EDITORIAL: Trump Trade Policies

This week, President Trump is at the G 7 Summit in Canada

The last time President Trump was in Canada for the G 7 Summit was in 2018, when it was held at the Black Bear Chalet in La Malbaie (photo: Public Domain).

Editor’s Note: The opinions of the author, Stanford Erickson are his own.

Trade among nations over the next three and one half years, under the Trump Administration, will drastically change how it has been conducted for the last seven decades.

The British generally dominated how trade was conducted in the world for 150 years until World War II. In the early 1800s, English economist, David Ricardo, introduced the concept of comparative advantage, suggesting nations should concentrate resources only in industries where they have the greatest efficiency of production relative to their uses of their nation’s resources. Since the United Kingdom, and England in particular, did not have many resources, aside from a lot of money and a strong navy and military force, this kept the rest of the world dependent on one another, which was to the advantage of Britain maintaining its dominance in trade and the world economy.

After World War II, the United States decided it needed to boost the economies of the rest of the world. The U.S. did this twofold: U. S. industries began building plants in other parts of the world where labor was cheap; and secondly, the U. S. allowed other nations to create trade barriers against the exports of U. S. companies and allowed free trade to a degree to the United States by other countries.

Most nations after World War II, Germany, Japan and China in particular, emphasized a mercantilism approach to trade, maximizing exports and minimizing imports.

These global trade policies had direct effect on the United States economy. Over the last 25 or so years, the United States experienced a hollowing out of its manufacturing capabilities. Steel and aluminum plants went belly up. Automobile and automobile-parts plants started closing. In addition, trade agreements with Mexico and Canada, that were implemented by President Bill Clinton, further damaged U. S. manufacturing capability. Pharmaceuticals developed in the U. S. were produced in other countries, especially China. Not only did this destroy the U. S. pharmaceutical production capabilities, but the U. S. population generally paid more for drugs than the rest of the world while underwriting the research.

U. S. media, and particularly The New York Times, favored this decline in the United States manufacturing capability because it kept consumer prices down and did not hurt The New York Times white-collar circulation. In addition, the British bought up the dominant U. S. news daily business publication, The Wall Street Journal, to mute criticism of the damage Ricardo’s comparative advantage policies were doing to the economy of the United States.

A few years later, The Economist Magazine, owned by Parsons Corporation, a British company, bought The Journal of Commerce. U. S.-based Knight-Ridder owned this business daily, which covered international trade and was older than The Wall Street Journal. Full disclosure, I had been editor-in-chief and was general manager of the newspaper and president of its magazine division when The Journal of Commerce was sold to The Economist Magazine. Eric Ridder was chairman of Knight-Ridder at the time. He did not want to sell the daily business newspaper, since he had been publisher of The Journal of Commerce. Ridder’s office was next to mine in New York City. “I had to sell it because The Economist offered $115 million, and it was only worth $60 million,” he told me. He died a year later.

Within a few years after the sale, The Economist Magazine turned The Journal of Commerce into a weekly, killing the daily business newspaper. Doing away with the daily version of The Journal of Commerce was useful furthering free trade editorial positions. It also allowed the increasing of the circulation in the United States of The Financial Times, sister publication of The Economist Magazine that was also owned by Parsons Corporation.

ENTER TRUMP

Trump presidency One, and now Trump presidency Two is changing all of that. In his first term, Trump renegotiated trade agreements with Mexico and Canada in an attempt to reduce the economic trade imbalance between the countries north and south of the United States. The U. S. was purchasing more from Mexico and Canada, and U. S. companies were relocating production plants in Mexico to take advantage of low labor costs. Trump also imposed tariffs on imports somewhat to protect domestic companies. But he used raising tariffs primarily to change the hostile political activities of other nations, especially China, Iran and Russia. In mid-2017, U.S. companies with operations abroad held about $3 trillion in profits overseas because, to repatriate these earnings, the U. S. companies would have to pay a U. S. corporate tax rate of 35%, one of the world’s highest. In 2017, Trump signed into law tax legislation that not only cut individual income tax rates across the board, it reduced the corporate rate to 21% on funds repatriated to the United States. U. S. firms repatriated $777 billion in 2018 alone.

Trump Two presidency is much more ambitious. Trump wants to make the economy of the United States less dependent on the rest of the world. He contends the United States is subsidizing the economies of much of the world, harming the U. S. population. The poor and the middle class in the United States are bearing the brunt of subsidizing the economies around the globe. He is now imposing stiff tariffs on all countries that have an inordinate trade imbalance with the United States.

Establishment Republicans generally oppose Trump’s trade renegotiations because, generally, their financial well-being is tied to the economies of the rest of the world. In the past, these were referred to as Rockefeller Republicans and Bush Republicans. Today, they are being called Republicans in Name Only (RINO). Liberal politicians in the United States prefer to maintain trade imbalance with the rest of the world and favor subsidizing the poor and the middle class of the United States who are unemployed or underemployed because of the trade deficits. Trump knows this scenario is unsustainable, given the $36 trillion debt of the United States.

Critical to the U. S. economy becoming self-sustaining and less dependent on the rest of the world is for the U. S. economy to become less dependent upon foreign energy. Therefore, Trump is not only increasing U.S. energy production, he is integrating the economies of many of the oil-producing nations in the Middle East into a symbiotic relationship with the United States. He is permitting the oil-rich Middle East companies to hugely invest in the United States. He is also encouraging U. S. information technology companies to become more involved with the commerce in those oil-rich Middle East countries.

Dominant information technology companies in the United States, who generally opposed Trump’s first election, opposed it less in his second election. They are relatively supportive of his trade policies today. They realize that Trump is intent on making the United States the AI capital of the world. In terms of trade among the U. S. and other countries, AI will reduce costs associated with trade logistics, supply chain management and predicting risks. AI can assist in automating and streamlining customs clearance processes and border controls, navigating complex trade regulations and compliance requirements. By lowering trade costs, AI can help level the playing field for U. S. small businesses and especially U. S. agriculture, helping U. S. exporters overcome trade barriers, enter global markets and participate in international trade.

From a manufacturing point of view, AI will help make production in the United States more efficient through increased automation and use of robots. It will also refocus the U. S. workforce toward more white-collar employment.

Now, the main reason the rest of the world is opposed to Trump Two’s economy ideas, and trade policies in particular, is that Trump’s trade policies undermine the world economies and force them to become more hemispheric. Trade in the world will become more north-south and less dependent on east-west trade. All economies, including North and South America, will increase trade within their own hemisphere.

Europe, in particular, faces a major recession and perhaps a depression as Trump’s trade policies take hold. Not only is Trump forcing Europe to spend more money on its own defense, but he is reducing Europe’s reliance on exports to finance its socialistic governments. Europe, aside from Norway, suffers from a lack of major natural resources, especially energy. Also, Europe will be hampered from increasing trade with Africa, its natural north-south trade partner. Because, Europe had been so exploitive of Africa in the past, Africa will attempt to be self-sufficient within its own geographic territory. The African continent has the people and natural resources to be self-reliant. Ultimately, to improve its economy, Europe will be forced into a greater economic integration with Russia, which has enormous natural resources, especially oil and gas.

In all of this reordering of trade in the world, the odd man out is China. Trump correctly is informing Xi Jinping, president of the People’s Republic of China, on how to weather the economic disruption from Trump’s tariff and trade policies. According to Trump, China needs to become more dependent on its own consumer demand and less dependent on exporting goods to the economies of the rest of the world, especially the United States. I believe this is good advice because it helps prevent a revolution in China. But Xi, for some unknown reason, seeks some form of world domination for China. China’s built-up military, including naval power, also has enormous influence in the political management in the country. I’m certain the military would like to invade Taiwan. I assume that the business leaders of China along with the business leaders of Taiwan, who already work well with one another, will do everything in their power to overthrow Xi Jinping during the economic disruption caused by Trump’s trade policies with China. Actions may include buying off the military leaders of China.

The last year of Trump’s presidency, 2029, is critical. Establishment Republicans and others who make and keep their wealth through international trade between Europe and the United States will do everything to return the United States to being dependent again on the rest of the world. The British will be the masterminds of this effort, just as they did to end the presidency of Trump One. Remember it was former British Intelligence Officer, Christopher Steele, who presented false information that claimed Russian officials had compromising information on President Trump. Steele’s dossier led to a protracted investigation of President Trump that did great damage to his Administration in achieving its policy objectives, including trade. I assume, once you work for British Intelligence, you always work for British Intelligence.

I don’t think Trump will allow this to happen again. Once fooled blame the British, second time fooled blame Trump. I don’t think Trump will be fooled again.

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Stanford Erickson has been in media for over 50 years covering US presidents and government, global economics, global transportation transportation and logistics as well as media consultation through his own company, Integrated Media Consultants. As a journalist, he worked for Hearst, McGraw-Hill, Knight-Ridder and The Economist Group. As a journalist he worked in San Francisco, Korea, Chicago, New York, Washington, DC and Philadelphia.

He was the speechwriter for President of the American Bankers Association and for the President of the American Railroad Association and then for 10 years headed up all public relations activities worldwide for Sea-Land Service, the world’s largest containership operator.

Erickson was Editorial Director, Editor-in Chief and then General Manager of Knight-Ridder’s The Journal of Commerce in New York City. At the time, The Journal of Commerce had the largest news bureau in Washington, DC, of all Knight-Ridder newspapers. When The Economist Group bought The Journal of Commerce, he was made President and Publisher of the magazine division and bought magazines for The Economist Group. He then struck out on his own and, with investors, bought The Farm Journal.

Erickson is a recognized Silver Owl member of the National Press Club. He is the author of 4 books, his latest being, Ranking US Presidents from Washington to Trump.