I come in defence of Donald Trump

Basically because the world is full of group thinkers like Jason Murphy at Crikey:

The Australian dollar has made a significant move, falling below 70 US cents. This is unusual. As the chart below shows, the Aussie dollar has spent some time below 70 US cents in the past, but much more time above that level.

In the period since Keating floated the Australian dollar, it has dwelled lengthily below 70 cents only once, in the early 2000s. Is this most recent dip likely to be a transient move, or should we get ready to adapt to a new normal?

The person to thank for our lower currency is the US President Donald Trump, who believes trade wars “are good and easy to win”.

His entirely optional conflict with China is escalating to become a serious threat to global economic growth, affecting markets all around the world. Among them, the market for the Aussie dollar.

…The storm clouds over global trade are hard to predict. Will the trade war worsen? Donald Trump warned China not to retaliate to his latest round of tariffs, warning things would “get worse”.

They retaliated. It is difficult to see who will yield first. Neither side in this battle is famous for being willing to lose face.

Can Trump, the man who wrote The Art of The Deal, come out of this one with his dignity intact? Part of the problem is that Trump apparently sees trade as a zero-sum game where if one side benefits another must suffer. In this way of thinking, America’s trade deficit with China is tantamount to theft, and he is understandably upset about it.

The problem is that trade is not a zero-sum game. Being able to buy enormous quantities of things from China cheaply is a benefit to the USA, not a cost. Until Donald Trump realises this, it is hard to understand whether he will back down. One way out may be for China to hold its line until the end of next year when a new, more rational US president might occupy the White House.

Poor little China, which has cheated and gamed and rorted fair trading for two decades under the false heading for free trade. China is not the leader of the free world, Mr Murphy, it is fire-breathing dictatorship intent on stealing the production base of every developed nation, and it has damn nearly succeeded. Until Donald Trump.

Let’s hose Murphy’s thinly-sliced platitudes with a little Jim Rickards for Daily Reckoning, who actually knows some history:

Listening to hysterical commentary from the mainstream media about President Trump’s tariffs, one would think his policies were in violation of the US Constitution. Nothing could be further from the truth.

America grew rich and powerful from 1787-1962 — a period of 175 years — using tariffs, subsidies and other barriers to trade in order to nurture domestic industry and protect high-paying manufacturing jobs.

In fact, tariffs are as American as apple pie.

Trump is using the same basic playbook that predominated in US policy from George Washington onward. Washington’s Secretary of the Treasury, Alexander Hamilton, drafted a report to Congress called the ‘Report on Manufactures’, presented in 1791. Hamilton proposed that in order to have a strong country, America needed a strong manufacturing base with jobs that taught skills and offered income security.

To achieve this, Hamilton proposed subsidies to US businesses so they could compete successfully against more established UK and European businesses.

These subsidies might include grants of government land or rights of way, purchase orders from the government itself or outright payments. This was a mercantilist system that encouraged a trade surplus and the accumulation of gold reserves.

Hamilton’s plan was later proposed on a broader scale by Kentucky Senator Henry Clay. This new plan began with the Tariff of 1816. Clay’s plan was called the American System. Abraham Lincoln adopted the American System as his platform in the election of 1860, and it became a bedrock principle of the new Republican Party.

The 19th and early 20th centuries were a heyday of the American System. This period was characterised by enormous economic growth and population expansion by the US. The American System was also accompanied mostly by low inflation or even deflation (which increases the purchasing power of everyday citizens), despite occasional financial panics and some inflation during the Civil War.

Trump is simply returning to that tradition.

Against this mercantilist system was a theory of free trade based on comparative advantage, as advocated by British economist David Ricardo in the early 19th century. Ricardo’s theory said that trading nations are endowed with attributes that gave them a relative advantage in producing certain goods versus others.

These attributes could consist of natural resources, climate, population, river systems, education, ports, financial capacity or any other factor of production. Nations should produce those goods as to which they have a natural advantage and trade with other nations for goods where the advantage was not so great.

Countries should specialise in what they do best, and let others also specialise in what they do best. Then countries could simply trade the goods they make for the goods made by others. All sides would be better off because prices would be lower as a result of specialisation in those goods where you have a natural advantage.

It’s a nice theory, often summed up in the idea that American football star Tom Brady should not mow his own lawn because it makes more sense to pay a landscaper while he practices football.

For example, if the UK had an advantage in textile production and Portugal had an advantage in wine production, then the UK and Portugal should trade wool for wine.

But if the theory of comparative advantage were true, Japan would still be exporting tuna fish instead of cars, computers, TVs, steel and much more.

The same can be said of the globalists’ view that capital should flow freely across borders. That might be advantageous in theory, but market manipulation by central banks and rogue actors like Goldman Sachs and big hedge funds make it a treacherous proposition.

The problem with this theory of comparative advantage is that the factors of production are not permanent and they are not immobile.

If labour moves from the countryside to the city in China, then suddenly China has a comparative advantage in cheap labour. If finance capital moves from New York banks to direct foreign investment in Chinese factories, then China has the comparative advantage in capital also.

Before long, China has the advantage in labour and capital, and is running huge trade surpluses with the US, putting Americans out of work and shutting down US factories in the process.

Worse yet, countries such as China can pull comparative advantage out of thin air with government subsidies, exactly as Hamilton proposed 227 years ago. The most famous example of this is Taiwan Semiconductor.

In the 1970s, Taiwan had no comparative advantage in semiconductor production. But with government subsidies to a national champion, today Taiwan Semiconductor is the largest supplier of semiconductors in the world.

When did the US abandon the system that worked so well for so long?

Beginning in 1962, the US turned its back on a successful legacy of protecting its jobs and industry, and embraced the free trade theory. This was done first through the General Agreement on Tariffs and Trade, or GATT, one of the original Bretton Woods institutions in addition to the World Bank and IMF.

Beginning in 1995, the World Trade Organization (WTO) displaced GATT and has been the main venue for US free trade policy ever since. China became a member of WTO on 11 December 2001, but has notoriously broken many WTO rules since joining.

The globalist approach might work if everyone were a free trader and no one resorted to tariffs, subsidies, non-tariff barriers to trade, and theft of intellectual property. Unfortunately, that’s not the world we live in.

We live in a world where the US is a free trade sucker and everyone else breaks the rules. In a world where a few parties are free traders but most are mercantilists, the mercantilists win every time. They are like parasites sucking the free traders dry.

If open trade and open capital flows are flawed ideas, why do elites support them?

The switch in US policy from quasi-mercantilism to free trade was driven partly by academics who embrace the simple version of free trade without understanding the flaws (exemplified by China and Taiwan).

Others understand the flaws in free trade well enough, but value the world at large over the US. Their agenda is to diminish the power of the United States, and the US dollar, in world affairs and to enhance the power of rising nations, especially China.

If several hundred million Chinese can be pulled from poverty by leaving the US market open while China subsidises its companies, imposes its own tariffs, steals intellectual property and limits US foreign direct investment, then that’s fine. If US workers lose their jobs in the process, that’s fine too.

The globalists consider that a form of progress towards their ‘one world’ utopia. They don’t care about the US; they only care about their ‘one world’ vision.

Globalists are often supported by major international firms in the pharmaceutical and other industries that profit from global supply chains even as Americans lose their jobs.

But Trump is a thorn in the globalists’ side. Trump focuses on restoring lost US jobs, even if the cost to China is high. That’s China’s problem, not America’s. Trump’s policy is ‘America First’ and he means it.

Now the battle is heating up again. Whoever wins the war of the globalists versus the nationalists could decide the world system for decades to come.

The only crisis we have in the West is our own loss of confidence in the liberal democratic tradition, exemplified today by Mr Murphy. China has exploited and distorted that freedom for too long and needs to be pushed back back lest it slides into hegemonic power while we busily stare at our own navels.

Do I agree with Trump on tax policy? No. Do I agree with Trump on social policy? No. Do I agree with Trump’s wall? No. Do I agree on anything Donald Trump does? Very little.

But there is one area that supersedes all else. Trump is warring with China to protect the liberal democratic system itself, as it is formulated and enforced under the umbrella of the US liberal empire. He may be obnoxious and and rudely demanding of allies, and his tariffs be a blunt tool, but they have pushed the Chinese Communist Party into a very difficult corner. It now faces a stark choice: to trade fairly or sink into a long stagnation as the Chinese economy is cut off from higher-productivity and higher-income growth. Either way, Australia is better off than were the CCP allowed to become Australian overlord via Mr Murphy’s globalism.

As far as I can see, the only way that China wins from here is if like-minded liberal democracies worldwide peel off and let it.

Houses and Holes
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  1. Well, well. Didn’t think this day would come.

    Maybe he is the master persuader Scott Adams has long claimed.

  2. Dennydavidson01

    “it is fire-breathing dictatorship intent on stealing the production base of every developed nation, and it has damn nearly succeeded. Until Donald Trump”

    Aided and abetted at every turn by businessmen in west, including Trump, who manufactured his tacky garbage there without a second thought. China is by no means an angel, but lets not discount the corporate demand for their cheaper labour and the corrupt US lobbying system that drove policy and trade positions.

    There’s more than enough greed to go around in this situation. There’s also no reason to assume that in this area alone Trump’s motivations are about anything other that Trump.

    • Denny, you are delusional. Trump has for mor than 30 years openly stated, and you can find clips on YouTube, that he feels the usa is getting done over by developing nations. Im not sure if you trump hater realy think that Donald is patting his cat doctors evil style and planning to take over the world. He is just another man who has a backbone and some unusual talents. Just cos hes rude doesn’t make him evil. He wants what i want its just that im too much of a pussy and have to low an iq to get it.

      • Dennydavidson01

        He talked about how bad a deal the US was getting from developing nations – while he outsourced production to those same countries? So either he’s lying or he’s a hypocrite. I don’t think he’s trying to take over the world, if he was I’m pretty sure he would fail as spectacularly as he has at every other venture he’s embarked on other than being a reality tv actor.

        No one ever went broke underestimating the intelligence of the American public – except Trump. Though underestimating the intelligence of the US voters did get him elected president.

      • He is a businessman and if the law allows him to outsource then he should do it… i dont believe franking credits from shares are should be allowed however i do take full advantage of them because thats the law and i would be a fool if i did anything else. And as for you point about him being a failure well….. how many people on the planet have ever thought it would be good to be the most powerful person on earth…..7 billion?….. guess what?… Donald Trump is the most powerful man on earth. If thats failure well its still more successful than the other 7 billion people.

      • Stewie Griffin

        People can utlise a deduction or claim or discount for their own benefit, while still campaigning against it.

        There are many people on this site who claim various Tax deductions while disagreeing with them from a conceptual point of view and lobbying to have them removed.

        Placing yourself at a financial disadvantage in opposing a policy, works against your ability to actually succeed in having it changed.

        Good commentary and links.

      • kiwikarynMEMBER

        You don’t have to agree with the system to take advantage of it. If you are the President you act in the best interests of your country. If you are an individual businessperson you act in your own best interests, and that of your family. If you are a company, you act for the benefit of your shareholders. If you feel strongly enough that the system should be changed, you do something about it, like run for President. How many other people out there have whined about the same problem but done nothing to change it? Including several past US Presidents.

  3. China needs to be dealt with the same way Gulliver’s Travels were dealt with in 1726.

    The pygmy nations need to come together and tie China down.

  4. kannigetMEMBER

    To me it seems that the theory of comparative advantage holds true, but people rarely take into account the ability to change what that advantage is; and that the composition of that comparative advantage is just what you have an advantage in now. For example Japan did Tuna, but they then looked at other things they might be able to do as well, they changed the comparative advantage to cars and electronics. Taiwan Semiconductor was the same sort of idea, Sure it may have been due to the investments derived from government policy but it was still a change in comparative advantage.

    In my Industry I see this used as an excuse to not do anything all the time, “We should just stick to what we do best and get someone else to do it”. This is used to justify outsourceing agreements and I am yet to see one that results in a decent service that could not have been done in house cheaper and possibly better.

    • Outsourcing. Lol. Outsourcing.

      If you want to produce sh1t gear or provide a sh1t service that will infuriate your customers, try outsourcing.

      Example number one that surely everybody has experienced is the Indian call centre staffed by people with incomprehensible accents who can’t communicate with you or solve your problem after you’ve waited in the queue for an hour.

      I should write a book about the crapness of outsourcing.

    • kannigetMEMBER

      I agree on the offshoring of jobs being a bad value for money proposition. The Really scary one for me are the repeated outsourcing deals government departments keep engaging in with american company after company. Never getting value for money, Never getting everything they expect delivered, getting fed up and then going back to market to get the same outcome as last time.

    • agree… outsourcing is the biggest con ever? Right now the NBNCo pay $25 every time someone at NBN need to find the price of a widget… often 2 or 3 even more spreadsheets need to be opened and the cost relayed back to Australia from India? Yes very efficient? It’s kinda like offshoring it can appear good in the short term or by moving costs to another account but more often than not it doesn’t provide much overall benefit. & can in the case of China lead to you losing in the long run as they overtake you. Real dumb.

    • “We should just stick to what we do best and get someone else to do it”. This is used to justify outsourceing agreements and I am yet to see one that results in a decent service that could not have been done in house cheaper and possibly better.

      What is happening? Do you work in a place that makes machines and then gets another company to teach the clients how to use the machines?

      • kannigetMEMBER

        Not Quite, I worked for a very large Educational organisation and ran a section that provided services to all staff and students across the state. We had been doing it successfully for years but the bean counters decided we should get someone who specialises in this sort of thing to take it over and do it…. so they outsourced it. There was no one on the planet doing what we did but we outsourced it anyway and after 5 years it was still not delivered properly.

        I have seen it heaps of times in other jobs.

  5. Ronin8317MEMBER

    I thought “comparable advantage” was abandoned a long time ago in economics, (1950s?? and replaced by marginal cost of production. The ‘free trade’ mantra did not happen by accident, it was a deliberate attempt to destroy the unions, and it worked spectacularly.

    Environmental degradation, misallocation of capital, inverted demographic, corruption, the problem China is facing is vast and immense, and China was more likely to implode before it’ll ever become a hegemony. The moment Xi declared himself ‘Emperor for life’, reform is no longer possible, and the future for China is doomed.

  6. AnthonyMEMBER

    If we had a gold standard, none of this would be happening. US would not have a trade deficit of $400 billion with China. If it paid for Chinese imports with Gold then the trade is settled. No IOU. Pays with dollars and it exports inflation. “Our dollar, your problem”. Hard to put genie back into the bottle. Going off the gold standard was a strategic gift to China.

    • You are wasting your time talking about a gold standard here. There are some sound money advocates but they are in the minority. Spending beyond ones means (both public and private sectors) is the very essence of existence these days — and entirely ‘sustainable’, it seems. Sigh.

  7. AnthonyMEMBER

    In any event, blaming China for American shortcomings is a joke. American politicians and business elite betrayed working class people. Not China. Its all a charade, a distraction to that sad fact.

    • This is true so long as you accept that China is entitled and determined to prey on America without mercy or scruple.

      • They probably feel justified and understand that they cannot cause a fraction of the damage to the US that the US and their allies inflicted on China. 5 Eyes were once the 8 Nations. Would there even be a CCP without this history? I doubt it.

      • I believe that is the feeling. And to be honest when you look at the history you can’t blame them. If Martians invaded the Earth would we ever, EVER, accept their right to rule and set the rules?

  8. Globalisation is of most benefit to multinational corporations who can readily take advantage of and arbitrage differences in global labour costs, environmental laws and regulations and tax systems. The individual wage earner has no such access to these benefits. For too long western governments have been co-opted by and sold out their constituents to the globalist multinational concerns and their armies of lobbyists, academics and yes men. Trump and his America First agenda represent an existential threat to the globalist world order as he seeks to bring a semblance of balance and power back toward the worker at the expense of multinational profits. You may not like the man personally or his ways but you cannot question the nobility in what he is fighting to achieve, esp in light of what he has already accomplished thus far in just over 2 years with the entire world liberal media establishment, multinational corporations and globalist vested interests demonising him and his family every step of the way. I tip my (red MAGA) hat off to this American patriot.

    • I agree globalisation and free trade are inherently undemocratic and hurt labour and reward financial parasites. I think Trumps tarrifs are a good start but they really need to be a lot more widespread and higher. Just targetting China will mean Vietnam and other countries will step in and substitute china as a supplier with little benefit seen by workers back in the USA.

    • I had high hopes for Obama when he was elected. I thought he was the breath of fresh air that the world needed. Unfortunately, he turned out to be just another floppy, wet, beer fart. Much like Malcolm Turnbull.

      Trump, on the other hand, appears to be a complete jerk as a person, but divorcing his actions from the man as you say can only result in standing ovations for what he’s trying to achieve. I had this conversation with my partner a while ago, and she conceded that his actions seemed worthy even though he’s a pig.

      He’s obviously a flawed man, but who isn’t? Well…women I guess, who are flawed women. Must be Friday afternoon. Anyway…I strongly suspect that the history books will mark Trump as one of the greatest and most successful US presidents of all time.

  9. the_bystanderMEMBER

    >Trump is warring with China to protect the liberal democratic system itself

    Could literally anyone else step up and take his place as saviour of democracy?

  10. johnwilliamsmithMEMBER

    Well said Houses n Holes. Maybe get Kyle Bass on your next webinar !

  11. “His entirely optional conflict with China ” 😂 no that’s the point it’s not optional unless you want your children to be ruled by the CCP the way they rule in Xinjang etc. Once state machines start they do not stop, normally.

  12. Trump’s economic approach to China is generally accepted as the correct approach as the military and economic threat of China grows. When Trump loses in 2020, US China policy will not change.

  13. HadronCollision

    Jesus Daily Reckoning *shudder* I’m sorry you have to wade through crap fest to read Rickards

  14. “Poor little China, which has cheated and gamed and rorted fair trading for two decades under the false heading for free trade. China is not the leader of the free world, Mr Murphy, it is fire-breathing dictatorship intent on stealing the production base of every developed nation, and it has damn nearly succeeded. Until Donald Trump.”

    Amen….. I dont like everything Trump does BUT ITS GOD DAMN TIME SOME ONE GAVE CHINA THE MIDDLE FINGER. Spot on.

  15. I don’t come in defence of Donald Trump. That seems a bit extreme. I just breathe heavily.

    • Always thought you’re the kind of guy who shoots straight and hits between the eyes.

  16. interested party

    “He may be obnoxious and and rudely demanding of allies,”……

    Hell, wouldn’t you be if you found that your ‘allies’ had illegally* conspired together with your own IC agencies to have you removed and charged with treason????? ( that is what brennan and the MSM lunatics openly accused him of )

    In my eyes, he’s justified to do and say what he wants.

    * 4 fisa warrants were issued….1 initial on Carter Page followed by 3 extensions. The 3 extensions have now been found to have been illegal, and there is news surfacing that the IG report to be released any time now has found the initial warrant was also illegal. Allies intel product ( downer….looking at you ) was included in the applications……fiveyes…….(soon to be restructured).

    • That fat sweating fool Downer was a willing pawn in an attempt to take down a US president. And Trump doesn’t seem like a “forgive and forget” kinda guy. This won’t end well for Mr Downer.

  17. Damit, Hell will freeze over!

    I’d comment but almost 50 comments cracking the fat over the hawkish anti China porn… nope – enjoy your sausage fest.

    Btw, Jason Murphy summed it up quite well except new us president will not do anything different because US MIC needs bogeymen and when there’s none they will invent one, or two. Or more.

  18. drsmithyMEMBER

    Trump is warring with China to protect the liberal democratic system itself, […]

    Yeah… Nah.

  19. This Jason Murphy fellow is a clown.

    The fall in the AUD can be explained by a softening in Australian commodity prices, unwinding recent terms of trade gains, a lift in asset market volatility from ultra low levels and falling Australia-RoW yield differentials. This has weighed on the ATWI. Then the USD has been strengthening and that’s put further pressure on the AUD/USD rate.

    Yes a lift in asset market volatility is in part trade war related but that’s also been associated with a fall in US rates which provides an offset.

    The issues for the AUD are, ultimately, domestic.

    Hating on Trump is so easy but it’s intellectually lazy and dishonest.

  20. Whatever suits donald at any particular point in time. Did not hear much about china or tariffs when he switched to chinese steel, Aluminium and glass for his constructions.

  21. “As far as I can see, the only way that China wins from here is if like-minded liberal democracies worldwide peel off and let it.”
    May, Macron and Merkel don’t have a backbone between. If our freedom depends on these gormless worms we are doomed.