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Reflections on a Wandering Life.....
Tuesday, March 06, 2018
Trump's Trade Wars
It's not going to happen. Trump will be around for the remainder of his four-year term. But then what? If you're interested, I'll tell you how it's going to go. When the average voters walk into the voting booth in the fall of 2020, if their financial condition is significantly better than four years earlier (Fall of 2016, in other words), they will vote for Trump. If their financial condition is about the same, they will vote for Trump if they voted for him last time. If their financial condition is a little worse, they will probably still vote for Trump if they are Republican. Otherwise, they will vote Democrat. If their financial condition is much worse, they will be inclined to vote for the other guy no matter who it is, and Trump will see a serious challenge from his own party.
So what's the prognosis? When the tax cut bill passed recently, the odds tipped in favor of Trump being reelected. Tax cuts tend to boost the economy. The two most significant in my lifetime were the tax cuts implemented by John F. Kennedy (a Democrat, but a fiscal conservative) and the Kemp-Roth tax cut implemented by Ronald Reagan. Bush Jr. also pushed through a tax cut with a sunset clause, and by the time it was getting ready to expire, letting it do so became tantamount to a tax increase. When Trump managed to get his tax cut through Congress with such a significant cut in corporate tax rates, he greatly increased his chances of being reelected.
But there is one thing about Trump that gives me pause. He has a protectionist streak that worries me a bit. I tend to be a free trader. Perhaps it's because of my background growing up as an expat in Japan. But I guess I just believe that the business should go to the one who produces the best product for the best price. No one should be surprised, though, by Trump's actions. They are consistent with what he has been saying for many years, as you can see in this video:
I remember during those days (late eighties) I was living in North Dakota. I was in a computer shop talking with the proprietor, and he was going on and on about how all the jobs where going to Japan. I had heard it all before, and I was weary of it, but I listened. He then asked me if I had children. I told him I had three daughters. He said, "What are you going to do if your daughters grow up and all the jobs are in Japan?
Obviously, he didn't know that I was born and raised in Japan. I said, "I'll tell them to go to Japan and get a job." He looked at me like the idea had never occurred to him.
It's a global marketplace, my friends. If you are just graduating from university or whatever career preparation you have elected, and are getting ready for your working life, there is at least a distinct possibility that the best job for you is not in the United States. So I have not been inclined to favor protectionist policies, and I am skeptical when Trump says that trade wars are good.
But let's look at it from his perspective for a minute. One example he gave was Mercedes Benz building a plant in Mexico. The obvious intent is to make cars to export to the US. So what's wrong with this? If Mexico can make a better car and sell it for a lower price, shouldn't they be allowed to? But these are not Mexican cars, they are German cars. But shouldn't a German company be allowed to build their cars where they can save the most money? German people may have something to say about it, but what business is it of ours? The problem is that they are obviously building the plant in Mexico so that they can make money selling cars to American customers without having to give jobs to American workers. That practice has just become accepted in today's world. But Trump doesn't like it.
By the way, a few days after my conversation with the proprietor of the computer shop, I saw him on the street in Williston. He was driving a Japanese sports car.
Labels: International Trade