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It's Not Bad Trade Deals - It's Bad Money (Part 1)

David Stockman profile picture
David Stockman

The global trading system's newly activated one-man wrecking crew was at it over the weekend. Mustering up his best Clint Eastwood impression, Trump invited the Brussels trade bureaucrats to make his day. Retaliate against Harley's Hogs, Jim Beam's bourbon and Levi's Skinny Jeans, proclaimed the Donald, and you folks are going to find yourself neck deep in BMW's:

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!

Let us reiterate what we said last week. This is not just another case of Trump banging on a twitter keyboard that doesn't push back----unlike the courts, most of the Dems, much of the Congressional GOP and a goodly part of his cabinet.

On the matter of trade policy, by contrast, the Donald has considerable unilateral running room owing to the vast presidential powers bestowed by section 232 of the 1962 trade act and section 301 of the 1974 trade act. The former authorizes protectionist measures, including tariffs, to safeguard "national security" and the latter authorizes such measures in order to enforce US trade agreements or to counter "unfair" foreign trade practices.

To be sure, the rubbery definitions of the quoted terms (national security and unfair practices) were meant to be parsed and activated narrowly by mainstream White House occupants, not to be used as a protectionist blunderbuss by a raging wild man intoxicated with 17th century notions of mercantilist economics.

For example, consider the national defense fig leaf under section 232 that Trump tapped for his across-the-board 25% tariff on $29 billion of annual steel imports.

Last year the US produced

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David Stockman profile picture
David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. At the podium, Stockman’s expertise and experience cannot be matched, and he has a reputation for zesty financial straight talk. Defying right- and left-wing boxes, his latest book catalogues both the corrupters and defenders of sound money, fiscal rectitude, and free markets. Stockman discusses the forces that have left the public sector teetering on the edge of political dysfunction and fiscal collapse and have caused America’s financial system to morph into an unstable, bubble-prone gambling arena that undermines capitalist prosperity and showers speculators with vast windfall gains. Stockman’s career in Washington began in 1970, when he served as a special assistant to U.S. Representative, John Anderson of Illinois. From 1972 to 1975, he was executive director of the U.S. House of Representatives Republican Conference. Stockman was elected as a Michigan Congressman in 1976 and held the position until his resignation in January 1981. He then became Director of the Office of Management and Budget under President Ronald Reagan, serving from 1981 until August 1985. Stockman was the youngest cabinet member in the 20th century. Although only in his early 30s, Stockman became well known to the public during this time concerning the role of the federal government in American society. After resigning from his position as Director of the OMB, Stockman wrote a best-selling book, The Triumph of Politics: Why the Reagan Revolution Failed (1986). The book was Stockman’s frontline report of the miscalculations, manipulations, and political intrigues that led to the failure of the Reagan Revolution. A major publishing event and New York Times bestseller in its day, The Triumph of Politics is still startlingly relevant to the conduct of Washington politics today. After leaving government, Stockman joined Wall Street investment bank Salomon Bros. He later became one of the original partners at New York-based private equity firm, The Blackstone Group. Stockman left Blackstone in 1999 to start his own private equity fund based in Greenwich, Connecticut. In his newest New York Times best-seller, The Great Deformation: The Corruption of Capitalism in America (2013), Stockman lays out how the U.S. has devolved from a free market economy into one fatally deformed by Washington’s endless fiscal largesse, K-street lobbies and Fed sponsored bailouts and printing press money. Stockman was born in Ft. Hood, Texas. He received his B.A. from Michigan State University and pursued graduate studies at Harvard Divinity School. He lives in Greenwich, Connecticut, with his wife Jennifer Blei Stockman. They have two daughters, Rachel and Victoria.

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Comments (5)

My reading of a report is US is largest producer and exports lots of aluminum so what's an import tariff about? Wind energy is free at night/weekends in Texas, wholesale natural gas should be very cheap near production, cost of capital is low in general to reduce labor requirements, etc., so if these companies aren't competitive seems we pay Mexicans to work here where they drive down lower income wages or we pay them to work in Mexico for even lower wages plus lower exchange rate because railroads easily move freight to/from. Trump can't have both ways.
ronaldcbarr profile picture
The 25% steel & 10% aluminum import quotas only set the starting point for the NAFTA negotiations. We may be tired of all the tweets but they're a hey of a lot better than that last sob that tried selling out the US each chance he got under Alinsky guidelines.
Ben Gee profile picture
Nobody can win in a trade war, everybody will lose.
Get rid of FED
Strike profile picture
David Stockman should be required reading for every American child above 13, in order to counter the pathetic, Trumpian argument that other nations are to blame for America's ills. Lesson NO. 1: Make Infrastructure, Not War!

The Swedish P.M. tried yesterday, apologetically and painfully, to teach Trump Trade101: He pointed out that if the U.S. were, for example, to embargo Swedish aircraft the U.S. component makers who supply 50 % of the aircraft's parts would suffer loss of jobs and revenues.

Yes, Idiot-In-Chief, it's 'complicated'.
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