Use to discuss topics unrelated to recent posts!
Author: Ian Welsh Page 1 of 402
So, Trump’s tariffs are out. He claims they’re half of what each country tariffs the US, but in fact they appear to have been determined by dividing how much the US sells to a country by how much that country sells to the US.
In other words, the more your trade surplus is, proportionally, the higher the tariffs.
This isn’t, on the face of it, necessarily stupid. But… it’s being done very stupidly.
The first problem is the most fundamental: much of what the US buys it can’t make or grow or dig up itself. New capacity takes time, so in cases where the US could in theory make whatever it is, tariffs should either be phased in, or there should be a delay “in two years the tariff will be X%.” As it stands, in a lot of cases, all this is going to do is make Americans pay a lot more.
Then there are things that the US can’t produce itself, or produce enough of. Potash from Canada, for example. The US can’t produce enough. Period. And farmers MUST have it.
So this means that there’s going to be a massive economic shock: prices will go up and/or profits will go down and the US government will need to provide massive subsidies to some industries at the same time as Trump’s budget plan massively cuts revenue due to tax cuts for the rich.
The tariffs on each country should have been individually determined based on what America buys from them, and what America sells to them. If it’s something the US can’t make, or given opportunity costs shouldn’t make (do you want to build more power plants for AI, or use it for aluminum?) then those things shouldn’t be tariffed. And if you’re buying what you really need from them, and can’t make yourself or shouldn’t (Canadian potash and aluminum, for example) then why are you tariffing? The Canadian example is a good one: Canada imports more manufactured goods from the US than it exports to America. Tariffs encourage Canada to buy less goods and re-industrialize, reducing demand for American goods and encouraging American de-industrialization.
Instead of selling goods to Canada, made using Canadian primary and secondary resources like wood and aluminum and hydro power, America is encouraging Canada to use its own resources to make its own goods. I mean, as a Canadian I think this is great and I’m very grateful to Trump, but this is stupid, really stupid, of Trump for America.
The second issue is that that one goal is to get foreign companies to buy American goods. But most American goods aren’t price competitive, especially not with China. Add on top of that the retaliatory tariffs which most countries are going to respond with, and the likely end result of this isn’t countries buying more American goods, it’s them buying less.
Now some countries are in a different situation. The EU, for example, is very vulnerable here. They have a massive trade surplus with the US, and it’s in goods and their goods are more expensive than Chinese goods, so they’re fucked: who are they going to sell to if they won’t sell to America?
The EU trade surplus is about 600 billion. America sells the EU more services than vice versa, by about 100 billion, however, so the combined services and trade surplus is around 500 billion. Yet if you drill down to balance of payments overall, it’s closer to 200 billion: the US gets a lot of investment income and other streams from Europe, for example, all those patent and copyright payments, 30% at app stores, etc, etc…
A 200 billion dollar balance of payments deficit is about 1.2% of the EU’s GDP. The correct action for the EU is to hit the US hard on services and income: tax the hell out of that and just get rid of it it in some places. Break the DMCA and set up their own app stores, for example. The screams from Silicon Valley would set off Richter 7 earthquakes.
Let’s look at another country. Japan, has a 68 billion goods trade surplus, about a 25 billion services deficit, and actually gets about 50 billion in misc payments from the US. They’re rolling in it and actually much more vulnerable than the EU because of all that payment income, which is easily disrupted. It’s hard for them to retaliate and not come out hurting bad. But there are reports they’re coordinating their response with South Korea and China, and if true, it makes sense, since they have little leverage alone.
China’s trade surplus with the US is now about 1.8% of GDP. Most Americans think it’s still 2008. It’s not. China will be fine and that’s why their official response has been, in essence, “if you want a trade war, let’s have a trade war.”
Generally speaking the correct response for most countries (but not Japan!) is going to be to go after payments: copyright, patents, app stores and so on, and to tax services.
And this leads to third issue: hitting everyone at once. This allows coordination. If the US had just hit a few countries, everyone else would keep their heads down and hope to be ignored. One country, alone, breaking patents say, or getting rid of DMCA compliance and breaking US app stores, would be crushed. But if it’s done in a coordinated fashion, the US is toast. They can’t sanction everyone, the US financial system will just be treated as damaged and routed around. A universal clearing currency is NOT needed. In fact, for a variety of reasons, it’s one of the worst things possible. Make the deals in local currencies. Done.
Additional add-ons to all of this include the probability of a lot of free capital flows going away. Countries that want to re-industrialize with domestically controlled supply chains, and many now will, need to keep capital at home and the retaliation against the US is going to be against a capital flow/investment system which has, with a few exceptions like Japan, mostly favored the US.
I can’t even imagine how much US property in other countries is likely to wind up forced to sell to locals, or even nationalized outright.
All of this leads to the fact that this will speed up the loss of dollar privilege, and with the loss of dollar privilege and everyone reluctant to sell to America, well, there’s no way that the US standard of living doesn’t get hit hard.
There’s a lot more to say on this. The US is counting on countries needing to sell to it. The Chinese have far more manufacturing capacity than anyone else and a cheaper cost structure. This leaves places like the EU fucked, hard. They can’t really sell to the US profitably. They can’t sell to China because their goods are too expensive. They don’t have a lot of resources to sell except food.
The correct response is to move to internal demand and collapse the cost structure (rent, housing prizes, all monopoly pricing, etc…) but neoliberal policies don’t allow that, so they’re going to try military Keynesianism, but that won’t work well either.
Truly screwed if they don’t get their heads out of their asses and ditch neoliberal bullshit, start taxing the rich, and figure out their energy situation.
But, they, they have it coming.
Long story short: the US is going to be hit by a huge inflationary shock, a decline in standard of living and, unless other countries are stupid, lose most of its overseas rentier monopoly income. The EU is in for a world of hurt, but has options. China will feel it, but they’ll be fine, they don’t need the US as a market any more.
In the longer term this might lead to improvements in the US economy: it will force reshoring, it’s just doing it in the stupidest way possible. But the US risks winding up in semi-autarchy, with an oligarch controlled economy, authoritarian but ineffective politics (think Yeltsin) amid a huge collapse of standards of living, even as it destroys its scientific and academic communities.
The road back will be a hard one and the suffering in between will be massive. And all this assumes that the political problems in America don’t boil over into civil or serious foreign wars.
Americans aren’t going to take a one-third reduction in their standard of living well, especially when so many of them are just a few hundred dollars a month away from homelessness.
Welcome to the end of the American century.
I should note that this was NOT my original assumption. I assumed this was like Georgescu, or Khan in Pakistan or the arrest of Istanbul’s Mayor: politically motivated bullshit, designed to make sure a popular politician can’t run and either disproportionate or a stitch-up.
It’s true that LePen is leading the polls and would probably be the the next President, yes, but as best I can tell it’s also true that she’s guilty of misusing public funds and that the court case and the sentence are not politically motivated.
The sentence is:
4 years prison (2 years suspended, 2 years at home under electronic monitoring), a €100,000 fine, and most devastatingly, 5 years of ineligibility for public office with immediate execution.
The best summary I’ve found is this one by Arnaud Bertrand. But I’ll summarize the salient points:
- The case started in 2015, and it was dragged out so long by LePen’s own lawyers who filed every delaying motion they could think of, the timing is not a government plot.
- Parties, including LePen’s, were using EU parliamentary assistant funds to pay for party matters. LePen is not the only one to do this, but she did much more of it than the other French party, the MoDems (Macron’s party): 2.9 million vs. 204,000, plus did it longer and the MoDems stopped before being forced to while LaPen kept doing it until she couldn’t. The MoDem’s punishment was minor, LePen’s is savage, but this appears to me to reflect the seriousness of what each did.
- There really isn’t any question that the RN and LePen are guilty. They are.
- Being forbidden from running is part of the law: if found guilty, you can’t run for office. However the court could have delayed that until after appeals.
So the questions are:
- Is the sentence disproportionate to what was done to the MoDems. (No, I’d say.)
- Is the timing based on LePen now being the front runner. (No.)
- Should the court have held off on banning LePen from running until the appeal?
Again, I’d say no. There’s no question she’s guilty. If it was a case where there was some doubt, then holding off would make sense. The intent of the law is clear: if you have misappropriated funds, you shouldn’t be in office. This seems like a reasonable law: we don’t want politicians who misuse public money in office. The appeal won’t change the fact she’s guilty, and if guilty, she shouldn’t be allowed to be President.
This is unfortunate but the law is reasonable, there’s no case that she’s innocent and she did do something wrong and didn’t stop until forced to.
This isn’t Lawfare. This is justice, and the system working the way it should (except the case took too long) to enforce a law which is entirely reasonable, and not un-just. The higher penalty compared to the MoDems is also reasonable, because it is proportionate to the different actions of different defendants.
It’s easy to be cynical right now, to assume that law enforcement and justice is always corrupt, because it so often is. But on the rare occasions where it is reasonable and just, we should admit it and celebrate.
LePen is guilty, and she shouldn’t be allowed to be President of France and the court was right to rule both things, and was following a law which is actually reasonable and just.
If you want to call it negotiating. Iran refuses to even talk, unless America removes sanctions first. Putin will talk, but he clearly doesn’t intend to end the Ukraine war except on his terms, and certainly won’t agree to a ceasefire without massive concessions. China isn’t panicking over tariffs, but simply counter-tariffing. Europe’s getting uppity. Even midgets like Canada are standing up for themselves. Oh, and Ukraine still hasn’t signed that mineral “deal.”
Trump has said that if Iran doesn’t give up their nuclear program “there will be bombing like they’ve never seen.” He’s threatening Russia with secondary sanctions on oil, and he’s talking about tariffing everyone.
Apparently America doesn’t want any allies, or friends, and soon it won’t have any. This is batshit crazy, loop-de-loop nuts. The way to do this sort of thing is to single out one or two targets at most, and make everyone else think they’re safe, then move on. Trump’s acting like it’s 1991 or 1950, with the US at the top of the world, not like America’s in serious decline.
Oh it may seem like a response to America’s decline, an attempt to reshore industry, withdraw from Imperial over-reach and so on. Superficially it looks like that, but he’s just picking too many fights all once, his tariff threats are incoherent and unplanned, he’s defunding research and forcing brilliant scientists and engineers and scholars out of the US, has no industrial policy worth speaking of and is destroying America’s governing capacity with capricious cuts to the federal bureaucracy.
More to the point, he’s giving everyone else reason to route around America like it’s damage: to stop using the US dollar, to move to using local currencies for trade and to stop buying American goods and services, and yes, to stop selling to the US. The smart move, and it’s going to happen if he keeps this up, will be stop enforcing US intellectual property, end the DMCA clones and the prohibition on breaking digital locks, and to stop paying American internet giants their usurious fees.
The US isn’t agreement capable: you can’t trust them to keep their deals. This was true before Trump, but he’s super-charged them. Iran is right to say “well, we’ll talk after you keep the last deal we signed with you” and everyone else is coming to the same conclusion. If he won’t keep America’s deals, or even his own (the USMCA trade deal with Mexico and Canada is his) what’s the point of even talking? Just stop doing business with the US, period.
Smart policy isn’t to do this in one huge crash, because the US is very reliant on goods, resources and money from everyone else. You boil the frog, make things predictable and ease out of the problem. This isn’t Russia, which had China and India to backstop it when sanctions hit and which wasn’t massively in real trade deficit, making it up with non trade fees from its vassals and from countries which wanted to sell to it.
If you can’t sell to the US, why do business with it? What does it have that you can’t get from someone else? The obvious answer is food, oddly, but if even China is willing to put tariffs on both US and Canadian food, that dog won’t hunt.
It’s not that the US can’t do autarchy. It’s still a continental power, it’s still high tech, it still has plenty of scientists and engineers. But all that was true of Russia after the USSR collapsed, and the first decade and a half were ugly, and only got better because of Putin and the secret police taking charge—and they were able to do so thru a huge economic campaign to sell resources to the rest of the world.
And that’s where the US looks likely to wind up, after a period of chaos and deprivation: its’ behind in 80% of tech, it’s cost structure is too high, so it’ll have to sell food and natural gas: if anyone else is willing to buy. (The Euros may have no choice, everyone else does, because they aren’t blinded by insane fear and hatred of Russia.)
This sure is speed-running imperial decline. An accelerationist’s dream.
And if there’s a real war, what happens if Iran is able to sink an aircraft carrier? What happens when the US campaign against Yemen fails, as it will? What’s left of America if people aren’t scared of it? Nukes and complete pariah status and a massive nuclear proliferation scramble?
Likewise the whole sanctions regime bullshit is possible because almost everyone trades with the US and goes thru American and European banks. If they stop trading, they don’t need the banks and if European banks opt out, well, shit. So the fear of sanctions and the fear of military force goes way down.
Nothing to sell, no fear, and no one wanting to do business with the US, including buying its weapons.
This appears to be Trump’s endgame.
Bernie and AOC are on a tour which is drawing large crowds based on a left-wing populist argument. Bernie is near the end of his career: he can’t run for President again, and he’s damn old even if he is holding together well.
This tour is Sanders re-anointing AOC as his heir: presenting her to the public. It didn’t have to be AOC and at one point it looked like it might be Elizabeth Warren.
Then two things happened:
- Bernie had a heart attack, and it hit his campaign hard, and AOC endorsed him and campaigned for him at exactly that point, turning the media coverage around. She was there when it mattered.
- Elizabeth Warren accused Bernie of being a sexist liar.
There was a lot of furor over AOC speaking at the DNC. First, that she had only a minute, then that she didn’t “endorse” Biden.
Both of these things come down to a simple fact: She was invited by Bernie to nominate him. As such, it wasn’t appropriate for her to talk about Biden. That she had only a minute is because that’s how long the nominations are.
AOC wouldn’t have been invited to speak at the DNC, really, if it was up to the people running the convention, Biden’s people, she wouldn’t have spoken at all.
She was there because Bernie chose her.
AOC is Bernie’s successor: She is going to be the leader of his movement when he no longer is, and this was his last Presidential campaign. She’s the progressive leader now.
It could have been Elizabeth Warren, but she called Bernie a liar and a sexist and waffled on key progressive priorities. AOC, on the other hand, when Sanders needed help most, right after his heart attack, came out, endorsed, and campaigned for him and made a huge difference.
Warren, in her short-sightedness, torpedoed herself in an attempt to win it all now, and then later to maintain viability with centrists. In exchange, she got a DNC speech, and in exchange she gave up her post as heir-presumptive to the progressive bloc. She will never be President.
I have my issues with AOC. I think she’s basically a sell-out. But she showed loyalty when it mattered and Warren didn’t. She was smart, and Warren was stupid and short-sighted.
So yes, AOC is being anointed and yes, she will run for the Democratic party nomination or as a third party candidate for President in 2028.
I have to admit, I didn’t think it would be this big:
Parts of Florida will be hammered by this. But I’m shocked: seventy percent plus! I hadn’t realized just how unified Canadians are in this.
I suspect it isn’t all the tariffs and Trump’s annexation threats: there’s been significant press of US border services snatching foreigners who are crossing legally but perhaps don’t have their paperwork all right and instead of just sending them back, abusing them and locking them up.
I certainly won’t be traveling to America, probably ever again: after all I’ve insulted Trump repeatedly and said that Israel is committing a genocide and customs officers often search social media. Nothing in America is worth the risk of wind up in some prison camp because I think Palestinians are human beings and shouldn’t be mass murdered.
So far I don’t see evidence of a big drop in European bookings, but if that happens, and there’s plenty of reason to believe in might, well… bad time to be in tourism in America and a good time to be in tourism in alternatives. I think Mexican and Canadian destinations are doing very well out of Canadian’s refusal to visit America.
America wants to be alone, and without allies, and soon it will be. Trump’s hilarious attempts to cozy up to Russia are ridiculous. Putin will do business with America, but he will never, ever trust the US, no matter who is President. Meanwhile America’s real allies are mostly deciding, quite rationally, that one can’t trust America and therefore America can’t be a useful ally.
This will lead to a variety of knock on effects, like diversification from the dollar and use of local currencies in trade, and the American standard of living will collapse by at least a third. Americans have been living way beyond their means, and Trump is bringing that to an end.
So sad.
There are a lot of smart people who think Trump has a plan. For example, that he’s deliberately reducing America to a regional power to avoid full Imperial collapse. Or that he’s using tariffs to rebuild American industry.
No.
Trump isn’t the type, he doesn’t have a master plan. Trump is driven by the idea that other countries are taking advantage of America: by a sense of grievance. He wants good deals, by which he always means that the US gets more than it gives, and he’s willing to end a deal if he thinks it isn’t good.
Trump has virtues (not all virtues are moral virtues.) Yeah, he started rich, thanks to Daddy, but he shits into a gold toilet, got a lot of good looking women, and became the President of the United States. He has a weird sort of charisma and tons of energy, as long as what he’s doing gets him attention of the right kind.
But he’s not a deep thinker. He doesn’t know much about the political economy, and he doesn’t make and execute policy plans. His purge of the “deep state” is driven by grievance: they went after him during Biden’s reign, so he’s going after them.
His tariffs are driven by looking at trade balances and feeling they’re unfair: Europe has about a 235 billion trade surplus with America, for example. That, to Trump is unfair. (The balance of payments is about 40 to 60 billion, which is far less.) Canada has a trade surplus, so that’s Canada taking advantage of the US to Trump, never mind that the US actually sells more goods to Canada than vice-versa and the surplus is essentially all energy trade.
If his tariffs were part of a master plan to re-industrialize he wouldn’t have gutted Biden’s industrial policy, which was actually working, and he wouldn’t be waffling back and forth on them. He’d institute them. (The smartest way would be to set a goal, and increase the tariffs by 1% every month or two to give companies time to reshore.)
Likewise his attack on NATO is primarily driven by this sense of grievance: the US is paying much more than everyone else and other NATO nations haven’t met their promise of spending 2% of GDP. (Which is fair enough, they did say they would, and they haven’t.) In the case of Europe there’s something there: the Euros are terrified of Russia and if they think Russia is really a threat (I don’t) they should be willing to spend on their military.
There are certainly people in Trump’s administration or outside planners with influence who do have master plans related to tariffs, reindustrialization, and ending the America Empire, but Trump? No. He’s too undisciplined a thinker and trying to work thru him must be endlessly frustrating to them.
Trump is also self-defeating in his fickleness. It’s impossible to make a deal with him, because you can’t be sure he’ll stick to it. Take his pressure on Egypt (which has massive fiscal issues caused by the Houthi blockade and Ukrainian war, since they got much of their grain from Ukraine, and thus is in a bad position to resist pressure) to take Palestinian refugees. To make it worthwhile he needs to not just offer the stick (we’ll end subsidies) but also a carrot—increased subsidies.
But Sisi has to figure that Trump might cut those subsidies off in a few months or a year or too, after he’s got 700K Palestinians refugees in his territory.
Now, even without a plan, Trump may wind up reducing America to a regional power. I’d say he probably will as a result of what he’s doing. But that he’s deliberately doing as part of a master plan based on a sound understanding of global political economics?
Seems unlikely.
And that matters, because there are smart ways to do things, and stupid ones, and stumbling into the end of America as the global hegemon will have some fairly serious costs like a crash on American arms sales, countries likely refusing to enforce American copyright and patents, national ownership laws taking much of America’s overseas ownership of land and industry, and so on. Plus, if you want to reindustrialize, the clumsy attack on universities and research is exactly the wrong thing to do when China is ahead in 80% of fields. (To be clear, American research needs to be fixed, but you don’t do it by defunding it massively all at once: you slowly change how funding is done so that there aren’t mass layoffs of scientists who then leave the US or stop being scientists.)
Trump isn’t some great statesman who has looked carefully at America’s position and come up with a brilliant master plan, he’s a deeply flawed man whose primary skill is self-promotion and who is driven by a negative sum view of the world based on the idea that if he’s winning someone else has to be losing, a deep sense of grievance at the idea anyone is taking advantage of him (because he takes advantage of others all the time) and who needs attention, adulation and ass kissing.
Too many people are reading into Trump want they want to see, not seeing what is actually there—and not there.
Back in the 70s and 80s, the USSR’s economy was in terrible shape. It hadn’t always been, that’s a triumphalist myth: for a long time it out-performed the West, and economic textbooks of the 50s discuss the problem that the Soviets were growing faster than we were.
So Reagan’s administration came up with a plan: they’d increase defense spending, the Soviets would have to do the same, and the strain would screw over their economy. There’s various arguments, but it seems to have worked.
Recently Trump suggested that Russia, America and China all cut their defense spending in unison. Russia was interested, China said no.
Now, of course, the US spends way more than anyone else on its military, but that’s mostly because it over-pays for everything because of vast corruption.
But the real issue here is that China is a rich state, and the US is not. Forget GDP, it’s completely misleading. China is ahead in everything that matters: 80%+ of tech fields, has more population and the largest industrial base in the world and it’s the main trade partner of more nations than anyone else, including America.
This graphic is illustrative, but it applies to everything except planes and launch capacity, and soon it will apply to them too:
As Keynes once said, “we can afford anything we can do.” The corollary is that we can’t afford anything we can’t do. China can afford almost anything because it can do almost anything. Within four years it will have cheaper and more lift capacity than the US. Its civilian airliner industry is taking off, it’ll take longer, and the competition is Airbus, not Boeing, but they’ll win that competition too: even if Airbus avoids the Boeing quality collapse, Chinese jets will be cheaper and about as good.
China can easily afford its military budget. I’d guess it could double or triple it and be OK. The US is struggling: the Trump cuts are a reflection of that, and are at the same time reducing government capacity, of which China has plenty, and unlike America government, they’re competent and at this point not even very corrupt and what corruption does exist is honest corruption—you can take a cut, but you have to deliver on time and on budget.
So China’s laughing at America. “No thanks. We’ll just keep out-producing you and we know you can’t keep up, but feel free to try.”