World Trade Falls to 2014 Level, just in Time for a “Trade War”

Threatened Trade War meets the Great Stagnation.

“If you get into a trade war with China, sooner or later we’ll have to come to grips with that,” Carl Icahn, now special advisor to President-Elect Trump, told CNBC on Thursday. “I remember the day something like that would really knock the hell out of the market.”

A trade war with China surely would be another wall of worry for stocks to climb. Trump’s rhetoric against China, each morsel packaged into 140 characters or less, has already recreated much-needed turbulence [read… Trump Tweets about China, US Businesses Freak out].

“But maybe if you’re going to do it,” Icahn said about the looming trade war with China, “you should get it over with, right?”

This comes after rumors emerged that Trump’s transition team is chewing over the idea to impose import tariffs of up to 10%, “according to multiple sources,” including a “senior Trump transition official,” CNN reported. The idea is to boost US manufacturing. The new tariffs could be imposed by executive order or by Congress as part of broader tax reform legislation.

The 10% would be an uptick from the 5% tariff that incoming White House Chief of Staff Reince Priebus had put on the table last week, in “meetings with key Washington players,” two sources “who represent business interests in Washington” told CNN. These tariffs would be in line with Trump’s campaign motto of “America First.”

Other countries would, as they always do, retaliate. Hence the term “trade war.” Countries will be careful not to escalate, but these things can escalate nevertheless, because no one wants to seem weak and back off. Either way, it would pull the rug out from under world trade.

But world trade, a reflection of the health of the global goods-producing economy, is already in bad shape. For the past two years, it has been languishing in a condition we now call the Great Stagnation.

The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released the preliminary data of its Merchandise World Trade Monitor for October. World trade isn’t falling off a cliff, as it had done during the Great Recession, when global supply chains froze up overnight. But since November 2014, it has gone absolutely nowhere:

The report put it in perspective:

Regional variation notwithstanding, the overall decline reflected decreasing import and export volumes in both the advanced and emerging country blocks. At the import side, the largest drops occurred in Latin America and the “Other” advanced economies [not the US, Japan, and EU].

Export volume decreased most in Latin America and the United States.

A trade war would come just at the nick of time. With the dollar high and US exports already in decline, retaliation by other countries to Trump’s tariffs would surely be a godsend for the S&P 500 companies: they generate nearly 50% of their revenues overseas. They don’t really need to those sales; they can just focus on the US or whatever. Supply chains are global these days, in all directions, and new tariffs and counter-tariffs would turn them into elaborate anchor chains.

China and other countries might also target American exports of farm products, which would hit farmers, farm lenders, US equipment makers, seed companies, farmland prices, and so on. The possibilities of a trade war, and its ramifications, would be one more topic the relentlessly inflated US stock market would contemplate nervously.

A trade war could also take on financial dimensions, in an already tense world for government bonds. Read…  Foreigners are Dumping US Treasurys as Never Before

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  105 comments for “World Trade Falls to 2014 Level, just in Time for a “Trade War”

  1. jan frank says:

    Reminds me of that popular ’60s and ’70s sport known as chicken. Two cars racing towards each other and let’s see who swerves first. Charming.

  2. Nicko says:

    Let’s see, China has over $3 trillion in cash reserves, is progressing full steam ahead on the $1 trillion ‘New Silk Road’- (building pipelines, ports, airports, rail, shipping, and highways) across Asia to EU and Africa’s door, China investment bank is capitalized, and their currency is gaining reserve status. Oh yea…their economy is also growing at around 7%.

    Trumpie has no idea what he’s doing.

    • Tim says:

      Lets see, reserves are shrinking at the highest pace, $3 trillion is a fake number and it’s less than two years left until the end of the party. What is not fake are historical debt numbers needed to build ghost cities, unused airports and “New Silk Road”.

      • nicko says:

        Take for example, the recently opened rail route from China-Tehran, reducing deliveries by 30 days. A 2000km high-speed rail upgrade is in the cards. China has the experts, plenty of cash, and stockpiles of commodities (ie. steel) to continue expanding and modernizing the continent spanning trade network. There is really nothing stopping them, especially as many of the concerned countries greatly appreciate the injection of Chinese cash. —and really, this isn’t a bad thing.

        Of course, it will be bad for an isolationist/protectionist Trump admin – all roads will lead to China.

        • George says:

          Nicko, you have nailed it!!

          Most don’t realize China is part of the largest land mass on the planet. Reaching from the far North near the pole to the So. Pacific and from the Atlantic shore to the Pacific. The interior is impregnable to any military assault. Once the infrastructure is built (and it will happen fast) a gigantic trading block incorporating technological Europe, resource rich Cen. Asia, the populous far east, and even, up and coming India will have been built. A large portion of world commerce will flow over secure interior land routes. Maritime trade will diminish and the nations dependent on it will become vassals; begging for crumbs. Even now the Chinese are taking control of the Malucca Strait with their newly fortified islands. All the while one of their allies, Iran, is controlling Hormuz and going for control of the Bab el Mandeb Strait which is access to the Suez Canal.

          Those ghost cities we laugh about linked by road and rail will become global hubs – as was intended from the git-go. He who laughs last usually laughs longest.

          57 nations, most of them our “allies” joined the AIIB to help build this beast – 25 more nations are up for membership. The money is there. The labor force is sure as hell there. S. O. Art technology from European participants is there. Resources are in place.

          Meanwhile,the biggest debtor nation world history (also maritime dependent) still thinks it can write the rule book!

          I see comment on this site from some obviously smart and experienced people – many of them professional, I assume. But most restrict commentary to rents, interest rates, banks etc. Most don’t see the big picture.

          Friends, a geopolitical tsunami is soon to engulf this big blue marble.

          Nicko, you see it. I sure would like to discourse with you. Maybe through Wolf we could exchange addresses.

        • nhz says:

          yes, China and its (once again, after more than a century) expanding trade empire has huge promise. Which is why the US – through NATO – is desperately trying to start a war with Russia, or under Trump rule maybe a war with China instead. Can’t allow the neo-colonial US empire to crumble, they would rather blow up the planet instead.

      • NotSoSure says:

        Don’t worry. Trump’s nuclear weapons will take care of China. That’s the benefit of isolation especially geography isolation!!! In other words, it’s a Trump card.

        • Saylor says:

          There is NOT enough geographical isolationism to protect the earth from nukes.

        • Rich says:

          Trump’s opening gambit/salvo are not expected/intended as the final solution, but the start of negotiations. There will be no nuclear arms race as neither the US nor Russia benefits. Upgrades, yes.
          Standing up to China on trade is long overdue. If China ‘retaliates,’ and cuts off exports to us, so be it – the greater the motivation for the US to be more self-sufficient.
          Those paying attention also see that Trump supports the worker but not necessarily unions. I see advanced automated factories in the US, with skilled and better paying jobs, but fewer in number at each factory. That is also appropriate.
          Standing up to Chinese aggression is something entirely different. While Russia was not the aggressor in Ukraine (just a defender of those in the east from complete annihilation, and the formality of hoisting the flag over Crimea since they were already there and paying rent), and IMHO (and Stephen Cohen’s as well) is not a ‘threat’ to the Baltics (so we had better get NATO to dial back the aggressive troop movements and sword brandishing), OTOH China has made it quite clear that they WILL expand their zones of control in the seas and oceans surrounding them, and have installed bases with armaments intended to signal the US to stay away. China is the military threat we must be very cautious with, while Russia can be our ‘frienemy’ to fight radical Islam in the middle east.
          I’m glad to be hearing sane foreign policies being advocated by Trump’s appointees, and look forward to dialing it back with Russia, while at the same time stepping up the defense of our economic well-being, nay survival, vis-a-vis China.
          JMHO and your mileage may vary

    • Frederick says:

      One more thing Nicko they are accumulating gold at a record pace

      • Enquiring Mind says:

        The gold activity in Chindia makes for nervous investors elsewhere. When 40%+ of the world population is in the throes of gold, trade and currency economic turmoil, as when elephants mate, stay clear, or convince yourself that you are very nimble.

        • JerryBear says:

          I need to refresh my hard won Mandarin! I got my BA in Asian Studies Chinese Emphasis and I could see China’s time coming too.

    • George says:

      Nicko, Article: All Roads Lead to Bejing.

      Check it out..

  3. night-train says:

    Blowback and untended consequences. This is going to be exciting. Probably disastrous, but interesting. Since I am remodeling the homestead anyway, I might add a bunker to the plan. Spam can be prepared in a variety of delicious ways.

  4. nhz says:

    Great, let’s have a trade war and make everything 10% more expensive, to start with. Payback for the Chinese, the US voters will love it :-)

    “The CPB Netherlands Bureau for Economic Policy Analysis, ”

    I always call them “the Ministry of Truth”, a more realistic description.
    Take everything they write with more than a bit of salt.

    BTW, isn’t it funny that world trade increased by about 20% over the last five years and still people in a very open economy like the Netherlands didn’t see any real income gains? Only this and next year government workers in Netherlands are seeing pretty big real income increases, although it remains to be seen how much of that remains after the government is done with manipulating the financial economy. For most other citizens it has been a steady decline for many years already.

    • Kent says:

      I thought the Netherlands was pretty heavily unionized (maybe I am wrong). If so, why wouldn’t unions be striking for higher wages?

      • nhz says:

        Dutch unions are in strong decline, probably like in most of the West. They primarily serve the interest of the oldest (55+ or so) union workers and pensioners, at the cost of the young generation.
        Many of the younger workers no longer join a union.

        For about two decades we had the ‘Poldermodel’ which means that unions, companies and government work out deals together instead of striking; that worked for a long time, probably because there was enough loot to share among parties ;-)

        For sure many government workers are getting pretty big pay rises at the moment, without striking. For other workers it really depends on the type of company they work for but I doubt any of them will be getting the same pay increases that e.g. teachers and health care workers (semi-government) are getting.

  5. DV says:

    I cannot understand why it is only about China? There are plenty of other countries (Taiwan, Japan, Korea to name a few), which enjoy hefty surpluses in trade with the US. Then there is also the EU, which has almost $100 bn surplus. What the ECB is doing can be also described as currency manipulation. The use by the US of trade sanctions do not help the US exports at all.

    • subunit says:

      It might have something to do with the fact that Taiwan, Japan, and Korea are US satrapies with extensive deployments of US military forces or arms contracts with the US, rather than an enormous regional hegemon with independent foreign and trade policy? Not really that complicated.

      • nick kelly says:

        I’m sure GM especially will be happy to hear that the Japanese auto invasion is a head fake and can be called off anytime. (Sarcasm)

        Actually Japan has had Detroit on the defensive in cars for 20+ years.
        Back out trucks and GM doesn’t look too good.
        If oil were to go to 80 + we could be looking at bankruptcy. 2.0

        • JM says:

          Japan’s car companies couldn’t make a profit in the U.S. if the Yen were left unmanipulated. And Japan’s citizens pay the price.

    • nhz says:

      Yes! Let’s slap a 50% import tariff on all those luxury German cars because Mario is cheating by lowering the German currency (far more than China)!

      Now that would be smart, because the average worker cannot afford those German luxury cars anyway, and it would hit primarily the elites, politicians and Democrat states like CA ;-) Oh wait …

      • night-train says:

        What about the German luxury cars we make in the state of Alabama, USA?

        • nhz says:

          I don’t know any details about that, but are these plants ‘financially’ in the US or in the EU?

          AFAIK the US only builds a very limited range of Mercedes and Porsche cars, and most of that is probably just the last part of the assembly process.

    • Maximus Minimus says:

      Quite right. ECB is a currency manipulator. All rules have been broken in this brave new world.

  6. 2017 is going to be Tremendously Great ! We are going to be Great ! and have Tremendous plans for the US and China will pay for the new Manufacturing plants made in the Great DSA ! Folks – It’s going to be the most Tremendous Expansion and Growth Ever Seen !

    I Can’t wait ~ Full Speed Ahead !


  7. RD Blakeslee says:

    Chinese consumer goods have been continuously degraded while they take over our markets.

    Every LCD clock and indoor-0utdoor thermometer I have tried to buy over the last several years has been mult-branded, but like peas in a pod otherwise.

    They are all cheap junk – failing within a few months.

    Much of what I buy nowadays I find used (and per-Chinese) on ebay or in flea markets.

    Perhaps overt promotion of U.S. industry will incidentally result in higher quality products.

    • Mike G says:

      Perhaps US industries will react as they frequently have in the past when protected by trade barriers — by jacking up their prices, funneling all the benefit to shareholders, lobbying DC for more ‘protection’ and not doing a thing to get more competitive.

      • nhz says:

        what are US industries, the same ones that officially exist in the US but produce everything in China?

        Why would the quality improve if they start producing in the US, because the US workers are smarter or more productive?? I think the only result will be higher prices, NOT better quality.

        And as for higher wages for US workers thanks to local production – not going to happen with the unlimited supply of migrants that will work for almost nothing (because they get everything for free anyway …).

        • Rich says:

          That is one scenario, certainly. But I see China having acted monopolistically, taking over markets, then in some areas, substituting inferior goods/suppliers to maintain/increase profit (they have had internal wage inflation to deal with, and outsource more work now, too). I think US consumers would be happy to have quality products, and choice of buying American. I see the future US manufacturing to be non-unionized, higher quality due to automation, and more competitive internally.
          There is justification, too, for initial application of tariffs, based on the increased cost burden imposed on American firms that must abide by a whole host of regulations – some necessary (pollution controls, worker safety), but likely far more just micromanaging imposed by regulatory overkill – and I really, really like that Donald is appointing successful businessmen in many positions of power, who I hope will trim the fat and cut employment in those departments, while slashing regulations. Long overdue. The time of gov’t budgets and employment and regulations only ever increasing is OVER… I hope. With Obama there was no hope, now we have hope. But there will be a great deal of internal resistance to this change, and it will take time. But I am more hopeful than I have been in a long, long time for US business to be able to flourish and compete… exchange rates notwithstanding (and currency wars are the one thing we will likely see quite a bit of – this is the greatest unknown, IMHO).

      • JerryBear says:

        There is NOTHING big business hates worse than genuine Capitalism!

    • DH says:

      China is at least as capable of making high quality products as we are. It just depends on how the companies focus on quality.

      Aside from Apple products, which are generally well made, I was shocked to see how well made Chinese-made Fender guitars can be. I’ve worked in music stores for years, when Asian stuff was pretty bad, and I’ve only ever owned American made instruments, but I just bought a Chinese made Fender and am pretty surprised by the good quality. If the model I wanted was available in US made form for another thousand bucks, I guess I would have sprung for it just because, but the one I ended up with is actually great.

    • That’s pretty funny. Actually, Americans prefer junk. If it were not all junk they would be spending much more on stuff that they would be throwing away – and it would all still be working. In-addition to the cell phones, TV’s and computers, which from what I see all still work perfectly when they are upgraded to some foreign country to be melted for spare materials.

      There is no one in america that will buy a screw driver for $12. made here, employing non robots in the manufacture process, and no person(s) want to work in a factory making screw drivers by hand employed – so as to produce them for the $4. you can find them for today in Sears – and get paid $9./week for others to get said price.

      When I think of Trumps plan of bringing manufacture jobs here, I think of 1950’s car plants, not 2020’s car plants. For those, there is no point in bringing them here, or you would be bringing back all the environmental problems, and companies clearly don’t want to comply with that. So Trump would have to scrap that, and it looks like he is planning for that. Look at EPA appointment.

      Not at all sure where it’s going, but quality…… Do people really want it, and to pay for it…?

      Zenith made hand made tv’s well past the others and they are gone, the best quality period….. (1970’s) Zenith went as soon as cheap Japan tv’s came around.

      LCD Clocks…… They are made by machine, there really is no human way to bother making them, the cheaper the better, they are throw away items like spark plugs…..

      There is no humans involved in tv’s and by the end VCR’s were all in robot plants, 3 humans, just pushing the on-off buttons…. Making Terminators day and night running – killing jobs all across the planet….

      And so ends Airing of Grievances for me today…..
      Happy Festivus !


      • Beard681 says:

        I have been automating plants for 40 years, and they all have hundreds of people tending and maintaining the machines, making adjustments, writing programs for new production as well as doing the non-assembly related tasks from sweeping floors to driving forklifts. The idea that robots “kill jobs” is ridiculous considering that there were MANY previous productivity improvements in mechanization, electrification and CNC machines that improved production more than the rather simple jobs (painting, spot welders, pick and place, etc.) performed by robots.

        This, to me, calls into question the rest of your rant.

    • Enquiring Mind says:

      Fake branding has a new twist in LA.

      Generic clothing and items may be purchased wholesale, from whatever provenance, and then branded by every Tom, Dick and Harry as part of their custom, just in time, curated marketing strategy (aiming for maximum cliche usage). There are very few barriers to entry, and buyers are wising up as similar garments and goods appear with different labels and prices. When so many have become closet retailers, or loot bag distributors, where is the value added? That is essentially a game of musical chairs. I wouldn’t want to be one of their creditors as there are too many tail risks.

  8. Nader says:

    What is made in China can be made in the US, but I do not think China is able to produce farm products like the US. A war trade can lead to more manufacturing in the US and more debt in China to sustain their standard of living.

    • Frederick says:

      Cant China just buy more agricultural products from places like Argentina Brazil and Canada Nader?

      • nick kelly says:

        Yes. And we ( Canada) just got a huge order from the EU because we just signed one of those accursed trade deals. The kind that let you appeal local tariffs to a trans-national board!

        How about a trade deal with Asia that excluded China.., oh wait, that was the TPP.

    • Smingles says:

      “What is made in China can be made in the US”

      Not a question of whether it can be made… question of whether US consumers will buy it when it costs that much more money because it’s made in the US.

      Sure, your middle or upper class American might pride themselves on buying ‘made in the USA’ products because they can afford to throw around extra cash to feel good, but will the average American? I doubt it.

      • Ed says:

        And will be made by Robots too so not many new jobs.

      • Mike G says:

        It’s hard to compete with not just rock-bottom paychecks but nonexistent health and safety standards in manufacturing, like this —

      • Kent says:

        How did Americans buy stuff when it was made here? I don’t recall everyone going without. In fact, I remember most working folks getting along pretty well.

        • DH says:

          Unions, higher wages, higher taxes on the wealthy, more stable middle class, “needing” less stuff overall, etc.

        • nick kelly says:

          I don’t know how old you are but in the 50-60’s clothing was much more expensive (corrected for inflation)
          I’ve know folks of my age ( raised in 50’s) who didn’t wear shoes to school.
          There was nothing like the plethora of good quality second hand stuff like now. People passed stuff down to family & friends.
          Families were bigger and stuff would get passed kid to kid.

          As for fast food- we were not poor but it was a real special treat.
          Today one third of the US food budget is spent on restaurant food, mostly fast food

      • nick kelly says:

        The two largest sectors of Chinese imports are consumer electronics (27 %) and budget apparel incl shoes, about 19%.
        There is no possibility of those industries returning to the US, except where they can be completely automated. This is not going to happen with apparel in the medium term.
        Only the rich would be able to afford US made clothing.

        BTW: the rag trade never was a source of good jobs- New York had sweat shops too.

        • DH says:

          I mostly agree, although, to make a counterpoint: I buy some clothes from a company called American Giant, who makes things in the US. Sure, it’s an expensive sweatshirt, but I’ve worn it frequently for years at this point.

          I think part of the problem is that people would rather have zillions of cheap things, rather than a few nice things. Although I do make good money now, I’ve always been the same. I’d rather buy one nice thing that is built well and lasts. I’m seeing that more and more with the younger generation, too. “Thinking locally” has been a thing for a while up here in Portland, so it’s been an interesting surprise to see conservatives embrace it as well.

    • nhz says:

      Agree, Chinese farm products are still GMO-free AFAIK. Many of their agricultural products are even biological, although the criteria are a bit too loose at the moment. As to abuse of antibiotics, China and US are both bad players.

      said otherwise, I would prefer Chinese products and the same will go for much of Europe.

      • Nicko says:

        I think your being very selective, Chinese politburo and anyone wealthy enough buys imported organic produce. Virtually all of China’s soil and water are poisoned.

      • Lee says:

        Chinese farm products are total crap. You are risking your health and well being by eating that junk.

        Grown in polluted soil, water, and air.

        I wonder how the sunshine evens reaches the plants!!

        Even here in wonderful Oz we are importing that crap.

        Now when we go to the supermarket we check to see if there are any imported contents from China. If so it goes right back on the shelf.

        One of the Japanese food stores here sells Chinese products. One of them is frozen eel. The price on the pack was A$8.00. The grown in Japan product was priced at A$50.00.

        Way back when we tried the Chinese one once and never again. Total rubbish. So until we go to Japan next time no eel on the menu.

        Another one: honey. Yep, we even import honey from China. Some producers mix imported Chinese honey with theirs. Sorry folks, but you guys have lost my business forever (Not to mention that they also have the halal mark on it.)

        Garlic? Yeah we have imported products (Mexico, China) or homegrown. Imports are HALF the price of Australian garlic or less. (Australian garlic is around A$22 a kilo)

        My garlic is basically free from my garden: no monetary outlay, fresh, and no chemicals of any kind on it. No need to go to the store and buy it.

        And China just downgraded their growth target for the coming year.

        The A$ took a big hit overnight as a result.

        • nhz says:

          You are extremely biased and I wonder if you ever bothered to check the fact.

          I have seen the monitoring reports from our CDC/EPA agencies about farm products from China. Although there are a lot or problems, many Chinese products contain LESS pesticides etc. than stuff from e.g. Spain or the US. And while the current environmental problems in China are severe, they are making huge efforts to clean up, which is proceeding much faster than the cleanup in Europe and US after they made a total mess of the environment in the fifties/sixties. Some areas in China have improved tremendously already, they DO care while one can doubt if the US got the message given how they are saturating everything with GMO, glyphosate, antibiotics, growth hormones etc., and trying to force their trading partners to do the same.

          BTW if you grow garlic (or most other vegetables) in the average city garden in EU it might be more contaminated that the average stuff from China.

        • Lee says:

          Yep, nhz, I am totally biased.

          I won’t buy food products from China and I won’t buy any other products from that country if I can help it.

          Somewhere I seem to have read that they are a communist country run by a dictator with a state controlled system…………

          You are more than welcome to continue to eat those Chinese products while “they are making huge efforts to clean up”……….

          I’ll continue to avoid them and eat as much of the fresh fruit and vegetables from my chemical and pesticide free garden as I can.

          For snacks over the next week we’ll be having fresh cherries just picked off the tree and the better half will bake cherry crumble with the excess for Christmas desert.

          Wonderful stuff can be grown in Oz – too bad we export the high quality stuff and import lower quality crap.

  9. Uncle Frank says:

    WalMart prices going up 10% will make America Great Again.

    • Frederick says:

      Walmart going bankrupt wouldnt hurt Frank

      • Tom Kauser says:

        The last time we had a major shedding of jobs ( in the neighborhood of 7 million if i recall correctly) Walmart added positions?
        However this time we won’t be so fortunate.
        I suspect that come some Monday real soon many companies will realize like Walmart that ” there business model is shattered” and instead of re- organizing to produce domestically will instead sell out to a Anglo corporation?
        Making America great by selling supercenters to camping world?

  10. Kent says:

    How will we know when America is “great” again? What would that look like?

    • nhz says:

      America should start innovating again; and I don’t mean financial innovation or much of the nonsense going on in Silly Con Valley (most of it enabled only thanks to free money from Wall Street).

      America still has a lot of things going for it, but IMHO they need to get back to their roots in order to get competitive again.

    • polecat says:

      How will we know when America is “great” again? What would that look like ?

      That’s when All the Oligarchic Chronies, Hedge-Funders, Short-Traders, Regulators, and Political Party Apparatchics sitting at the Roundtable start handing out cigars, caviar, and champagne ….. and get a belly laugh at the gullibility of the plebs to have been fooled yet once again, for ANOTHER 4, or 8 years !!

      • Chicken says:

        Yes, carry the elitist torch hold it high and proud. Those deplorables aren’t familiar with this type of rear-view fortune telling.

        “Well we’re living here in Allentown
        And they’re closing all the factories down
        Out in Bethlehem they’re killing time
        Filling out forms
        Standing in line
        Well our fathers fought the Second World War
        Spent their weekends on the Jersey Shore
        Met our mothers in the USO
        Asked them to dance
        Danced with them slow”

      • JerryBear says:

        Wow! I think I am beginning to understand why all those guillotines were necessary to the French Revolution.

  11. Greatful again says:

    Based On what I’ve been seeing in price declines from Chinese made goods, I’d say they’ve been in panic mode for about 6 months. With an average yearly salary of $4000, and a very high savings rate, they’re are not turning into very good domestic consumers. The juggernaut needs a market in which to sell. Their demographics are not pretty either. They have been doing a lot of infrastructure work, but that doesn’t change these fundamental issues.

  12. nick kelly says:

    ‘But world trade, a reflection of the health of the global goods-producing economy, is already in bad shape. For the past two years, it has been languishing in a condition we now call the Great Stagnation.’

    So world trade being in bad shape is a bad thing?

    ‘A trade war would come just at the nick of time. With the dollar high and US exports already in decline, retaliation by other countries to Trump’s tariffs would surely be a godsend for the S&P 500 companies: they generate nearly 50% of their revenues overseas. But they don’t really need those sales. They can just focus on the US. Supply chains are global these days, in all directions, and new tariffs and counter-tariffs would turn them into elaborate anchor chains.’

    So world trade contracting further is a good thing?

    I am baffled.

    I at first assumed that “a trade war would come just in the nick of time’
    was sarcasm and fairly heavy- handed sarcasm. Or maybe it is and I’m just too dumb to get it.

    The S&P 500 ‘don’t need the 50% of their revenues generated from overseas…they can just focus on the US’
    Wow- I wonder how many of them would agree.

    ‘Supply chains are global these days, in all directions, and new tariffs and counter-tariffs would turn them into elaborate anchor chains.’

    I would have thought that if someone agreed that supply chains are global, they would NOT be in favor of new tariffs etc.

  13. Bing says:

    “A trade war would come just at the nick of time. With the dollar high and US exports already in decline, retaliation by other countries to Trump’s tariffs would surely be a godsend for the S&P 500 companies: they generate nearly 50% of their revenues overseas. But they don’t really need to those sales. ”

    Are you being sarcastic Wolf? Wondering what insight you may have that I’m missing as to why you would consider it a godsend. Surely import tariffs will hurt the top line of S&P500 companies.

    • Wolf Richter says:

      YES. Totally sarcastic. But you’re not the only who wondered about that. So it seems my sarcasm was not as clear as it should have been. And I should have given more clues that this is definitely sarcasm.

      Reality is: this would be a disaster for the S&P 500 overseas revenues and earnings.

      • Chicken says:

        I’m not sure there’s long term cause for alarm, the US consumer is long dead and buried yet S&P continues on a roll.

        • nhz says:

          US consumer dead and buried? For sure it doesn’t show yet in the waist size of average Americans ;-(

          And although there was a tiny bit of downsizing in the average size of American homes and cars, it doesn’t look like a trend change yet.

      • Mary says:

        I’m often confused by the tone of your posts. What you intend to be sarcastic can come across as mystifying contradictions. I’ll sometimes just stop reading because I cannot figure out your point.

        Maybe another pair of eyes proofing your copy would help???

        • Wolf Richter says:

          My sense of humor can be bone dry. In real life too. Plenty of times people don’t catch it. So Mary, look for it when you’re on these pages. And when in doubt, assume that it’s my bone-dry sense of humor.

          I try not to take myself too seriously.

      • wuzzy says:

        Strange, daily I read your comments hoping for quality sarcasm.

      • Beard681 says:

        ???For items made overseas and sold overseas there would be no tariffs. Tariff revenue would accrue to the state and could be used to either reduce the deficit or on domestic spending. The net economic effect would be more limited that the additional 10% (or whatever) tariff cost (before mark-up) at Wal-Mart.

        The best solution would be a broad based VAT on all products and services which advantages local producers who get to deduct non-value adding expenses like regulatory costs and local taxes. It also helps exporters who could the export tax free.

    • Chicken says:

      Fortunately, the robots are coming to devour us. Global Warming will be stopped in it’s tracks once all humans are replaced with green-card carrying robots.

      • nhz says:

        green robots (running completely on solar energy, green color is probably best for that) might do the trick – but I bet they will be pretty lazy ;-)

  14. Chicken says:

    “China has the experts, plenty of cash, and stockpiles of commodities (ie. steel) to continue expanding and modernizing the continent spanning trade network.”

    Of course all this expansion consumes fairy dust energy thus is climate change friendly in keeping with Mother Nature’s preference for energy conservation.

  15. Chicken says:

    “World Trade Falls to 2014 Level, just in Time for a “Trade War” ”

    Imagine the timing of this coincidence! The calculus suggests a million/1 chance considering the largest wealth transfer in history of mankind has taken place.

    Thanks to all our best thinking.

    • JerryBear says:

      I wonder how we would characterize our roles on here? Wolf is our guru and wise man. I guess I qualify as the token fire-breathing Leftist radical, I wonder how the rest of you would characterize yourselves?

  16. John says:

    “The new tariffs could be imposed by Executive Order…”
    Has anyone in the United States ever actually read the Constitution. Only Congress has the power to impose taxes. Executive Orders are not even mentioned in the Constitution and therefore not a legal Executive power.

    Executive Orders will be a major talking point for the Convention of States when it gets underway. The states will likely decide to impose strict limits on Executive Orders if they allow them to stand as an Executive power. If they decide that the whole damn Federal government is such a freaking mess that they can’t figure out how to fix it with Constitutional amendments, they might just decide to use the nuclear option and amend the three branches of the Federal government out of the Constitution (and out of existence) and then start over.

    • nick kelly says:

      Read ‘The Imperial Presidency’ by Arthur Schlesinger

      According to the Constitution, only Congress can declare war but somehow 500, 000 US troops ended up in Vietnam without a declaration of war.

      If only Congress can declare war- why does the Pres carry launch codes?

      BTW: it is pretty much common ground among US historians that the Fathers would be horrified at the growth of the Executive branch.

      Personally, I think they would long ago moved to a British type Parliamentary system rather than the quasi-monarchical Presidency which is actually a modified Brit system circa 1800.

      Monarch= Pres
      House of Lords= Senate
      House of Commons= House of Representatives

      The Brit (Canadian, Aus, etc, ) has evolved to present system where all power (but not influence) lies with Commons.

      For checks and balance we rely on elections.
      And a Prime Minister can go in a weekend- no need to impeach.
      He (or she) has to get up on his hind legs every day or so for Question Period when the govt must defend itself. He doesn’t emerge from behind the 12 ft high gold doors to make pronouncements only when he feels like it.

      • nhz says:

        why make declarations of war if you can drone the whole planet on a daily basis without it?

  17. michael engel says:

    -Chinese forex reserves are down 560 Billions RMB in the
    last three month. Sep, Oct, Nov, 2016.
    -Their money market is in some kind of turmoil.
    -When they pay for imported oil, in RMB, they pay in a fast
    falling currency. Suppliers get less & less, and should prefer
    to be paid in $USD.
    – Every stock market is rising ; commodities are rising ; yet
    somewhere, some people or central bank, is dumping gold.
    -US consumer is not buying goods as before. Export from
    China is falling, despite the falling RMB, that should make things
    from China cheaper and encourage buying.
    -But they love our export, just stole from UTX the top secret
    design for the F-22 & f-35 engines. A Chinese spy who who worked in UTX.
    -I don’t understand why they are buying SU-35 from Putin ??
    -Especially if the US export is almost always for free.

    • Kent says:

      The SU-35 is a superior aircraft in many ways. It is faster than the F-35, can fly higher, turn faster and carry more weapons. It is also far less expensive to maintain. The Chinese would rather buy SU-35s than build their own F-35 knockoffs.

      • nick kelly says:

        We should encourage China to steal F-35, leave plans laying around.
        Let them bust their budget.
        BTW: I’m not sure if the Russian SU-35 is their latest fighter, because that one is having lots of probs of its own. They are trying to sell it to India but when one burst into flames on road show they wouldn’t let Indos near it

        A key test of endurance will arrive in 2017 when Russia’s reserves run out

        • nick kelly says:

          PS: Putin has said collapse of USSR was a great tragedy.

          He may not be able to recreate it geographically but with Russian percent of economy controlled by state doubling from 35 to 70 during his fifteen years- he has recreated completely dis-functional Soviet economy which STILL does not have a single viable consumer export ex: vodka and caviar.

          Incredibly. it is not self- sufficient in oil and gas equipment for its only real industry.

          Before anyone replies with ‘what about Russian rockets’ note

        • Chicken says:

          Yes, it’s a complete mystery why those pesky IP laws keeping Russia from mass producing Hughes’ Drill bit designs weren’t completely obliterated by liberal elites, they missed that one.

        • nhz says:

          @nick kelly:
          “He may not be able to recreate it geographically but with Russian percent of economy controlled by state doubling from 35 to 70 during his fifteen years- he has recreated completely dis-functional Soviet economy ”

          Total BS. The Russian economy has been killed by the US through the current trade embargo between EU and Russia and by blackmailing many other countries to make trading with Russia extremely painful. Just like they did with Cuba and some other countries that don’t listen to the US emperors.

          If the EU elites would stop listening to their US masters and trade with Russia and China instead, they would quickly have the largest and most prosperous trading block on the planet. But no, the EU elites would rather destroy their own economies (costing EU taxpayers many billions every year) by sabotaging trade with Russia than admitting defeat in their criminal coup in Ukraine; those Uki double passport criminals are way more important than the EU taxpayers :-(

        • Edward E says:

          Putin said that because he saw the former USSR countries like Ukraine being used against Russia.
          Do you prefer our latest outgoing evil, lying, malicious, narcissistic, treasonous, murderous bastard, who utterly betrayed the American people and who brought systematic death and destruction to one nation after another? I say good riddance.

        • nick kelly says:

          I usually don’t bother replying to most of this stuff but re:Russia’s economic probs being due to sanctions, the sanctions only began in 2014.
          All the data confirm that the Russian economy was in rapid decline before that. How could it not be with the state controlling most of the economy and Putin and the 140 thieves controlling them?
          An interesting side effect of Russia’s inability to produce consumer goods can be seen in Kazakhstan. A former Soviet Republic, it is of course wishfully part of Putin’s recreation of the Soviet Union.
          But economically it is increasing part of China.
          As one Kazakh interviewed for Gregory Feifer’s book ‘Russians’
          puts it: ‘without China we would be naked and starving’
          It is not just Kazakhs who buy Chinese goods- they serve as traders supplying Russians who have the same problem.

          But the most serious thrust of Feifer’s book (Hachette, 2014)
          is the all- pervasive corruption.
          Trying to establish any kind of business requires constant payoffs- a low level storefront must pay off cops, the larger business, bureaucrats, the industrial business, politicians connected to Putin, the largest ones, Putin directly, by means of share transfer. The corruption is on an African scale.
          How else would a former cop be worth 40 billion after 15 years?
          The gypsy taxi Feifer uses to get around Moscow must pay off daily.

  18. Sporkfed says:

    China would eat the tariff just to stay competitive and to keep up their employment.
    They won’t like but the U.S. being a net importer is in a better position in a trade war.
    If you consider the economic and social costs of running trade deficits, the low import
    price savings don’t cover the long term damages.

    • Chicken says:

      “price savings don’t cover the long term damages.”

      Liberal elites will argue against this point until the national debt reaches infinity.

  19. Chicken says:

    “Workers seeking full-time, steady work have lost” Alan Kruger, former Chairman of President Barack Obama’s Council of Economic Advisers.

  20. The Horse Farrier says:

    Ah but a lowly commoner am I…
    To all the sages here I recommend the book “Thick Face Black Heart” if you want to understand Chinese thinking. Read it in college and it was written by a Taiwanese woman. Interesting read for sure.
    Bottom line? The Chinese play a long game while the Americans focus on what have you done for me lately?
    Much like how the Indexes outperform the active traders….
    Fools Fools Fools here and there and everywhere…

    • NIcko says:

      I’m an expat in Egypt, and the Chinese are rolling out the red carpet to the government here. $25 billion for a new capital city, billions more for developing industrial zones along the newly expanded Suez canal. All part of China’s African/MENA trade network to extract raw and finished goods for export back to the motherland. Anyway, there is a large uptick in Chinese engineers and other experts in Cairo, and they have money to spend…perhaps not a lot, but they’re rich compared to the locals. The world is changing quickly.

  21. Saylor says:

    A trade war would come just at the nick of time. With the dollar high and US exports already in decline, retaliation by other countries to ////Trump’s tariffs would surely be a godsend for the S&P 500 companies: they generate nearly 50% of their revenues overseas. They don’t really need to those sales;//// they can just focus on the US or whatever.

    No /sarc/ tag necessary.

  22. nick kelly says:

    I guess that’s true- but note some comments thought it was serious AND agreed.

  23. George McDuffee says:

    Most everything in economics seems to have a “point of diminishing returns.” Why would “globalization” be any different?

  24. Tobey the Sweede says:

    Here is a small note from a small country far up in the North. In your eyes, we in Sweden will look like Communists with a big public welfare, taxes to pay it and a voting system that makes the party (yea, we have several) with most votes win. US has been a great role model for us when it comes to Technology and Ideas. And Trade. But now we really see the difference in the way we define Democracy.

    We also have Nationalistic forces that thinks that everything was better before and isolation is the cure to every problem. And that there are always somebody else FAULT (just fill in suitable Ethnic group or country).

    Germany had the same attitude in the 30´s and it did not turn out well…

    Sometimes, maybe, things has to get worse before it gets better. But as long people all over the world share ideas and wants to do business together we will overcome the hardships put upon us. As long as nobody presses the button….

    Thank you for an interesting column

    Merry Christmas to you all from the REAL Santa Country. Lets debate…

    • Beard681 says:

      The reference to the 1930s, is nothing more but more subtle name calling everyone who doesn’t agree with the neo-liberal free flow of capital, labor and products, as Nazis. This is done to avoid debate on the efficacy of policies that hurt the majority of working people.

      Every country should be free to pick its own social, political and economic systems. This is the opposite of Globalism/Neo-Liberalism, where people are nothing more than either consumers and workers, and he who produces cheapest (or has the highest subsidy) wins the race to the bottom.

      Nations have a right to collect duties on imports, protect segments of societies and parts of their economies as the people and elected representatives see fit. Similarly they should be able to choose who and why people come to their countries to live and work. This is not the same as the expansionist policies of European countries in the 1930s.

  25. Tobey the Sweede says:

    Interesting points.

    But I need to understand something. You talk about “the working people”. What kind of people are you referring to? Is it Factory workers, Coal miners, Farmers or do u also include Scientists, Technical Specialists, Experts etc?

    Of course you can as a country choose to “close your borders” and if you are big enough you will probably succeed in that ambition. But for a small country like Sweden with close to 10 milion inhabitants it would have a negative impact on the welfare. Sweden has always been dependant its export.

    And I am definitely not calling nationalists for Nazis! What I am talking about is the danger to blame all your problems on the “outsiders” and think that there is only “one way”. Europe in the 30´was very different from Europe we see today. In times of (belived) trouble you tend to choose a strong nationalistic leader. We see it in Turkey and Poland and maybe France will follow.

    The Euro Currency is under threat due to unbalance in in several countries budgets (Italy, Greece, Portugal, Spain) so it will be interesting to see how it will survive.

Comments are closed.