Sunday, December 25, 2016

The Coming Trump Trade Shock

Paul Krugman puts a lump of coal in our Christmas stockings via an analysis that I believe is all too correct:
Yes, it’s Christmas Day. Bah Humbug. Also, the family won’t get here for a few hours, and I wanted to put something out as background for tomorrow’s column.

So, I’m thinking about the Trump trade war, which is looking increasingly likely — especially because U.S. trade law gives the White House remarkable leeway to go protectionist without legislative action. That wasn’t the law’s intent; but do you think this guy will care?

What happens if the protectionist-in-chief goes ahead and does it, as I suspect he will?

Claims that there would be huge net job losses are extremely dubious. But what would happen would be a global trade war, which would disrupt the existing economic structure, which is built on elaborate international supply chains.

In the long run, a new structure with shorter chains would be built. But in the meantime, some industries, some factories, would end up becoming sudden losers — in the US as well as in developing countries...
That is, I’d argue, the way to think about the coming Trump shock. You can’t really turn the clock back a quarter-century; but even trying can produce exactly the kind of rapid, disruptive shifts in production that fed blue-collar anger going into this election.

In Friday's EPJ Daily Alert, I actually put out some very aggressive recommendations to position investments defensively on the possibility that Trump is going to launch a trade war right out of the gate when he takes over as President.

There was a specific development, identified in the ALERT, that prompted me to act so quickly.  

The Fed is not likely to end the boom in the stock market anytime soon, but The Donald could with a trade war.



  1. I'm just wondering. Are you saying we are now supposed to start believing Krugman now that a conservative (almost) in office has given him the leeway to marginally approach the truth? He hasn't done enough to utterly discredit himself in the last couple years? The fact that he has had to completely change positions on issues like infrastructure spending based solely on the outcome of the election - does that factor into it.

    aka: why are you referencing Paul Krugman?

    1. Trade is one of the few areas where Krugman has actually been decent.


    The WSJ carried a better version of this article in their 50th Anniversary of the the Crash Series, complete with Side-Bar Story. (I have a yellowed original, scanned, available on request, RW.)

    A few weeks ago, I mentioned that the Wavers were at a Verification Moment with the 5-of-5-of-5-of... The Wanniski version of Supply Side Economics is getting there as well. Get ready to play Match-em-up, especially if a Senator Wilson states something like, "I don't see how we can limit the tariffs to just Chinese goods" and the market tanks the next day.

    The naive, optimistic view is that Trump is offering a bargaining chip which will be negoiated away when things get serious. The History sez that the stakes are much, much higher than that and the Son of Smoot-Hawley that's on the horizon - "Senator Schumer, what do you think..." - is the Disaster that is already here.

    Keep Preaching, Rev. Wenzel.


  3. Free trade "lifts all boats". These agreements have only "lifted" Crony boats on all sides. "Free trade" is another fake news story.

    NAFTA apparently lifted some Mexican boats more than for Mom and Pop Yankee, understandably, but it didn't hurt zwall Street zillion Aires. Crony trade deals.

    Tariffs at least are in the open. Consider that we don't even have free trade within our own borders. Medical insurance is flat-footed into state cubby holes, we can't start an ice cream shop without killer "tax-tariffs".

    Besides all those Crony trade deals are only Trojan horses, and soon enough regional dictatorships designed to merge into global social control will uncover themselves, just like with the European Union.