This posting is very timely. The Dow Jones futures have dropped 1.2% this morning, after Trump announced plans to levy tariffs on imported goods from Canada, Mexico and China. It is a very good indication that investors are fearful of the impact of tariffs.
Almost immediately, Canada, Mexico and China will be enacting retaliatory tariffs on US exporters making it more difficult for the US to compete abroad. Tariffs are based on protectionism, or simply to keep the US industries profitable against unfair competitive practices by other countries.
Trump’s Big Lie
Trump lie is that we are making China, Mexico and China pay the tariffs. The companies that import foreign goods must pay the tariffs. The companies paying the tariffs will pass this additional cost to the consumer. Thus, the cost of many goods will go up.
In the article below it is stated, ” Trump has said that tariffs “are paid mostly by China,” rather than by Americans.” And then goes on to explain that this is untrue, as tariffs are paid by US consumers.
Increases in inflation will hurt most Americans. The cost of buying a home will rise as the lumber to build homes will increase. The loans for homes will be more expensive. Fewer houses will be built. Cost of gas will increase, as the cost of imported oil increases. So, consumer spending will be more for staples (food and gas) and much less for discretionary spending (vacations and luxury goods).
Typically, the Fed tries to bring inflation down, by increasing interest rates they charge banks. This becomes difficult in a slowing US economy. The right solution is to drop the tariffs, because they are bad for our economy and consumers. For a variety of reasons, including Trump’s ego, this is unlikely to happen.
Fentanyl is powerful and deadly. It is 100 times more powerful than morphine. Traffickers love it, because they can hide small quantities in vehicles crossing the US from Mexico. Addicts die mostly from overdoses. Per Wikipedia, “Fentanyl poses an exceptionally high overdose risk in humans since the amount required to cause toxicity is unpredictable.”
Wikipedia as usual, presents a very comprehensive and well researched article. It also documents the difficulties in controlling the flow into the US and actions taken by the Biden administration.
The Big Lie
Now, Trump’s big lie – “If we halt illegal migration across the border with Mexico , this will stop fentanyl from coming from Mexico.” It is a lie, because in general, the illegal immigrants are not bringing in fentanyl.
I say “in general” because if they find just one person illegally crossing the border with drugs in his knapsack, then for Trump supporters, this is proof positive that they are the cause of the problem. Unfortunately, the bar for believability has been set extremely low for Trump and company.
“About 85 percent of fentanyl seizures occur at official border crossings, where the potent, compact drug is typically smuggled by pedestrian couriers or hidden inside cars and trucks. Most of the rest is confiscated by U.S. agents at Border Patrol highway checkpoints, not in the backpacks of migrants entering the country.” Washington Post, November 26, 2024.
Interception at the border is very difficult. Approximately 90 million vehicles and 4.3 million trucks cross through our Mexican border every year. It is not practical to shut down legal crossings. “Border officials have seized more fentanyl at ports of entry in the last two years than the past five years combined, and the President has added 40 drug detection machines across points of entry to disrupt the fentanyl smuggling into the Homeland. The bipartisan border agreement would fund the installation of 100 additional cutting-edge inspection machines to help detect fentanyl at our Southern border ports of entry.”
So, the bipartisan border agreement, with more inspection machines seem like a no-brainer. But Republicans killed this bill, because Trump did not want anything that Biden could claim that the Democrats did, to stem the flow of fentanyl. The problem with the bipartisan bill is that it didn’t have Trump’s name on it. But, Trump will bring it back, make his idea, and it will pass. Pure politics.
Trump’s lie about closing the border was told to millions, usually getting more absurd at each subsequent rally. Trump second lie- “It was Kamala, the border czar, who let everyone cross the border and with it, all our problems.” This was a lie also, as Kamala Harris was never responsible for border security. This was the responsibility of DHS Secretary. So, Trump successfully fused illegal entry and the fentanyl epidemic, where there was no real connection.
ENTRY THROUGH OF OFFICIAL PORTS
By land, sea and air, fentanyl arrives in the US. Even through the international mail. This is from a US Customs Border Protection (CBP) website. They show border agents at mail facilities. Dogs are frequently used. See full article: CBP fight against fentanyl
“In my 30 years as a customs official, the trafficking of synthetic illicit drugs like fentanyl is one of the toughest, most daunting challenges I have ever seen,” said CBP Senior Official Performing the Duties of the Commissioner Troy Miller. “We have the right capabilities from interdiction to intelligence capabilities. We’re in the right places at our land borders and between the ports in international airports, in both the passenger and air cargo environments and at our maritime borders, too. And we know what works. Intelligence-driven operations, relentless, targeting people, partnerships, and technology. CBP is well positioned to lead the federal government’s efforts in this fight.”
The CBP website offers hope in terms of successful large fentanyl busts, which means less for sale on the street. Yet, for me, the real measure of success would be a reduction in overdose rates in the US. Trump can spend billions on border security, and then claim he has been successful in stemming fentanyl deaths. But, the numbers from the CDC are likely to say something very different.
China and Mexico
The real problem with fighting the epidemic is the narrow perspective offered by Trump. It is not a Mexican or Chinese problem. It is our problem. In 2021, the U.S. had more opioid deaths than the rest of the world combined. See link below.
However, we need Mexico and China’s help. China took vigorous action in shutting down fentanyl production, but then a new industry arose, to make the essential ingredients (pre-cursors) of fentanyl and ship these to Mexico. China has passed laws to crack down on pre-cursors, but as the Council of Foreign Relations noted: “… [New laws enacted] this is unlikely to solve the core problem, as criminals will continue to discover new ways to make fentanyl using other chemical precursors that also have legitimate industrial uses.
One of the Council’s recommendations is interesting – follow the money. The Chinese criminals have to hide their profits, so they become involved in money laundering, and the US could collaborate with the Chinese in helping them crack down on the illicit profits from pre-cursor sales.
In order to follow the money, you have to follow bitcoin transactions. In this case, the drug smugglers and other cybercriminals, including hackers for profit, have something very much in common, the need to hide the chain of transactions, from deposit to withdrawal, which can be done with a “crypto mixer” software. A recent case was decided in favor of a company which profits through the use of a cryto mixer, which is a win for cyber criminals and drug traffickers to hide profits. I will discuss this further in Part II.
Reducing Demand and Overdose Rates in the US
Addiction causes demand for opioids. The US Drug Enforcement Agency message was excellent, “One pill can kill.”
This is by far, the best approach, to stop addiction before it begins. There is help for addicts, which includes counseling and drug recovery programs.
An overdose does not always result in death. Naloxone acts as an antidote to fentanyl. So, one approach is to increase awareness of family members of addicts of what can be done in case of an overdose to prevent death.
It is not like a pill that saves you.” It can be used as injection or spray form. Police officers and first responders are being trained to be able to administer it. There is no harm in injecting naloxone in someone who is not overdosing on opioids.
An excellent recent advance (FDA approved March 2023) is the one dose naloxone spray. Family members without training can administer an effective dose of naloxone. The spray is marketed under the trade name of Narcan. It is an over-the-counter medication, and costs around $50 for two sprays.
So, there is a problem of mixed messages in harm reduction. On one hand, the fentanyl does destroy lives, and the addict’s only real choice is come clean. The narcan spray may lead some to believe they can continue to tempt death to continue their addiction. Living with fentanyl is a terribly wrong decision. I am hoping that any addict who was saved once by Narcan, will choose to seek help and come clean.
As stated in the NIH posting, the Narcan lasts for only 30-60 minutes and a second dose may be necessary.
Drug users taking other illegal drugs, like cocaine and meth, can accidently overdose because these drugs are often mixed with fentanyl. So, in the interest of “harm reduction”, there are test strips available to identify the presence of fentanyl.
In another chart, the CDC shows a very similar decline in overdose deaths for synthetic opioids and methadone, from June 2023 to June 2024. Overdose deaths in this group dropped from 77,000 to 64,000, a drop of 13,000 deaths.
PBS cites a number of factors in their article for fewer deaths, including availability of treatment centers, and programs to help addicts come clean.
SUMMARY
I began this blog focused on the big lie promoted by Trump, that it was illegal immigrants bringing in fentanyl. The truth is fentanyl comes through legal ports of entry from Mexico. China has cooperated with the US in cracking down on the export of precursor chemicals to Mexico, but much more progress is needed.
I will leave for Part II, more information on how international smugglers use bitcoin and cyber mixers to hide their huge profits. Cyber privacy issues clash with the FBI need to break up money laundering operations in many areas including drug enforcement.
The trend today is fewer overdose deaths. There are many government agencies involved in finding ways to sustain this declining trend, from international agreements with China and Mexico, to vehicle inspections at entry points to the US, detection through the postal service, and disrupting the distribution chain within the US.
I have posted previously on the excellent FBI busts of gangs involved in distribution and sale of fentanyl. Much of the credit goes to dedicated FBI agents under Director Christopher Wray and the Department of Justice, for convicting these criminals.
I strongly support efforts by the Drug Enforcement Agency, to raise awareness to the dangers of fentanyl, with the simple message “One Pill can Kill” which is very true. The last 12 months resulted in 64,000 deaths attributed to synthetic opioids.
I consider a practical step forward is increase availability Narcan spray that prevent death by overdose. Test strips help prevent accidental overdoses.
The above graph shows the good news. Our overall trade deficit, with other countries around the world has been going down in the three years of the Biden administration.
In fact, our trade deficit with China has also been going down. Everyday, if we tune into news, we hear bad news and it makes people nervous. The cost of manufacturing in many countries is less expensive. So, it is very much in the spirit of providing products at lower costs, that companies will outsource production.
Companies usually boast of how much of their goods are sold abroad. As I travel, it may seem odd, but the US presence can be seen in many countries. People want to stay in Marriott Hotels, be it in China or Saudi Arabia.
The US has a large trade deficit with China. In 2023, this deficit was 367 billion dollars. We have had a trade deficit with China for four decades. Much of what Trump says about the trade deficit with China is highly exaggerated. This is explained well in the link from Factcheck.org ,
From Factcheck, “The total U.S. trade deficit with China in goods and services in 2023 was about $252 billion, the lowest it has been in 14 years. Former President Donald Trump was way off when he falsely claimed that the U.S.-China trade gap is about four times as high.”
There are 3 great fallacy of Trump’s tariff plans. First is that we live in a global economy, and when fewer products are imported from China, then more are imported from other countries. During Trump’s time in office, our trade deficit increased.
Second, is that the importers will pass on the cost of tariffs in the form of higher prices to consumers in the US. So, the billions of dollars the government is receiving is absorbed by US consumers, so it makes products in the US more expensive.
The third fallacy, and it has been proven many times, is that imposing tariffs on China goods, will result in tariffs on exported US goods, so it is a lose-lose situation.
Per the link with Brookings Institute, “The ensuing trade war cost the U.S. economy nearly 300,000 jobs. The tariffs served as a regressive tax on imported goods that were primarily borne by American consumers.”
The bottom line is trade wars, cost jobs, and act as a tax on consumers. Trump always exaggerates the problem and extremely simplify the solution. He is simply playing to his base and using animosity towards China to promote trade wars. I fear it will end badly, and you know it will be blamed somehow on Democrats.
Harris will take a more global approach to trade, and it is my expectation, is that tariffs will be reduced through negotiations with China. Additional tax incentives to US manufacturers will improve the trade imbalance.
By electing Kamala Harris, at a minimum, we get a president who will listen to economists, instead of Trump’s clashes with them. You will have a president that works with other world leaders, because fair trade is really an international issue.
“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.”[34]
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.
Trump hit upon a very simple analogy to politics- sports. You support your local team. You don’t say anything good about the New York Yankees if you support the Chicago Cubs.
But Trump’s analogy just doesn’t work in politics. What gets big results is diplomacy and consistency. – and that takes a lot of time and international cooperation. You can’t slam China one day for currency exchange manipulation with hostile trade policies aimed at coercing them into changing, and then the next minute, expect their assistance in an embargo of goods to North Korea. That’s Trump’s plan apparently. It really makes no sense.
This “punch them in the mouth and then hug and praise them next , and ask them for a favor” destroys trust and cooperation.
“To jaw-jaw is always better than war-war” is a famous quote from Winston Churchill. International cooperation is a buzz word to many, but it is exactly what happens everyday in government. A lot has happened in the last month that makes me optimistic.
It is not a case of wanting to win, but how to do it. The choice is “winning alone” or “winning together.” The arrests of ISIL terrorists in Belgium made headline news. But, the capture Khalid Al-Barnawi with Ansaru, a radical terrorist group associated with Boko Haram in Nigeria and neighboring countries called for celebrations in the street.
“Put your money where your mouth is”, is a great saying. The US put a 5 million dollar bounty on Al-Barnawi’s capture. It is obvious terrorism doesn’t respect the boundaries of any country. Boko Haram has caused the death of 17,000 people and caused millions to flee their homes. Al-Barnawi- may you rest in peace along with your insane and barbarous gang of thugs.
The announcement that China was not going to import coal from North Korea, appears to be another big win for nuclear non-proliferation. It is part of the UN sanctions against North Korea for their nuclear program. I suspect a lot of credit goes to John Kerry and Sandra Powers (US Ambassador to the UN) for this “win” – but it will be a long and frustrating road ahead. A carrot and stick approach must be applied and this requires cooperation of the major world powers working within the framework of the UN. This is why the UN was created, to resolve disputes without war. You may get talks going through “stick” policy, but if the carrot isn’t there, nothing will change. The carrot is a lifting of the sanctions, once North Korea gives up its nuclear weapons program and agrees to highly intrusive inspections.
The US international policy has been to villainize a country to a point, where there is no incentive to change. The “jaws-jaws” approach has resulted in a better relationship with Cuba- and it was badly overdue. It will take time for many in the US to adjust to the new policy. Efforts in international cooperation are really bearing fruits, with advances in world health and control of epidemics, the space exploration and the international agreements on climate change.
Mr. Trump should know, the “jaw-jaw” approach is working. But, there are no quick wins, or home runs in diplomacy. Translating talk into action takes time to achieve the necessary unity and a lot of perseverance.
It is “together wins” not the US wins which will determine the future.
Anastasia Lin, age 25, is quite incredible. She is beautiful, talented, intelligent and articulate in her beliefs. China has barred her from participating in the Miss World pageant because she practices Falon Gung.
So what is Falon Gung? It is a spiritual practice in China. It preaches virtue. It encourages its adherents to contribute to society. Falon Gung is non-political.
The most gruesome accusation against China is that they routinely imprison and later murder Falon Gung members for body parts (organ harvesting). The murder of the practitioners has been well documented.
I don’t think Anastasia ever expected to be thrust into role of human rights advocate. She was put into a difficult situation, and did what was right. And did it so well that she deserves more than a Miss World crown.
Thanks to the efforts of Anastasia Lin, the world is beginning to learn more about China’s deplorable human rights abuse.
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