Trump’s China gambit
I’m so risk-averse I don’t even like to play the stock market.
My aversion to risk is one of the many, many, many reasons I’m not Donald Trump.
On the other hand, I do own some stocks, and I understand the point of taking risks. I understand that with high risk can come high yield, but if you’re not canny and a little lucky it can come with big losses. And this isn’t true just in the financial world of personal investment. It’s true in general.
When Donald Trump threatened China with tariffs, a lot of pundits and politicians on the left acted as though they didn’t know anything about the idea of taking risks to get positive change. That obviously was what Trump was trying to do, however, and he was wagering that the chance of gain was a lot higher than the chance of failure. One can disagree with Trump’s assessment of his chances of bringing about a good result, but it would seem necessary to at least acknowledge that that was his assessment. But Trump doesn’t often get even that much respect.
Now it seems that a few people on the left are saying—grudgingly and hesitatingly—that maybe, just maybe, Trump’s opening moves will end up working to his advantage. From Robert Kuttner, editor of the left-leaning The American Prospect [emphasis mine]:
Trump started a tariff war with Beijing. China vowed to retaliate in kind. But Beijing was more vulnerable because China has more to lose—it exports far more than it imports and China indeed violates trade norms of fair pricing and fair access.
A number of commentators, me included, faulted Trump for the incoherence of his moves. But Trump’s blunderbuss approach seems to be harming the Chinese economy and catching the leadership off guard.
The incoherence of his moves? What does that even mean? Are they faulting Trump’s rhetoric? Kuttner doesn’t explain, so I’m not sure. But “incoherence” is not usually a problem when you’re making an opening gambit. It’s a move, not a speech.
I use the word “gambit” for a reason. Its definition is:
1. clever action in a game or other situation that is intended to achieve an advantage and usually involves taking a risk
2. a way of beginning a game of chess, in which you intentionally lose a pawn (= game piece) in order to win some other form of advantage later
That’s not esoteric knowledge. Again, you can disagree that an opening gambit such as Trump’s will work in a positive way or as intended. For example, here’s an article about the risk to some of the “pawns”—California farmers (almond growers, for example)—which is considerable and could backfire if this goes on too much longer. But don’t misunderstand the gambit’s essence as an opening move.
The Kuttner message goes on to say [emphasis mine]:
Whether by luck or design, Trump picked a moment when China’s economy was precarious, due to its heavy reliance on debt, the instability of many of its money-losing enterprises, and its inflated stock market.
Oh, so Trump didn’t even take a look at what might be going on in China before he made his move? He just happened to pick that moment, like a blind squirrel finds a nut? That seems pretty preposterous to me. As does this [emphasis mine]:
The Chinese leadership is skilled at scoping out America’s trade policy, cutting separate deals with multinational corporations, buying influence, and besting Washington at trade negotiation. But how do you play chess when the other guy is playing a schoolyard game that he makes up as he goes along?
So not only does Kuttner think Trump’s gambit wasn’t any good except by blind luck, but he doesn’t even think Trump is playing chess. The Chinese are playing chess, of course. But somehow they are possibly being bested by Trump, a guy who doesn’t even know which chess pieces move which way, who just stands there playing some “schoolyard game” like perhaps dodgeball (only he doesn’t even know the rules of that). And yet somehow, when Trump releases the ball, it goes careening out of control and happens to hit the chessboard the other side is playing on, providentially knocking a piece off in exactly the right way to lead Trump one step closer to victory
This meme of Trump the stupid clueless lucky bumbler is very popular, but it really makes little sense on the face of it—particularly in the context of the negotiation of a financial deal by Trump. After all, it’s not as though Trump hasn’t announced his intentions of making better deals for the US and written a book on his deal-making tactics and strategy.
[NOTE: When Trump started his threatening of China, I wrote a post, too. At the moment, I think it holds up pretty darn well. Excerpt:
The MSM and many others often treat Trump’s proposals as something he wants to actually do, because they might be something he actually wants to do. But Trump also might be just making the opening move in a negotiation game. ]
That analysis and assessment of Trump’s approach to China and the (re) negotiation of a better trade arrangement comes from someone that doesn’t understand, even a little, how negotiation works.
That Trump’s moves are producing the sort of result he wanted indicates to me he knew exactly what he was doing when he made them and had carefully considered the downside risks. I suspect he assessed the risks of his actions and determined they were mitigated by the status of China’s situation and the personality of its governing body.
These are things any good and experienced negotiator does.
Neo, if by “playing” the market, you mean picking winners and losers or timing the market, yes it is a highly variable risk. Research over the last several decades indicate there is no way, on a long term basis, to outguess the market. But the research also has shown that over any ten year period, there is a 95%+ probability the equity markets will outperform the savings/debt market. (True even for 1929-1938.) At longer time spans, the probability rises. What is your time horizon? If you expect to live 20 more years, there is virtually no risk, if you buy the whole market, that you’ll come out worse than if you sock it away in a savings account.
And if the totally unexpected happens, then we’re all probably out looking for roots and berries, no matter where we put out savings.
Proposition: It is a great advantage to act in such a way that your opponent underestimates you. Corollary: Those who see themselves as “the Elite” always underestimate those who they do not consider to be part of that elite. Result: Checkmate!
Trump has clearly stated a preference for genuine Free Trade — no tariffs, no subsidies (not mentioning US agri subsidies, yet), no non-tariff barriers. That’s long been the conservative, most economists view.
However, in prior negotiations, the USA has been willing to accept no or very low tariffs on imports, yet higher tariffs on exports. Unfair. Trump is trying to change those negotiated unfair deals.
In almost every case, any increase in tariffs hurts the other country more, or far more, than it hurts the USA. In terms of jobs and balance of trade. EU, Mexico, China — they all export to the US more than they import, and none have Free Trade with the USA now.
Acceptance of unfair trade has been part of US “aid” to our “allies”. Trump is reducing this aid to be more fair, among “equals”.
Like kicking out of the house the 30 year old son who doesn’t want to leave — the one losing the subsidy whines a bit.
Good for Trump. No surprise that China wants more fair trade, meaning less surplus, than far less trade with much less surplus due to tariffs. Their leader knows what is to the their country’s advantage.
I just read the WH mail of the day. Among other things, he cited David French’s criticism on a NYT hit piece on Brett Kavanaugh. Since French is an NRO anti-Trumper, it seems like someone in the WH is trying to negotiate a deal there too. Of course, VDH and Rich Lowry have always given Trump credit when due.
Neo’s got two points: 1) the trade maneuvers and their risk and efficacy, 2) the left’s portrayal of Trump’s intelligence or lack thereof.
From the Neo post on intellectuals and collectivism, if intellectuals are supposed to have all the governmental power so as to better engineer society, then by leftist definition all conservatives and folks on the right have to be stupid. If inevitably some of them are actually smart, we must paint them as stupid even if the record of recent history demonstrates the opposite.
I’m half way through the book “The Hundred Year Marathon” by Michael Pillsbury, and I saw him interviewed in the last few days. Pillsbury claims to have deep inside knowledge of China, including recently, but also admits to having gotten his estimations of China very wrong in the past. He said his recent contacts suggest that the Chinese leadership thinks that Trump is a 3D chess master on trade (his words approximately) and they are fearful.
_______
Harvard prof. Robert Barro published an op-ed on Trump’s trade policy in the WSJ recently. He’s a smart economist on the right, though he sounds a bit like a Never Trumper possibly. His opening paragraphs are a mea culpa about how he reluctantly supports some of Trump’s policies. Then he says that Trump acts like trade tariffs behave like a single edged sword that only hurts the Chinese, but in reality it primarily hurts Americans.
“Living without foreign-produced goods hurts Americans more than our trading partners. And the calculations only get worse when one factors in the inevitable retaliation.”
Ah, calculations! Can’t explain those here. And he didn’t. He’s not a dummy though, so there could something real there.
Personally, I think it all has a good chance of working because of the magnitudes of the trade imbalance and because of what Kuttner states,
“Trump picked a moment when China’s economy was precarious, due to its heavy reliance on debt, the instability of many of its money-losing enterprises, and its inflated stock market.”
Tom G also makes a good point, the same one that Wilbur Ross made some months ago. The U.S. has had a policy, since WWII, of periodically creating harmful imbalanced trade regimes, with the aim of helping various allies. As M. Pillsbury points out, China used to be one of the U.S.’s most important geo-political allies against the Soviets.
Sundance at The Conservative Treehouse has a very detailed analysis of the Presidents trade maneuvers.
https://theconservativetreehouse.com/2018/08/18/important-michael-pillsbury-china-has-new-respect-for-u-s-trade-strategy/#more-153020
Neo, you would fold into the fetal position under the stress if you had to orchestrate this, however Trump seems to have hired a bunch of very canny and experienced business men who understand the whole scheme and can execute.
By the way, the Chinese people call him Powerful Grandpa Trump. They seem to have a lot of respect for him.
https://www.theepochtimes.com/chinese-people-hope-powerful-grandpa-trump-ends-the-chinese-communist-party_2613192.html
Sorry to just post links but the two pieces are quite long and detailed and deserve to be read in full. Unlike the shallow opinion of a leftwing twerp like Kuttner or even a slightly more grounded opinion by a Harvard economist you will have to study them a bit to understand what’s going on. The first breaks the trade negotiations down into ten(!) different parts and how his strategy links China and Europe. The second is a view from inside China and references Chinese history going back to internal wars and military strategy in 400 BC up to current events and the hope that many Chinese have that Powerful Grandpa Trump will break the back of the Communist Party(wishful thinking).
“here’s an article about the risk to some of the “pawns”—California farmers (almond growers, for example)” neo
“China indeed violates trade norms of fair pricing and fair access.” Robert Kuttner, editor of the left-leaning The American Prospect
California almond grower’s financial welfare is not Trump’s responsibility. Arguably, Congress bears responsibility for enacting legislation that provides some compensation to those negatively hit by the tariffs.
America’s economic security is Trump’s responsibility. Our massively obscene trade deficits are a direct national security threat to America’s economic survival.
Easy explanation. Trump’s smart and very street smart. Kuttner doesn’t know shit from Shinola and applies it as makeup.
The financial record and understanding of these phony intellectuals is always shabby and incoherent.
Trump is negotiating with the money and livelihood of American citizens as if he owned them. They are NOT his to risk.
The Other Chuck:
Your comment at 7:12 PM doesn’t make sense to me. ALL presidents “negotiate with the money and livelihood of American citizens” every time they set economic policy or make a decision of any sort, actually. Sometimes they even bargain with their very lives (in wartime, for example, and in many foreign policy decisions). Only for Trump would you say “as if he owned them.” But there’s no “as if he owned them.” That would be something like Maoist policy that ordered people out of cities to live in the country, or to go to re-education camps.
ALL presidential decisions have consequences on people’s lives. ALL can have bad consequences. No presidents—certainly the vast majority of presidents, anyway—intend for the consequences to be negative. They make decisions based on their best forecasts of the effect of those decisions. Sometimes the immediate efforts hurt some people in order to reach a great good for the whole, including those people. Sometimes the decisions backfire and lead to a worsening of conditions, but that’s an error of judgment, it’s not playing with people’s lives as though they own them.
TOC,
Yes, Trump should follow the advice of the experts available to him and listen to the adults in Congress and pontificating media. After all, our massive trade deficit is proof of their acumen. What is wrong with that man?
GB:
The key word in trade war is war. You’re a well educated smart man and know about Smoot-Hawley and what followed. While I am not a follower of David Stockman who has become a perennial chicken little, I believe he hit the nail on the head with the following interview on CNBC last week. The laws of economics will out in the end. Our trade problems were caused through the monetary insanity of the Fed and the strong dollar they kept afloat.
When Trump failed he was able to file bankruptcy. What will happen if he fails now?
https://www.cnbc.com/2018/08/17/david-stockman-unhinged-white-house-to-cause-stock-market-crash.html
The Other Chuck — Tell me something, if the Chinese used to buy all our almonds, and now they will buy them from Brazil or wherever, where do the people who used to buy them from Brazil buy? Hmmmm. . .
Trump plays checkers while the Chinese play chess. Advantage checkers.
There cannot be an equitable market in the presence of labor (e.g. slavery, insecurity) and environmental (i.e. indiscriminate recovery, production, and reclamation) arbitrage, which are effective tariffs or monopolistic practices. Globalists like it. The artificial Green blight likes it (i.e. out-of-sight and out-of-mind).
As for the stock market, artificial asset inflation will cause the customary decadal crash.
Smoot-Hawley and the Great Depression, from Cato Institute, one page and worth the read:
https://www.cato.org/blog/smoot-hawley-tariff-great-depression
Before he was an economist Kuttner worked for WBAI as a correspondent in New York. If you who are not old enough to remember the sixties, it was one of the radio stations in the Pacifica network. Their politics were way out in left field. I remember listening to him during the summer of ’67.
CapnRusty on August 20, 2018 at 11:46 am at 11:46 am said:
Proposition: It is a great advantage to act in such a way that your opponent underestimates you. Corollary: Those who see themselves as “the Elite” always underestimate those who they do not consider to be part of that elite. Result: Checkmate!
* * *
lol
Paul in Boston on August 20, 2018 at 3:49 pm at 3:49 pm said:
* *
Very interesting article, but how in the world do the Chinese get the pronunciation “Chuan” from “Trump”???
neo on August 20, 2018 at 7:23 pm at 7:23 pm said:
The Other Chuck:
“Your comment at 7:12 PM doesn’t make sense to me. ALL presidents “negotiate with the money and livelihood of American citizens” every time they set economic policy or make a decision of any sort, actually. Sometimes they even bargain with their very lives (in wartime, for example, and in many foreign policy decisions)”
* * *
Indeed.
“Only for Trump would you say “as if he owned them.” But there’s no “as if he owned them.” That would be something like Maoist policy that ordered people out of cities to live in the country, or to go to re-education camps.”
Remember that the Left’s ideology fundamentally depends on the government “owning” the people, so of course they assume that’s what a conservative* thinks when he makes decisions.
*Well, Mr. Trump IS playing a conservative on TV, whether he checks all the boxes or not.
Neo:
If this were any other president, Obama excluded, I would agree with you. But given the extreme egotism of this man, his seeming admiration for tin pot dictators and strong men like Putin, no.
If the tariffs were targeted only at China because of its history of economic theft now backed up with a growing military, there would be a plausible excuse. However, Trump has chosen to impose tariffs on friendly allies and neighbors which means he is indeed a protectionist.
What it boils down to is that Trump supporters are willing to excuse any, and I mean ANY action this man takes, if it can somehow be tied to national security. And if that’s a stretch, then he’s playing 3D chess.
This is my last post at this site. While I’ll continue to enjoy visiting and reading the non-political essays, my thoughts about Trump when expressed are falling into the troll category. You all hear enough of that on the nightly news. Best I keep quiet. Good luck to you all.
Perhaps as a matter of tradition, national pride, fundamental aesthetic, even sense of rational training, the Chinese may be better understood as players of what they call weiqi — we call go, the Japanese call igo, the Koreans baduk — a beautiful board game involving territory as object, wall-making as intention, and trades of position as means. Just a thought from a nominally eastern point of view.
The Other Chuck:
It’s your decision, of course. But I, for one, urge you to continue commenting here. I value your opinion. No need to agree with the majority here to be a valuable contributor.
Whether anti trum or pro trum or Ymar neutral, none of that is going to stop me short of somebody landing a strategic weapon on me.
China believes in face and the strong horse. They just don’t call it the latter.
This is what YHVH, that well known sociopath in certain circles as he is known, had to say about kings of his people.
But when they said, “Give us a king to lead us,” this displeased Samuel; so he prayed to the Lord. 7 And the Lord told him: “Listen to all that the people are saying to you; it is not you they have rejected, but they have rejected me as their king. 8 As they have done from the day I brought them up out of Egypt until this day, forsaking me and serving other gods, so they are doing to you. 9 Now listen to them; but warn them solemnly and let them know what the king who will reign over them will claim as his rights.”
10 Samuel told all the words of the Lord to the people who were asking him for a king. 11 He said, “This is what the king who will reign over you will claim as his rights: He will take your sons and make them serve with his chariots and horses, and they will run in front of his chariots. 12 Some he will assign to be commanders of thousands and commanders of fifties, and others to plow his ground and reap his harvest, and still others to make weapons of war and equipment for his chariots. 13 He will take your daughters to be perfumers and cooks and bakers. 14 He will take the best of your fields and vineyards and olive groves and give them to his attendants. 15 He will take a tenth of your grain and of your vintage and give it to his officials and attendants. 16 Your male and female servants and the best of your cattle[c] and donkeys he will take for his own use. 17 He will take a tenth of your flocks, and you yourselves will become his slaves. 18 When that day comes, you will cry out for relief from the king you have chosen, but the Lord will not answer you in that day.”
19 But the people refused to listen to Samuel. “No!” they said. “We want a king over us. 20 Then we will be like all the other nations, with a king to lead us and to go out before us and fight our battles.”
21 When Samuel heard all that the people said, he repeated it before the Lord. 22 The Lord answered, “Listen to them and give them a king.”
Humans love kings. I see no problem when the people are loyal to the end to their kings. That is their choice not mine.