Trump

  • March 23, 2018
  • We should say this clearly but maybe just once: Not everything Donald Trump thinks or says is whacky.

    The exception that might prove the rule is the western approach to trading with China and Trump’s initiative to put upwards of $60 billion in tariffs on goods emanating from the Middle Kingdom. Lest you think $60 billion is a tad rich, read on.

    Last year, Trump also said that more than 60,000 factories (not jobs) had left the US for China since China was admitted to the World Trade Organization (WTO) in 2001, a claim that is right directionally but that fails to account for factories moving to other places such as Mexico and Canada to name two. But when you round up, the total number is solid. It comes from a US Census Bureau report in 2014.

    China’s tactic on global markets has been decidedly mercantilist meaning its method is to accumulate foreign reserves by exporting finished goods while keeping its markets relatively closed to imports. Lots of nations do this, especially when they are emerging onto the world stage. Import tariffs were even an important part of US trade policy throughout the 19th century and into the 20th until the Smoot-Hawley Tariff Act (1930) contributed materially to the Great Depression. Open markets and global trading have been a hallmark of US commerce strategy for over 70 years but Trump wants to change the status quo.

    More importantly, Trump is also focused on a more important aspect of relations with China, intellectual property (IP) theft, which has been going on for a long time.

    The New York Times reported in 2013, that IP theft was a specialty of the People’s Liberation Army (PLA) unit 61398,

    The hackers were behind scores of thefts of intellectual property and government documents over the past five years, according to a report by Mandiant [a security firm], in February that was confirmed by American officials. They have stolen product blueprints, manufacturing plans, clinical trial results, pricing documents, negotiation strategies and other proprietary information from more than 100 of Mandiant’s clients, predominantly in the United States.

    This is in addition to the other requirements western companies face when setting up shop in China including technology transfers and taking on Chinese companies as partners.

    None of this is news. In “The Great Industrial Wall of China,” in The American Prospect, a liberal leaning magazine, Carolyn Bartholomew noted back in 2009 that,

    In order to provide an advantage for Chinese industries and companies, and to attract U.S. companies to locate in its country, the Beijing government manipulates its currency, showers subsidies on favored industries, provides low-interest loans from a state-owned banking system, tolerates and even encourages the theft of intellectual property, and ignores WTO rules.

    So there in a nutshell is Donald Trump’s not-so-crazy case against unfair Chinese competition, but justifying tariffs is an entirely different matter. The time for this approach to fighting back was before China became a powerful global economy by taking the markets for the goods, not the factories, admittedly on other presidential watches. But all presidents have messes to clean up from previous administrations. Most take this in stride.

    Trump’s approach to solving difficult problems or cleaning up messes, has been to simply wish away the problem by rolling the clock back but that’s impossible. His promises to bring back coal are a good example of how this approach fails. Coal is now more expensive than natural gas because advanced techniques like directional drilling and hydraulic fracturing, have produced a glut. It’s also less polluting. So the odds of bringing the coal industry back to its former predominance are nugatory.

    Similarly, China is now in a position in which it makes a great deal of the products consumers need, which were once made locally. The Chinese took markets, not jobs or factories. They now make things at a fraction of the cost of western goods because their labor costs are much lower. There is good reason to think that production jobs that left first world locations will not be coming back for the same reasons that natural gas is ascendant in power generation. Notably, gas will have a brief time in the sun because the alternatives are becoming cheaper and replacing all kinds of fossil fuel power production and because, in the long run, they are far less polluting. That’s the way markets work.

    My take

    Some industrial migration can’t be stopped because it is a natural part of economic evolution—part of how countries climb the economic ladder. But industrial espionage in which a country makes off with blueprints, strategies, research data, and other intellectual property is different. It steals the future as well as the capital and effort that go into creating the IP and in the long run it impoverishes the victim of the theft.

    A tariff might be proper given what’s gone before and $60 billion per year may sound large—and it is in comparison with the $375.2 billion trade gap between the countries and it is certain to grab the attention of the Chinese. But it has to be part of a larger strategy. Tariffing Chinese goods in general doesn’t make sense for goods that carry no IP developed in the last few decades. Such tariffs only make everyday goods more expensive for consumers without changing the equation. They are like the zero-sum moves in a checker game.

    If the goal is to make trade more equitable then the strategy should include much better adherence to the WTO rules of globalization and an agreement that recommits the parties to fair trade. In a less well publicized move Trump has said the US would file a trade case in the WTO against China.

    But also, other countries are feeling the same pressure from the Chinese that the US feels. So it would make sense to form a coalition with allies to confront China with one voice. But Trump continues to alienate allies at the same rate he antagonizes adversaries (except Putin). This is a chess game that plays out over time and Trump has not shown the savvy or the patience to pursue.

    But this is all vitally important because when the trade war gets going, the Chinese aren’t going to retaliate over consumer items, they’re going for the things that will hurt like not buying our airliners (Boeing), heavy equipment (Caterpillar) and just about anything that emanates from Silicon Valley and environs.

    On the other hand, trump’s negotiating strategy includes making a ridiculously high demand followed by downward negotiation when the other party comes to the table. If so the trade war might look a lot like the steel and aluminum tariffs which builds loopholes for almost all other nations.

     

    Published: 7 months ago


    Is Bitcoin just another scam? Why find out the hard way?

    Bitcoin’s end may be forecasted in its recent price run up (I intentionally didn’t say value because it has no intrinsic value). Late last week the digital currency traded above $20,000 for the first time according to an article in the New York Times. That article also noted that the crypto currency started the year below $1,000 and as recently as this October coins could be had at a now very attractive $5,000 each.

    The Times article said the factor driving the new interest is the increasing interest from Wall Street and for good financial reasons,

    At the current cost, the value of all Bitcoin in circulation is about $300 billion. To get a sense of how big that is, all the shares of Goldman Sachs are worth about $90 billion.

    But the only comparison should be with other currencies like the dollar. Bitcoin’s price is tiny compared to the M1 money supply, a measure of dollars in circulation. M1 is hovering near $3.6 trillion according to the Federal Reserve Bank of St. Louis.

    M1 is a good jumping off point because it reminds us that real money is regulated by something other than the marketplace and that regulation is much more transparent. Every major country and currency has its own version of such an index except in Europe where some countries use the Euro but the principle is still the same. In contrast, Bitcoin has Coinbase, a San Francisco company providing brokerage services. We should note that Coinbase’s systems went kaput for an afternoon last week. That’s not exactly something to make you warm and fuzzy.

    But the valuation (ok, I said it) is like blood in the water for Wall Street. Hedge funds and brokerages are lining up to trade in Bitcoin. Said the Times,

    Coinbase now has more account holders than Schwab, and it has struggled to keep up with the growth.

    But more troubling is the looming trouble that Bitcoin could deliver the the financial system,

    The path for large investors has been smoothed by the Chicago Mercantile Exchange and Chicago Board Options Exchange, which have been racing to roll out Bitcoin futures contracts. Most banks are already signed up with these exchanges and consequently can immediately begin trading the contracts. The options exchange has said it plans to start trading on Sunday [December 10].

    My friends involved in this say that Bitcoin and other crypto currencies provide a measure of freedom from government regulation, which is more conducive to doing business. But all of this freedom only reminds me of the words of Anatole France, an early 20th century poet, novelist and journalist, and Nobel Laureate, “The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”

    I see this run up as potentially destabilizing to the global financial system and quite possibly the black swan that the Trump administration didn’t see coming that produces its first real test. The fall out from the test might turn out to be worse than the crash.

     

     

     

    Published: 10 months ago


    Denis-PombriantI swear I was getting through this and trying to move on. She wasn’t my favorite candidate but when you consider the alternative she looked like George Washington in a pantsuit. Like many people I had moved on from denial and anger to Elizabeth Kubler-Ross’ next stage in the grief pyramid called bargaining. He can’t be that bad…they can tame him…I’m going back to work, he can’t chase me there…I’ll be okay.

    But noooo! A brief story in the New York Times today says Donald Trump, incipient POTUS is planning to hold a technology conference next week. It’s right here under this headline, “Trump Plans Technology Conference With Silicon Valley Executives.” The article by David Streitfeld, Maggie Haberman, and Michael D. Shear covers a lot of ground what with Trump also seeming to have cancelled the next generation of Air Force One today, which is also in the piece.

    Says the article, “The list of those being invited was not immediately clear, but they could include Mark Zuckerberg of Facebook, Timothy D. Cook of Apple and Sundar Pichai of Google.” Sure, that’s right, Silicon Valley CEOs have nothing scheduled that far out so of course they’ll all trudge over to Trump Tower. Whatever it is, when a president asks for your time, he’s doing it in the name of all the American people so you more or less have to attend.

    The one saving grace in all this might be (and we really don’t know all the details yet) the fact that these are all consumer technology mavens so far. Maybe Trump has a punch list of social media enhancements to go over or maybe he intends to build a wall between our electrons and the rest of the world. Or maybe Trump just wanted to call a fly-in for rich guys to compare private aircraft. His is bigger, you know.

    Regardless, I’ll withhold judgment on Trump’s tech chops until I know if this is just show and tell for social media or if he really wants the skinny on what to expect in areas like machine learning, AI, the IoT, and a half dozen other techno-wizbangs that will rock his world soon. I’ll begin to worry when Ellison, Benioff, and Gates get summoned.

    Published: 2 years ago