAN organization. He is a retired UN-Diplomat (Deputy Permanent Representative to UN ESCAP).