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US-China trade talks, tariffs, and Trump’s ‘America First’ foreign policy

Is Trump’s manner of ‘deal making’ ‘winning’ the day?

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After Trump declared that doing business with China was bad business and bad for the US, because of America’s trade deficit with China and China’s alleged ‘unfair’ business practices, he levied tariffs on Chinese imports, which were quickly followed by Chinese retaliatory measures, which the US then countered with yet another round of tariffs.

After the game played out for roughly another two months, the two parties decided to come to the table and try to hash out their differences. Washington and Beijing have apparently agreed to back off on the tariff threats, America, if China buys more American stuff, and the Chinese, if America backs off on its punitive tariffs.

But what’s the story here, and is this even really addressing the problems that were cited by Trump when he decided to introduce the tariffs in the first place?

CNBC observes:

Triumphant tones coming from the White House over the weekend are inconsequential, Moody’s chief economist said Monday, deflating hopes that the U.S. is gaining major ground in its negotiations with China aimed at averting a trade war.

“I think it’s a lose-lose. There are no winners here,” Mark Zandi told CNBC’s “Squawk Box Europe” on Monday. “This is face-saving, because clearly they’re not going come to terms on anything — at least, not in the near-team.”

Zandi was referring to Treasury Secretary Steven Mnuchin’s announcement Sunday that a looming trade war was “on hold” as the world’s two largest economies agreed to drop their tariff threats and discuss parameters for a wider trade agreement.

China consented to continue discussing measures under which it would purchase more U.S. products in order to reduce the $335 billion annual trade deficit between the two, but no specific dollar number was put forward. Zandi pointed to this as evidence that neither Washington nor Beijing had a plan, nor did either know what it specifically was they wanted from the ongoing talks.

“When you get right down to it, what exactly are they going to do? Are they going lower the Chinese-U.S. bilateral trade deficit? It’s just not going to happen. They’re kicking it down the road because they really don’t know what they want,” Zandi said.

‘A silly debate argument’
President Donald Trump had initially set out a demand that China close its trade surplus by $200 billion, to which Beijing has not acquiesced. Zandi criticized this figure, noting that U.S. exports to China are currently $150 billion annually, and that it doesn’t have the capacity to produce and export that scale of increase in goods to China.

“What’s that going to buy? For $200 billion?” the economist asked. “We don’t want to sell them technology, where our comparative advantage is, so we’re going to sell them $200 billion more of what? Soybeans? Boeing aircraft?”

Trade experts have argued that Chinese demand for these U.S. products will not sufficiently increase to the point where it would need to purchase such a volume of American goods.

Zandi added that the discussions should have instead been focused on structural issues like intellectual property (IP) protection for investors, echoing the sentiment of many economists that the trade deficit figure should not be the focus of the U.S.-China trade relationship.

“America wants the Chinese to buy $200 billion more of what America produces, but it’s neither here nor there when it comes to protecting IP rights, which is really what we should be focused on here,” he said. “I think it’s a silly debate argument that is going to end up nowhere.”

Other experts have warned that a deal with China focused on a dollar figure for trade is not a sustainable solution in the long term. Frank Lavin, a former U.S. under-secretary of commerce for international trade, told CNBC on Monday that a narrow focus on the trade imbalance misses the more pertinent issues at hand.

“If they (China) give you a check, watch out. They’re sort of buying you off and getting you just to go away for that money, so be careful of that,” Lavin said. “I’d say focus more on structural changes, getting market opening, fair treatment, level playing field, IP (intellectual property) issues, investment protection.”

U.S. Trade Representative Robert Lighthizer made this point Sunday, saying in a statement: “Real structural change is necessary. Nothing less than the future of tens of millions of American jobs is at stake.”

‘Fruitful and efficient’
Administration officials, meanwhile, touted the progress as a positive for the U.S., and markets have reacted positively to the news.

Chinese Vice Premier Liu He described the talks as “pragmatic, fruitful and efficient,” a marked shift from more negative sentiment earlier in the week that led Trump to say Thursday that he “doubted” the trade negotiations would succeed.

A joint statement from the weekend’s meetings said: “To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services.” The purchase increases are said to be predominantly in the agricultural and energy sectors.

Talks between U.S. and Chinese officials have been underway in recent weeks following a rapid escalation in tensions between the two economic powerhouses.

Trump has long criticized China’s growing trade surplus with the U.S., and in March set off a trade spat by proposing import tariffs on a number of Chinese goods. The move set off a tit-for-tat dispute with a series of threats from each country that proposed hundreds of billions of dollars worth of tariffs on each other’s goods, sparking fears of a global trade war.

Essentially, the Trump administration is saying to the Chinese ‘look, we might pull back on those tariffs that you don’t seem to like all that much if you decide to be a good country and buy more of our stuff’, which the Chinese appear to be receiving quite well. Cough up $200 billion more to send to America and the tariffs go away.

But how does this really address the underlying reasons why Trump imposed the tariffs to begin with? As the CNBC article points out, this initial understanding does not meaningfully address China’s ‘unfair’ business practices, namely the alleged theft of intellectual property from American firms as a condition for market access.

But Trump has been on this trade deficit bandwagon lately, and so it seems that if China addresses this, then the US will go its merry way and not be quite as insistent or impose penalties for ‘bad behaviour’.

But $200 billion is still a lot more than the alleged $50 billion that Trump alleged is the monetary figure for stolen intellectual property damage, so that it might seem that China is providing a lot more value to America than it would seem to be getting in return. Is Trump’s manner of ‘deal making’ ‘winning’ the day?

And if the reason why those tariffs were imposed in the first place isn’t experiencing a resolution, then are we to conclude that the reasoning provided by the Trump admin to impose them initially were entirely bogus?

Can we chalk them up to America pursuing a course of action as a ‘retaliation’ for something that they really don’t view as a priority, meaning that America is being dishonest with the international community?

An outsider looking at this situation may conclude that Trump didn’t really care about China’s business practices, and this was all really about the trade deficit.

Politically, however, China still wouldn’t be being a ‘good country’ if it really moved forward on this because of the economic initiatives that it has been erecting throughout Asia, which the US has perceived as a threat to America’s security.

It doesn’t contemplate China’s increasing economic and military cooperation with another ‘bad guy’ nation, Russia.

And what about China’s economic ties with Iran, which America has deemed a state sponsor of terror? After all, China just opened a rail link with Iran, promised to help them with their nuclear development, and is set to expand commerce with Iran the near future.

What about China’s ‘nefarious’ activities in the South China Sea?

How about the manner in which China is ‘influencing’ Kim Jong Un and the North Korean peace process?

What about China’s attempt to compete with the US petrodollar with its new petroyuan, potentially undermining the value of the dollar’s position on the global market?

None of this jives with America’s foreign policy interests, so that it really can’t be conceived that America is just going to stand by and watch as China increases its international political and economic prowess.

A couple of different possibilities arise as to how and why the negotiations are taking place now, before all of America’s tariffs come into effect, and why America seems to be willing to settle for so little. Clearly, Trump is not intending to use this as a way of settling the multitude of issues and conflict of national interests in these trade talks.

Perhaps Washington is realizing that it can’t afford a prolonged trade war with one of its largest trading partner, which shifts China’s focus to supplementing its market with goods from other nations that don’t fit Washington’s interests, such as Russia. Or, perhaps Trump is attempting to pass off a reduction of a trade deficit as a victory, in order to say to the public that he is accomplishing yet another election promise, as a part of his disjointed foreign policy.

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“I’m Not A Racist, But I’m A Nationalist”: Why Sweden Faces A Historic Election Upset

Sweden is set to have a political earthquake in September.

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Via Zerohedge


“Trains and hospitals don’t work, but immigration continues,” Roger Mathson, a retired vegetable oil factory worker in Sweden, told Bloomberg on the same day as the violent, coordinated rampage by masked gangs of youths across five Swedish cities.

We noted earlier that Swedish politicians were quick to react with anti-immigrant party ‘Sweden Democrats’ seeing a surge in the polls ahead of the September 9th election.

“I’m not a racist, but I’m a nationalist,” Mathson said. “I don’t like seeing the town square full of Niqab-clad ladies and people fighting with each other.”

Is Sweden set to have its own political earthquake in September, where general elections could end a century of Social Democratic dominance and bring to power a little known (on the world stage), but the now hugely popular nationalist party often dubbed far-right and right-wing populist, called Sweden Democrats?

Sweden, a historically largely homogeneous population of 10 million, took in an astounding 600,000 refugees over the past five years, and after Swedes across various cities looked out their windows Tuesday to see cars exploding, smoke filling the skies, and possibly armed masked men hurling explosives around busy parking lots, it appears they’ve had enough.

Over the past years of their rise as a political force in Swedish politics, the country’s media have routinely labelled the Sweden Democrats as “racists” and “Nazis” due to their seemingly single issue focus of anti-immigration and strong Euroscepticism.

A poll at the start of this week indicated the Sweden Democrats slid back to third place after topping three previous polls as the September election nears; however, Tuesday’s national crisis and what could legitimately be dubbed a serious domestic terror threat is likely to boost their popularity.

Bloomberg’s profile of their leader, Jimmie Akesson, echoes the tone of establishment Swedish media in the way they commonly cast the movement, beginning as follows:

Viking rock music and whole pigs roasting on spits drew thousands of Swedes to a festival hosted by nationalists poised to deliver their country’s biggest political upheaval in a century.

The Sweden Democrats have been led since 2005 by a clean-cut and bespectacled man, Jimmie Akesson. He’s gentrified a party that traces its roots back to the country’s neo-Nazi, white supremacist fringe. Some polls now show the group may become the biggest in Sweden’s parliament after general elections on Sept. 9. Such an outcome would end 100 years of Social Democratic dominance.

The group’s popularity began surging after the 2015 immigration crisis began, which first hit Europe’s southern Mediterranean shores and quickly moved northward as shocking wave after wave of migrants came.

Jimmie Akesson (right). Image source: Getty via Daily Express

Akesson emphasizes something akin to a “Sweden-first” platform which European media often compares to Trump’s “America First”; and the party has long been accused of preaching forced assimilation into Swedish culture to be become a citizen.

Bloomberg’s report surveys opinions at a large political rally held in Akkeson’s hometown of Solvesborg, and some of the statements are sure to be increasingly common sentiment after this week’s coordinated multi-city attack:

At his party’s festival, Akesson revved up the crowd by slamming the establishment’s failures, calling the last two governments the worst in Swedish history. T-shirts calling for a Swexit, or an exit from the EU, were exchanged as bands played nationalist tunes.

Ted Lorentsson, a retiree from the island of Tjorn, said he’s an enthusiastic backer of the Sweden Democrats. “I think they want to improve elderly care, health care, child care,” he said. “Bring back the old Sweden.” But he also acknowledges his view has led to disagreement within his family as his daughter recoils at what she feels is the “Hitler”-like rhetoric.

No doubt, the media and Eurocrats in Brussels will take simple, innocent statements from elderly retirees like “bring back the old Sweden” as nothing short of declaration of a race war, but such views will only solidify after this week.

Another Sweden Democrat supporter, a 60-year old woman who works at a distillery, told Bloomberg, “I think you need to start seeing the whole picture in Sweden and save the original Swedish population,” she said. “I’m not racist, because I’m a realist.”

Sweden’s two biggest parties, the Social Democrats and Moderates, are now feeling the pressure as Swedes increasingly worry about key issues preached by Akesson like immigration, law and order, and health care – seen as under threat by a mass influx of immigrants that the system can’t handle.

Bloomberg explains further:

But even young voters are turning their backs on the establishment. One potential SD supporter is law student Oscar Persson. Though he hasn’t yet decided how he’ll vote, he says it’s time for the mainstream parties to stop treating the Sweden Democrats like a pariah. “This game they are playing now, where the other parties don’t want to talk to them but still want their support, is something I don’t really understand,” he said.

Akesson has managed to entice voters from both sides of the political spectrum with a message of more welfare, lower taxes and savings based on immigration cuts.

With many Swedes now saying immigration has “gone too far” and as this week’s events have once again thrust the issue before both a national and global audience, the next round of polling will mostly like put Sweden’s conservative-right movements on top

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The Turkish Emerging Market Timebomb

Turkish President Recep Tayyip Erdoğan’s populist economic policies have finally caught up to him.

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Authored by Jim O’Neill, originally on Project Syndicate:


As the Turkish lira continues to depreciate against the dollar, fears of a classic emerging-market crisis have come to the fore. Turkish President Recep Tayyip Erdoğan’s populist economic policies have finally caught up to him, and sooner or later, he will have to make nice with his country’s traditional Western allies.

Turkey’s falling currency and deteriorating financial conditions lend credence, at least for some people, to the notion that “a crisis is a terrible thing to waste.” I suspect that many Western policymakers, in particular, are not entirely unhappy about Turkey’s plight.

To veteran economic observers, Turkey’s troubles are almost a textbook case of an emerging-market flop. It is August, after all, and back in the 1990s, one could barely go a single year without some kind of financial crisis striking in the dog days of summer.

But more to the point, Turkey has a large, persistent current-account deficit, and a belligerent leader who does not realize – or refuses to acknowledge – that his populist economic policies are unsustainable. Moreover, Turkey has become increasingly dependent on overseas investors (and probably some wealthy domestic investors, too).

Given these slowly gestating factors, markets have long assumed that Turkey was headed for a currency crisis. In fact, such worries were widespread as far back as the fall of 2013, when I was in Istanbul interviewing business and financial leaders for a BBC Radio series on emerging economies. At that time, markets were beginning to fear that monetary-policy normalization and an end to quantitative easing in the United States would have dire consequences globally. The Turkish lira has been flirting with disaster ever since.

Now that the crisis has finally come to pass, it is Turkey’s population that will bear the brunt of it. The country must drastically tighten its domestic monetary policy, curtail foreign borrowing, and prepare for the likelihood of a full-blown economic recession, during which time domestic saving will slowly have to be rebuilt.

Turkish President Recep Tayyip Erdoğan’s leadership will both complicate matters and give Turkey some leverage. Erdoğan has  constitutional powers, reducing those of the parliament, and undercutting the independence of monetary and fiscal policymaking. And to top it off, he seems to be reveling in an escalating feud with US President Donald Trump’s administration over Turkey’s imprisonment of an American pastor and purchase of a Russian S-400 missile-defense system.

This is a dangerous brew for the leader of an emerging economy to imbibe, particularly when the United States itself has embarked on a Ronald Reagan-style fiscal expansion that has pushed the US Federal Reserve to raise interest rates faster than it would have otherwise. Given the unlikelihood of some external source of funding emerging, Erdoğan will eventually have to back down on some of his unorthodox policies. My guess is that we’ll see a return to a more conventional monetary policy, and possibly a new fiscal-policy framework.

As for Turkey’s leverage in the current crisis, it is worth remembering that the country has a large and youthful population, and thus the potential to grow into a much larger economy in the future. It also enjoys a privileged geographic position at the crossroads of Europe, the Middle East, and Central Asia, which means that many major players have a stake in ensuring its stability. Indeed, many Europeans still hold out hope that Turkey will embrace Western-style capitalism, despite the damage that Erdoğan has done to the country’s European Union accession bid.

Among the regional powers, Russia is sometimes mentioned as a potential savior for Turkey. There is no doubt that Russian President Vladimir Putin would love to use Turkey’s crisis to pull it even further away from its NATO allies. But Erdoğan and his advisers would be deeply mistaken to think that Russia can fill Turkey’s financial void. A Kremlin intervention would do little for Turkey, and would likely exacerbate Russia’s own .

The other two potential patrons are Qatar and, of course, China. But while Qatar, one of Turkey’s closest Gulf allies, could provide financial aid, it does not ultimately have the wherewithal to pull Turkey out of its crisis singlehandedly.

As for China, though it will not want to waste the opportunity to increase its influence vis-à-vis Turkey, it is not the country’s style to step into such a volatile situation, much less assume responsibility for solving the problem. The more likely outcome – as we are seeing in Greece – is that China will unleash its companies to pursue investment opportunities after the dust settles.

That means that Turkey’s economic salvation lies with its conventional Western allies: the US and the EU (particularly France and Germany). On August 13, a White House spokesperson confirmed that the Trump administration is watching the financial-market response to Turkey’s crisis “very closely.” The last thing that Trump wants is a crumbling world economy and a massive dollar rally, which could derail his domestic economic ambitions. So a classic Trump “trade” is probably there for Erdoğan, if he is willing to come to the negotiating table.

Likewise, some of Europe’s biggest and most fragile banks have significant exposure to Turkey. Combine that with the ongoing political crisis over migration, and you have a recipe for deeper destabilization within the EU. I, for one, cannot imagine that European leaders will sit by and do nothing while Turkey implodes on their border.

Despite his escalating rhetoric, Erdoğan may soon find that he has little choice but to abandon his isolationist and antagonistic policies of the last few years. If he does, many investors may look back next year and wish that they had snapped up a few lira when they had the chance.

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Why Scandinavia Isn’t Exceptional

Scandinavia is entirely unexceptional.

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Authored by Per Bylund via The Mises Institute:


[From the Quarterly Journal of Austrian Economics.]

The Scandinavian countries, and primary among them Sweden, are commonly referred to as anomalies or inspirations, depending on one’s political point of view. The reason is that the countries do not appear to fit the general pattern: they are enormously successful whereas they “shouldn’t” be. Indeed, Scandinavians enjoy very high living standards despite having very large, progressive welfare states for which they pay the world’s highest taxes.

As a result, a large and growing literature, both propagandist and scholarly, has emerged that tries to identify the reasons for this Scandinavian exceptionalism—especially as pertains to their welfare states. I have myself contributed to this literature1 and have previously reviewed others’ contributions to it in this journal.2 But what has been missing is a summary analysis that is accessible to non-scholars. It was therefore a delight to read Nima Sanandaji’s Scandinavian Unexceptionalism: Culture, Markets, and the Failure of Third-Way Socialism, published by British Institute for Economic Affairs.

Dr. Sanandaji is a political-economy analyst and writer, well known in both Sweden and Europe, and as expected does an excellent job summarizing the state of scholarship. He also uses examples and quotes from articles published in Scandinavian news media to illustrate the narrative. The result is a short and informative but easy to read answer to both how and why the Scandinavian welfare states seem to work so well.

The short book provides the reader with insight into Scandinavian culture, an explanation of the causes of the nations’ exceptional rise from poverty, an overview of their recent political-economic history, the distinct structure and evolution of the Scandinavian welfare state, the origins of their egalitarianism and gender equality, and the effect of immigration. I will briefly touch on three of these areas.

First, Sanandaji makes clear that the rosy story of the Scandinavian welfare state, as it is usually told, is at best incomplete. The Scandinavian countries were among the European continent’s poorest by the end of the 19th century and were largely unaffected by the industrialization that had started centuries earlier in the United Kingdom. A combination of classical liberal reform and the adoption of industrialized production created a century-long “golden age,” as Bergh (2014) denotes the period approximately 1870–1970 in Sweden, of economic growth and rapidly rising standards of living.

This growth was partly also made possible by a distinct Scandinavian culture, which is characterized by the “[h]igh levels of trust, a strong work ethic and social cohesion [that] are the perfect starting point for successful economies” (p. 7). As Sanandaji points out, the market-aligned virtues of Scandinavian culture also explain the limited impact of the welfare state as it was erected and ballooned in the 1930s and beyond. Cultural change takes time, and thus old values lag in the face of political change. So it took time for the Scandinavian virtues to give way to the destructive incentives of the welfare state.

It should also be noted, though Sanandaji fails to make this point clearly, that after the welfare state was established, and during its several decades of expansion, it’s growth rate tended to be lower than that of the overall economy. The increasing burden was therefore, in relative terms, marginal. That is, until the radical 1960s and 1970s when Scandinavian governments, and the Swedish government in particular, adopted very expansionist welfare policies. (This political shift is analyzed in detail in, e.g., Bergh.)3

Sanandaji also presents interesting data with respect to Scandinavian gender equality. His discussion begins with the internationally enviable women’s labor market participation rate in Scandinavian countries, and especially Sweden. The background, however, is that Sweden’s government had adopted a radical agenda for population control formulated by Gunnar and Alva Myrdal (yes, the same Gunnar Myrdal who shared the 1974 economics prize with Hayek). The gist of this reform was to enforce a shared responsibility between parents and “the community” for children’s upbringing. By raising taxes on income while offering government-run daycare services, families were incentivized (if not “forced,” economically speaking) to secure two full-time incomes.

Interestingly, while this indeed rapidly increased women’s participation in the labor market, Sanandaji notes that “few women in the Nordic nations reach the position of business leaders, and even fewer manage to climb to the very top positions of directors and chief executives” (p. 102). Part of the reason is that jobs that women typically choose, including education and healthcare, are monopolized in the vast public sectors. As a result, women at trapped in careers where employers do not compete for their competence and many leadership positions are political.

This development is indirectly illustrated in a terrifying statistic from Sweden’s labor market: “Between 1950 and 2000, the Swedish population grew from seven to almost nine million. But astonishingly the net job creation in the private sector was close to zero” (p. 33).

Finally, Sanandaji addresses the issue of immigration and shows that the Scandinavian nations were exceptionally good at integration, with greater labor participation for immigrants than other Western nations, prior to the radicalization of the welfare state. Thereafter, due to rigid labor regulations and vast welfare benefits, immigrants were more or less kept out of Scandinavian job markets.

The literature identifies two potential explanations. First, the anti-business and job-protection policies practically exclude anyone with a lack of work experience, highly sought-after skills, or those with lacking proficiency in the language or limited network. This keeps immigrants as well as young people unemployed (the very high youth unemployment rates in Scandinavia illustrate this problem). Second, the promises of the universal welfare state tend to attract people who are less interested in working their way to the top and thus have a lacking work ethic.

This explains the recent problems in Scandinavia with respect to immigration, which is essentially an integration and policy problem — not a foreign-people problem.

Overall, Sanandaji’s book provides plenty of insights and a coherent explanation for the rise of the Scandinavian nations and their welfare states. Their impressive standard of living is a free-market story, which is rooted in an economically sound culture. This culture also supported the welfare state, until decades of destructive incentives eroded the nations’ sound values. The welfare state, after its radicalization, was soon crushed under its own weight, and Scandinavia has since undergone vast free-market reforms that again have contributed to economic growth and prosperity.

Considering the full story, Sanandaji summarizes the example of the Northern European welfare states simply and bluntly: “Scandinavia is entirely unexceptional.”

  • 1.Bylund, Per L. 2010. “The Modern Welfare State: Leading the Way on the Road to Serfdom.” In Thomas E. Woods, ed., Back on the Road to Serfdom: The Resurgence of Statism. Wilmington, Del.: ISI Books.
  • 2.2015. “Book Review: Sweden and the Revival of the Capitalist Welfare State by Andreas Bergh,” Quarterly Journal of Austrian Economics 18, no. 1: 75–81.
  • 3.Bergh, Andreas. 2014. Sweden and the Revival of the Capitalist Welfare State. Cheltenham, U.K.: Edward Elgar.

Per Bylund is assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.

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