“It is a horrible deal, really horrible, but we’re going to fix that”
This is any particular quote from Trump but applicable to many accords – from NAFTA, the Trans-Pacific Partnership and to many bilateral accords, most recently his attack on he South Korean Trade Agreement. The same quote can be said of the Iran Nuclear deal and the Paris Accords on Climate Change Mitigation. Everything is blamed on prior administrations, but most of the blame still goes to President Obama.
A minor case in point – on January 12, 2018, Trump cancelled a trip to the US embassy in London, citing Obama poor decision in moving the Embassy at a cost of 1.2 billion dollars. It was decided upon by President Bush and not Obama. Trump rarely lets facts get in his way.
Gary Cohen, was the head of the National Economic Council, and chief economic advisor to Trump. He is generally accredited for Trump’s tax cut and jobs program, signed into law on December 22, 2017. On March 6, 2018, Gary Cohen resigned in March, just before the imposition of tariffs on aluminum and steel. It was widely reported that he was against the tariffs. Larry Kudlow has been appointed to this position. Kudlow is a strong believer in supply-side economics, which means that a cut in federal taxes, will stimulate the economy sufficiently to make up for the loss in tax revenue. He been dead wrong a number of times, beginning with the opinion that tax increases would dampen the economy during the Clinton administration. Just the reverse happened, and the economy boomed after this.
Kudlow was a strong advocate of George W. Bush’s substantial tax cuts, and argued that the tax cuts would lead to an economic boom of equal magnitude. After the implementation of the Bush tax cuts, Kudlow insisted year after year that the economy was in the middle of a “Bush boom”, and chastised other commentators for failing to realize it. Kudlow firmly denied that the United States would enter a recession in 2007, or that it was in the midst of a recession in early to mid-2008. In December 2007, he wrote: “The recession debate is over. It’s not gonna happen. Time to move on. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). The Bush boom is alive and well. It’s finishing up its sixth splendid year with many more years to come”. In a May 2008 column entitled “‘R’ is for ‘Right,'” Kudlow wrote: “President George W. Bush may turn out to be the top economic forecaster in the country”. By July 2008, Kudlow continued to deny that the economy was looking poor, insisting that “We are in a mental recession, not an actual recession.” Lehman Brothers collapsed in September 2008, creating a full-blown international banking crisis.
Larry Kudlow is well educated, articulate and very straight forward. He has been a regular commentator on MSNBC. His comments is generally appreciated, as he is well informed. However, he has been frequently wrong on the basic moves of the economy, I believe because of his philosophical perspective of less government intervention. This has been chronicled in a book entitled Superforecasting (2015). The book explains how experts in various fields, do no better than amateurs.
Two key advisers right now, are Peter Navarro, Director of the National Trade Council and Wilbur Ross, Secretary of the Commerce Department. In many administrations, these organizations and individuals might not receive much attention, as they engage in behind the scenes negotiations on trade and commerce. However, as fears of a trade war with China, intensify and concerns of the impact on our economy is debated, these two individuals are increasingly in the media, particularly in the business news reporting.
Peter Navarro is a very controversial figure at present. Wikipedia labels him as a heterodox economist, with opinions outside of the mainstream economistss. He is also considered a protectionist and isolationist by Wikipedia. According to the Guardian:
Navarro was a key architect of Trump’s “America First” policy of economic nationalism and a tireless critic of China’s economic policies – one of his books is decorated with a map of America being stabbed in the heart with a knife marked Made in China. Although he has agitated for aggressively protectionist trade policy since joining the Trump campaign in 2016, the tariffs are his first key victory. During the campaign, Navarro, the only economics PhD in the Trump team, described his role as merely a facilitator. “The president – he’s the man who leads,” he told the Wall Street Journal. “He says, ‘I want to do this. How do we do it?’ The way I help is figuring out how you might do it.”
Protectionism, or economic nationalism? Perhaps the choice of words doesn’t matter; it is the outcomes in the long run that are important. I’ve included links on Peter Navarro at the end of this blog.
Finally, a key adviser to Donald Trump is Wilbur Ross. His view on trade, as per Wikipedia:
On the subject of foreign trade, Ross has said: “I am not anti-trade. I am pro-trade, but I’m pro-sensible trade. [Being anti-trade] is a disadvantage of the American worker and the American manufacturing community.” Ross has also said that the government “should provide access to our markets to those countries who play fair, play by the rules and give everybody a fair chance to compete. Those who do not should not get away with it – they should be punished.” Initially in favor of the Trans-Pacific Partnership, Ross has said that after examining the agreement, he found it was “not consistent with what was advertised.”
In 2004, The Economist described Ross’s views as protectionist. Germany’s chancellor Angela Merkel has also voiced concerns during 2018 World Economic Forum in Davos over Ross and the Trump administration views as “not the proper answer”. Ross, at the 2018 World Economic Forum, responded to concerns by noting that “There have always been trade wars. The difference now is U.S. troops are now coming to the ramparts.”
Wilbur Ross has appeared on a number of business news stations, including MSNBC, and I happen to like his straight forward answers to questions. He always seems to be well prepared, informed and polite. He chooses his words well. However, he seems to underplay the affect of the proposed tariffs might have on the stock market.
How the Trump trade wars will finally be resolved, is difficult to say. Republican biased news stations say that in the end, the hard position taken by Trump will result in China yielding, particularly on intellectual property rights. Other commentators see only an escalation of tariffs, as China would rather fight than be seen as having given in to the US. Economic nationalism works on both continents, sometimes escalation is easier than compromise. Certainly, the sell off in the stock market is based on the potential for a protracted battle.
As I publish this blog, the Dow is poised to drop around 500 points.
I have included a number of links on Cohen, Kudlow, Navarro and Ross. All individuals have extensive biographies available on the Internet.