January 31, 2018
A picture is worth one thousand words. Here’s a chart of the U.S. trade deficit with China.
2017 : U.S. trade in goods with China (U.S. Census Bureau)
NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade.
President Trump’s adamant opposition to our trade deficit with China and other countries is justified, particularly in light of the fact that 2017 was not a fluke. The U.S. became a deficit nation many years ago.
In response, on Jan. 23, 2018 he approved recommendations by the U.S. Trade Representative to impose tariffs of up to 50% on imported large washing machines and parts, and up to 30% on solar panels. The former decreases and expires after three years, the latter phases out after four years.
Trade is a complex subject, to the point that it is possible to find eminent economists that do not agree on what to do about it. The issue of solar panels is in a category all by itself. The President denies that anthropogenic climate change/global warming fueled primarily by an explosive accumulation of carbon dioxide in the atmosphere is in full swing. He rejected COP21 and committed the U.S. to continued full exploitation of all fossil fuels. The tariff on solar panels is part and parcel of his pro-fossil fuels policy as the tax would raise the price of solar systems and encourage people to stick to traditional fossil based systems.
Here’s why he’s wrong:
- This could easily escalate into a full blown trade war with China. In this age of multinational corporations it is difficult to see how that would play out.
- Imposing tariffs among equals smells of desperation, a tacit admission that our capitalist decentralized system is unable to compete successfully and profitably with an authoritarian laser-focused system as measured by number of manufacturing jobs for humans, not robots, as a percentage of the gross national product. So far this year China’s economy is growing three times faster than ours.
- The fact that the best he can do is to impose tariffs means that new ideas, sorely needed to improve the earnings of the working classes, are not on the table.
The President’s mantra of “America first” sounds good and attracts voters who don’t stop to think what it really means. That approach is impractical and unworkable in a global economy with uneven distribution of natural resources. For example, if we want to export manufactured goods, other countries must have the means and desire to buy them. Accordingly, the economies of all countries in the world, large and small, matter.
In decades to come -assuming nuclear war is somehow avoided- it will become increasingly clear that the top priority will be to amend the composition of the SDR (special drawing rights), a synthetic currency created in 1969 by the International Monetary Fund. Originally expressed in terms of gold, it is currently based on the U.S. dollar, the Japanese yen, the euro, the pound sterling, and as of October 1, 2016, the Chinese renminbi.
As it now stands, the system condemns 163 nations out of 195 in the world to convert their currencies to obtain SDRs. We propose that hydrogen or electricity generated from green sources be added to the basket. For example, Madagascar, an island, could produce and export hydrogen from the ocean, and Mongolia, a landlocked country, could produce electricity from solar and export it via transmission lines. The value of these two commodities would be used to compute their currencies’ (the ariary and tugrik respectively) ability to obtain SDRs without converting them to, say, U.S dollars. This would do three things. Firstly, it would give direct access to the SDR basket to the 163 nations currently excluded. Secondly, it would spell the beginning of the end of fiat currencies vying for the much coveted status of reserve currencies of the world. Thirdly, it would encourage the production of hydrogen and green energy from sources that cannot be monopolized by a few multinational corporations or nations.
From that point on, it will become possible to create a balanced trade environment.