Bill Bonner: Trump can’t beat THIS trade deal
From Bill Bonner, Chairman, Bonner & Partners:
BALTIMORE – People can believe whatever they want.
But sooner or later, real life intervenes. We just like to see the looks on their faces when it does.
By that measure, 2017 may be our best year ever. Rarely have so many people believed so many impossible things.
Worst in Class
Automaker General Motors (GM) used to have an assembly plant in East Baltimore.
Then one Friday in May 2005, at 4:30 in the afternoon, the last Chevrolet Astro van rolled off the assembly line at the Broening Highway General Motors Plant. Some eyes misted up. Some were angry. Some laughed.
The van hadn’t been updated in 20 years. It was widely seen as a safety hazard and voted “worst in its class” by the experts.
Peter Morici, a professor of business at the University of Maryland, summed up GM’s problem to a reporter for The Baltimore Sun:
If you sell an inferior product and you expect a premium price, you’re going to go out of business.
In its heyday, the plant operated two shifts and employed 7,000 workers. Dundalk, the nearest neighborhood, boomed – with bar traffic ebbing and flowing as one shift took up work and another left off.
But by 2004, the shop was spinning its wheels. GM owed so much to the past – in the form of pension and medical benefits to retired employees – it had little money or attention available for the future.
The company paid out more than $5 billion that year for retirees’ aching backs, high blood pressure, and other ailments.
A year later, the plant sputtered to a halt and went silent. The thousand-plus GM workers still on the job in Maryland grumbled. But no one, as far as we know, suggested punishing the company with a penalty tax on Michigan-made vans sold in the state.
For some reason – never explained – Marylanders may bristle at cheap imports from Mexico or China. But they seem to take imports from Michigan or California in stride.
But what’s this?
GM now produces the Chevrolet Cruze, a cheap domestic automobile favored by the people left behind by globalization and financialization.
It is assembled in Mexico. President-elect Donald Trump indignantly tweets that GM:
… is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!
Both of those options presume a higher sticker price for the Cruze. Neither the president-elect nor his trade guru, economics PhD Peter Navarro, have revealed how forcing Trump supporters to pay more for a basic set of wheels would help them.
Of course, no one knows how or when such a choice would be imposed. But one thing is sure: Someone is going to be disappointed.
It’s not what he doesn’t know that gets a man into trouble, as someone once pointed out; it’s what he thinks he knows that ain’t so. And, usually, he thinks he knows that someone other than himself is doing something he oughtn’t.
Mr. Trump, and apparently much of the U.S. electorate, thinks GM oughtn’t be assembling its autos in Mexico.
Because it causes U.S. jobs to migrate south of the border.
But why is a job north of the Rio Grande better than a job south of it?
That, too, has never been adequately explained. Only one person can have a job. If it is not you, what do you care if it goes to someone in Detroit or someone in Guadalajara?
Presumably, people in both cities are equally charming and equally worthy of employment.
A Better Deal?
In addition to trying to preserve the past in the U.S., Mr. Trump says he is keen to negotiate better trade deals.
We understand free trade. But the exact nature of a “better” trade deal has never been explained, either. As near as we can tell, it is like a “better” calendar, with 100 days so it is easier to keep track of… a “better” election process, in which your candidate always wins.
China exploits its working people to undercut U.S. manufacturers, say the critics. Its factories don’t have to abide by U.S. safety, environmental, or labor rules.
Pretty underhanded, isn’t it? Dastardly. Real capitalist pigs, those Chinese, right?
“Yes,” says the man about to get himself into trouble. “The Chinese are bad people… doing a bad thing. We have to retaliate.” In today’s Wall Street Journal, for example, Trump’s trade negotiator, Robert Lighthizer, says he wants to “level the playing field for American workers.”
But perhaps he should get out one of those new laser levels.
Who breathes polluted air? Who works 12-hour shifts in unheated factories? Who makes $1 an hour without complaining so that someone on the other side of the planet can get an “everyday low price” on some gewgaw at Walmart?
Currently, Americans get useful gadgets and gizmos made in China and shipped here at Chinese expense. In return, U.S. shoppers give the Chinese pieces of green paper (or the electronic version thereof).
The sellers, who already have plenty of our currency, are at a loss as to what to do with more of it.
Typically, they sell their dollars for Treasury securities. In other words, they trade one IOU for another from the same issuer.
Since 1990, the accumulated U.S. trade deficit with China has topped $4 trillion and is now running at about $1 billion every 24 hours.
Americans have gotten autos, computers, TVs, and the other paraphernalia of modern life here in the U.S. In return, the Chinese have gotten precisely nothing. The IOUs have never been redeemed. And never will be.
One of the amusements of the year ahead will be to see how Team Trump improves THAT deal!
But wait. This fake money system – not free trade – is the real problem. It may be a great “deal” for U.S. consumers. But it is a disaster for the U.S. Main Street economy.
More to come on Monday…
Crux note: Bill is so adamant about the disaster that’s coming that he’s put together a tell-all presentation to help you prepare for the consequences of decades of reckless Fed policies.