The Price of Incompetence in Foreign Policy and Trade

Popular Economics Weekly

The Trump administration’s foreign policy is becoming obvious after the Singapore Summit with North Korea—Make Russia, N Korea, China (and almost every other authoritarian government in the world) Great Again at the expense of America and its closest allies and friends.

The Singapore Summit showed more of Trump’s naiveté on the foreign policy front with the 8-point communique that gave Kim Jong Un what he wanted—U.S. recognition of the legitimacy of his regime and promise by President Trump of some kind of security blanket (including possible withdrawal of American troops from S Korea) with no concessions of his own that hadn’t already been agreed to with South Korea in April—such as N Korea’s many-times stated intention to de-nuclearize the Korean peninsula in some way.

This is after POTUS dissed the G-7 summit, while insulting Canada’s Prime Minister, and suggesting that Russia be re-admitted to the G-7 without atoning for its many sins; such interfering in American and European elections, withdrawing its troops from the Ukraine, and support of Syria’s genocide of its own citizens.

The so-called master of the Art-of-the Deal once again revealed his true weaknesses. He only knows how to deal with those that mirror his own bully mentality. Trump only began to succeed in his real estate empire after Mafia figures and Russian Oligarchs put their laundered funds into his projects.

It’s as if his own limitations prevent him from even understanding western democratic leaders, or the complexities of western democracies, in general. His statement that “winning trade wars is easy” tells us exactly what he doesn’t know. Every trade war in history has been damaging to all sides—such as the Smoot-Hawley Tariff Act of 1930 that worsened the Great Depression with an almost 70 percent reduction of mainly agricultural exports.

The Trump administration is now raising tariffs on steel and aluminum, which risks a full-blown trade war and another stock market crash. We have a very unsteady stock and bond market that is being whipsawed by inconsistent policies and Presidential Tweet rants—in the ninth year of this business cycle. Actually, it’s looking more and more like the end of this prosperity cycle.

Today’s wholesale Producer Price Index already showed the effects of the steel and aluminum tariffs—higher prices for both parts and finished products. Prices for steel mill products surged a monthly 4.3 percent following a 3.2 percent gain in April. Prices for aluminum mill shapes came in at an even hotter 5.0 percent monthly gain that follows April’s 1.8 percent climb.

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Graph: Econoday

On an unadjusted basis (without seasonal variations), the final demand index moved up 3.1 percent for the 12 months ended in May, said the BLS, the largest 12-month increase since climbing 3.1 percent in January 2012.

And the Federal Reserve today announced they will be raising their short term rates another 0.25 percent, from 1.75 percent to 2 percent, raising the costs of consumer borrowing even higher, which is sure to slow down spending. This is after consumers reported a record first quarter borrowing binge.

The Federal Reserve Bank of New York’s Center for Microeconomic Data just issued its Quarterly Report on Household Debt and Credit, which shows that total household debt increased by $63 billion to $13.21 trillion in the first quarter of 2018. It was the 15th consecutive quarter with an increase, and the total is now $536 billion higher than the previous peak of $12.68 trillion, from the third quarter of 2008.

The consumers’ personal savings rate has dropped to 2.8 percent from an already extremely low 3 percent. As Roosevelt Fed Chair Marriner Eccles once said of the Great Depression, “…The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

We are already seeing the inflationary effects of trade wars that President Trump believes are “easy to win”.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Keynesian economics, Politics, Weekly Financial News and tagged , , , , , . Bookmark the permalink.

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