“It isn’t that China cannot hurt the Americans on trade, just that they can’t without causing themselves catastrophic damage. It is an America-sneezes-China-gets-Ebola sorta thing.”
~Peter Zeihan, March 25,
Sometimes the reality outruns the speculation. In Part 1 of this series I said that, although I disagree in principle with President Trump’s tariff proposals, I thought he would have some success at negotiating better trade terms. But, I didn’t expect that success to come so soon. In the past few weeks, Korea (both of them), the European Union, and China have gotten the message. New deals have been struck, and more trade talks are on the White House calendar. Ditto, Mexico and Canada. Whooda thunk?
It was obvious to me then, given Trump’s business career and his campaign braggadocio, that the tariffs and other threatened punishments were more a matter of style than substance. So, I wasn’t terribly worried. And, the President is right about this: Despite the free-trade rhetoric of the past seventy-odd years, the economic reality is mixed. Yes, the U.S. and much of the world have set “free-trade” as a guiding principle, but tariffs and trade favoritism have been with us since America’s founding. Our relative allegiance to the “free trade” principle has been a mixed blessing, especially in the last twenty-five years, as China – particularly China – has ignored and abused both the principle and the agreed-upon rules. Before that, Japan.
While free-trade purists like me were (and are) fearful of Trump’s approach, if he is increasingly successful in cajoling China, Korea(s), and the European Union back to the bargaining table to bring greater comity to international trade, he deserves some credit for substance. Style? Still, not so much;
The world has been relatively sanguine since the end of WWII, compared to the first half of the 20th century, anyway. Mostly, that’s because the prospect of nuclear war, and America’s guarantee of physical security for its allies, has kept the Europeans from each other’s throats, and the Russians from ours. Ditto, the Asians from each other, and the Saudis from the Iranians and vice versa. All, more or less, of course.
Now, I think we are at a crossroads. Thanks to hydraulic fracturing (fracking), horizontal drilling, and a multitude of other oil-patch innovations, America’s energy self-sufficiency is providing greater opportunities (by orders of magnitude) for home-grown business and industrial growth; along with well-paying jobs for people who have been too long without them. What the Internet did for the virtual world, fracking does for the physical.
But, along with energy independence comes the temptation to withdraw from long-held security and trade obligations around the world; and that may not always be a good thing. It’s my greatest hope that our irregular president and his advisors understand that. So far, it seems, so good.
The opinions voiced in this material are for general information only, are not intended to provide specific advice or recommendations for any individual and do not necessarily reflect the views of LPL Financial.