Category Archives: Trump Thump

Real Facts about Tariffs. Trump’s plan brings a gun to a knife fight, a gun aimed at his foot – Greg Jericho.

It wasn’t a total surprise that Australia was spared the steel and aluminium tariffs as Trump’s bluster of levelling tariffs for everyone is weakening.

This week saw leaders around the world trying to remember whether they were meant to take Donald Trump seriously, but not literally, or literally but not seriously, and also wondering if they have a Greg Norman somewhere they could use.

When US president Trump announced early in the week he was going to levy a 25% tariff on steel and a 15% tariff on aluminium imports, he suggested it was in order to protect national security. As with most Trump utterances, it left everyone trying to decipher just what he meant, because the US imports nearly half its steel from four nations Canada, Brazil, South Korea and Mexico which are hardly enemies of the US.

Was he doing this to attack China? He did write a series of tweets that suggested trade with China is in his sights, but while China is the biggest producer of steel, it only exports a small percentage of it to the US.

Some of his other tweets suggested that Trump was instead targeting Europe, but again, hitting steel imports was an odd way to go about it, given Europe made it quickly obvious that it would retaliate with tariffs of its own and the European Union is one of the few economies with enough grunt not to get pushed around by the US.

Then came the suggestion that Trump was using this to negotiate with Canada and Mexico over Nafta but that was also odd because that shot down his national security reasoning and opened the US up to retaliation under the World Trade Organisation rules (which would be likely anyway, given his national security reasoning was clearly bogus).

And using the threat of increasing tariffs in free trade negotiations is a weird way to go about things.

The tariffs do hurt the countries that export steel and aluminium to the US, because they force them to charge more for their product, thereby giving American steel companies an advantage, but they also hurt the US.

Tariffs are effectively consumption taxes designed to give local industries an advantage (or at least an equal footing with international competitors), and they work by raising the price of imports. Now that is great for the owners and possibly workers of those industries, but not so good for anyone else who wants to buy those goods, because now they have to pay more.

A tariff on steel and aluminium imports might help create a few extra jobs in the steel industry, but it also increases the price of all things made with steel and aluminium. That leads to job losses in those industries and also reduces the living standards for everyone because suddenly they have to pay more for things like canned goods, beer, and cars.

One study suggested that for every job gained in the steel and aluminium industries, five would be lost elsewhere.

That does not mean all free trade is a win for everyone and international trade does not occur in a textbook, but rather in the real world where governments subsidise and assist industries. But the general rule is that the costs to the economy increase with the size of the tariff and the number of industries affected (and similarly the benefits of lowering them reduce as the tariff gets closer to zero). A 25% tariff on steel is thus a rather hefty whack.

Trump is in effect going to the negotiating table with a massive weapon, a bit like taking a gun to a knife fight. The only problem is he has the gun aimed at his own foot.

And so it wasn’t a total surprise to see Trump back down and exempt Canada and Mexico, and then later give one to Australia. As the trade minister, Steve Ciobo noted this week, our steel exports to the US amount to about 0.800 of the US market and our aluminium exports account for about 1.5% so exempting Australia makes little difference.

To that end, reports that we have engaged Greg Norman to do some lobbying on our behalf seem eminently sensible. Not because Norman is some master trade negotiator, but because when dealing with Trump, nations always need to realise he is an insecure, ego driven fool who needs praise for doing the most ordinary of activities, and who sees every discussion and issue through the prism of how it makes him look.

Norman is probably the only Australian Trump has heard of, and the fact that Norman is famous and successful and would be seeking a favour from Trump would appeal to Trump’s vanity.

We could bemoan the fact that America’s electoral college system has selected this vainglorious ignoramus, or we can suck it up and use it to our advantage.

For now it appears his bluster of levelling tariffs for everyone is weakening. Trump clearly believes this the best way to negotiate trade deals, like any good swindler he’ll ignore the costs and talk only of the benefits.

The danger for Australia has always been not from a direct US tariff but should retaliation come from Europe and China. The last thing a small open economy needs is for the large economies of the world to start playing like it is 1930.

For now everyone is trying to work out just what Trump is after, mostly he is after things that he can call a win (even if they are really not). So I; nations will be thinking of things they give Trum that don’t matter in order for him to claim victory in the negotiation.

Or they can see if Greg Norman is available for hire.

The Guardian

There Once Was a Great Nation With an Unstable Leader – Nicholas Kristof. 

What happens when the people of a great nation gradually realize that their leader may not be, er, quite right in the head?

When Caligula became Roman emperor in A.D. 37, the people rejoiced. “On all sides, you could see nothing but altars and sacrifices, men and women decked in their holiday best and smiling,” according to the first-century writer Philo.

The Senate embraced him, and he was hailed as a breath of fresh air after the dourness, absenteeism and miserliness of his great-uncle, Emperor Tiberius. Caligula was colorful and flamboyant, offering plenty of opportunities for ribald gossip. Caligula had four wives in rapid succession, and he was said to be sleeping with his sister. (Roman historians despised him, so some of the gossip should be treated skeptically.)

He was charming, impetuous and energetic, sleeping only three hours a night, and he displayed a common touch as he constantly engaged with the public. His early months as emperor brimmed with hope.

Initially, Caligula focused on denouncing his predecessor and reversing everything that he had done. Caligula also made popular promises of tax reform so as to reduce the burden on the public. He was full of grandiose pledges of infrastructure projects, such as a scheme to cut through the Isthmus of Corinth.

But, alas, Caligula had no significant government experience, and he proved utterly incompetent at actually getting things done. Meanwhile, his personal extravagance actually increased the need for tax revenue.

Suetonius, the Roman historian, recounted how Caligula’s boats had “sterns set with gems, parti-colored sails, huge spacious baths, colonnades and banquet halls, and even a great variety of vines and fruit trees.”

Romans initially accepted Caligula’s luxurious tastes, perhaps intrigued by them. But Caligula’s lavish spending soon exhausted the surplus he had inherited, and Rome ran out of money.

This led to increasingly desperate, cruel and tyrannical behavior. Caligula reportedly opened a brothel in the imperial palace to make money, and he introduced new taxes. When this wasn’t enough, he began to confiscate estates, antagonizing Roman elites and sometimes killing them.

A coward himself, Caligula was said to delight in the torture of others; rumor had it that he would tell his executioners: “Kill him so that he can feel he is dying.”

Caligula, a narcissist and megalomaniac, became increasingly unhinged. He supposedly rolled around on a huge pile of gold coins, and he engaged in conversations with the moon, which he would invite into his bed. He replaced the heads of some statues of gods with his own head, and he occasionally appeared in public dressed as a god. He was referred to as a god in certain circumstances, and he set up a temple where he could be worshiped.

“Remember that I have the right to do anything to anybody,” he told his grandmother, according to Suetonius.

Caligula had a thing for generals, and he periodically wore the garb of a triumphant military commander. He removed the breastplate of Alexander the Great from his sarcophagus and wore it himself at times.

The Senate, dignified and traditional, watched Caligula with increasing alarm. He scandalized the public by sometimes dressing as a woman, and he aggravated tensions by scathingly denouncing the Senate, relying on sarcasm and insult, and showing utter contempt for it.

One of Caligula’s last allies was his beloved racehorse, Incitatus, who wore a collar of precious stones and lived in a marble stall. Caligula would invite Incitatus to dine with him.

Edward Champlin, a historian of Rome at Princeton University, says that Caligula pursued “a love of pranks that a 4-year-old might disdain” and had a penchant for “blurting out whatever is on his mind” — such as suggesting that Incitatus could become consul. These rash statements rippled through Rome, for leaders of great powers are often taken not just seriously but also literally.

Yet as Caligula wreaked havoc, Rome also had values, institutions and mores that inspired resistance. He offended practically everyone, he couldn’t deliver on his promises, his mental stability was increasingly doubted and he showed he simply had no idea how to govern. Within a few years, he had lost all support, and the Praetorian Guard murdered him in January 41 (not a path I would ever condone).

Caligula was as abominable a ruler as a great nation could have, yet Rome proved resilient.

Likewise, Rome survived Emperor Nero a generation later, even as Nero apparently torched Rome, slaughtered Christians, slept with and then murdered his mother, kicked his pregnant wife to death, castrated and married a man and generally mismanaged the empire.

“If there’s a hero in the story of first-century Rome, it’s Roman institutions and traditional expectations,” reflects Emma Dench, a Harvard scholar of the period. “However battered or modified, they kept the empire alive for future greatness.”

To me, the lesson is that Rome was able to inoculate itself against unstable rulers so that it could recover and rise to new glories. Even the greatest of nations may suffer a catastrophic leader, but the nation can survive the test and protect its resilience — if the public stays true to its values, institutions and traditions. That was true two millennia ago, and remains true today.

New York Times 

Get ready for Trump Thump. – Bernard Hickey. 

It has been called the “Bondcano” and the “Trumpocalypse of the bond markets” to impress upon regular savers and borrowers just how important the events of the last fortnight have been.

Since November 4 the US 10-year Treasury bond yield has risen from 1.77 per cent to almost a one-year high of 2.26 per cent.

That doesn’t sound dramatic, but it represents the fastest increase in the most important interest rate in the world in more than 7 and a half years.

It means investors holding US Government debt and other bonds priced off this benchmark just lost more than US$1 trillion.

It means all sorts of longer-term interest rates have risen sharply since the election of Donald Trump as US President as investors start to worry the host of The Apprentice would cut taxes, increase the cost of imports and spend money willy nilly in a way that will push up inflation globally.

New Zealanders can’t ignore these events. 

NZ Herald