Tuesday , October 15 2019
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More on Trump and trade

Summary:
This Politico story caught my eye: President Donald Trump’s top advisers are rushing to find an escape hatch for a series of tariff increases in the coming months, worried about the potential for further economic damage.Many of the president’s top economic officials are trying to resurrect the terms they previously were negotiating with China, a deal officials said was “90 percent” done before a sudden impasse this summer, according to a person familiar with the discussions. This reminded me of a post I did six weeks ago: Stocks fell nearly 2% after the tariff announcement, and that’s the reaction that rational readers should go with. But if anyone is foolish enough to trust my judgment, here’s a more optimistic take.I suspect that Trump has decided that he wants to

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This Politico story caught my eye:

President Donald Trump’s top advisers are rushing to find an escape hatch for a series of tariff increases in the coming months, worried about the potential for further economic damage.

Many of the president’s top economic officials are trying to resurrect the terms they previously were negotiating with China, a deal officials said was “90 percent” done before a sudden impasse this summer, according to a person familiar with the discussions.

This reminded me of a post I did six weeks ago:

Stocks fell nearly 2% after the tariff announcement, and that’s the reaction that rational readers should go with. But if anyone is foolish enough to trust my judgment, here’s a more optimistic take.

I suspect that Trump has decided that he wants to do a China deal before getting into the election year. He knows that his negotiating position will be weaker in 2020, as the Chinese would have an incentive to string things out until after the election.  They know that Trump doesn’t want to risk an economic shock right before the election. In addition, Trump wants to run for re-election with a big “win” against China under his belt.. .

Trump presumably knows that China will agree to a deal based on their best previous offer, which was reported to be more than 90% of a completed deal. Thus Trump knows he can get a deal anytime he wants, if he’s willing to settle for a deal that incorporates China’s best offer in previous negotiations. 

And from the same 6-week old post, how does this look today?

To his credit, Trump correctly understands that the John Bolton’s of the world are foolish warmongers, and Huawei is not a threat to US national security. I suspect that Marco Rubio will be more disappointed by the deal than I will be.

I’m less confident in other aspects of the previous post, such as the claim that an agreement is near, or that the Chinese would still accept the “90 percent” offer (which some sources suggest was rejected by Xi Jinping himself.) But this seems to be what Trump now wants. Any deal would have to wait until after October 1, a very important day in China.

BTW, US stocks recovered once it became clear that Trump was again interested in a trade deal.

You’re welcome.

PS. A few weeks ago we learned that Trump lied in his claim that the Chinese called him to restart trade talks:

Trump flashed signs of optimism this week that the trade war could be resolved, saying he’s received calls from Chinese officials saying they wanted to restart talks. Though Trump and Treasury Secretary Steven Mnuchin insisted there had been “communication,” aides privately conceded the phone calls Trump described didn’t happen they way he said they did.

So now when there’s a disagreement about facts we should trust the Communist Chinese more than our own government? What does that say about the charges that Huawei was engaged in spying?

More recently, Kevin McCarthy sounded like a 1970s-era Soviet spokesman:

Minority Leader Kevin McCarthy said Thursday that the national debt would be his top priority if Republicans succeed in retaking the House in 2020.

“First thing we would do is make sure our debt is taken care of,” McCarthy told reporters at a GOP retreat in Baltimore. “This is continuing to grow. … Every great society has collapsed when they’ve overextended themselves,” the California Republican warned.

Yes, and the two boys who shot up Columbine put out a statement that more needs to be done to improve our educational system.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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