The Tangerine Tosser's triple trade tiff -- with China, the European Union, and the United States' NAFTA partners (Canada and Mexico) -- has the potential to spark an American and global economic meltdown. Classic signs of a coming collapse have been evident for some time: wage stagnation for the many alongside skyrocketing wealth for the ever more absurdly opulent few (three of whom now possess between them the same net worth as the poorest half of the U.S. populace); colossal accumulated corporate, government, student loan, and credit card debt; rampant surplus and "fictitious" capital devoted to speculative rather than productive investment; capitalist profits far beyond real economic growth; wildly unsustainable stock market values (artificially buoyed by debt and corporate buybacks); the deregulation of financial markets and institutions.
As the astute Goldman Sachs veteran and financial commentator Nomi Prins noted last January, "There will be a tipping point -- when money coming in to furnish that debt, or available to borrow, simply won't cover the interest payments. Then debt bubbles will pop, beginning with higher yielding bonds. Leverage is a patient enemy."
The next financial "correction" could cut deeper than the last one, "the Great Recession." That's because, as Prins argues in her latest book Collusion: How Central Bankers Rigged the World, "there is no Plan B" this time. Interest rates can't fall any further.
Collusion was written before Trump started making good on his protectionist promises, which could tighten the noose. The more immediate economic blowbacks are clear: the withering of foreign markets for U.S. agricultural exports (thanks to retaliatory foreign tariffs); rising prices (thanks to U.S. tariffs) for capital goods and intermediate inputs that U.S. producers purchase from foreign countries (China especially); the loss of U.S. jobs as corporations that make goods in the U.S. seek to circumvent retaliatory tariffs abroad by shifting production to foreign countries (Harley Davidson recently announced that it has decided to do precisely that).
Beyond and related to all that, there's the risk of moving the "tipping point" up in time and deepening the crisis. A financial commentator with historical knowledge and sensibilities that are frighteningly rare in the U.S., Prins suggests that the Tweeter-in-chief's tariff tantrums could put us on the road to a major economic collapse and escalated political authoritarianism:
The fallout domestically from the coming trade wars could be horrific ... if global tariffs were to rise just 10%, the gross national product (GDP) of most countries would fall by between 1% and 4.5% -- the U.S. GDP by 1.3%, China's by 4.3%. A 40% rise in tariffs would ensure a deep global recession or depression.
In the 1930s, it was the punitive U.S. Smoot-Hawley tariff that helped spark the devastating cocktail of nationalism and economic collapse that culminated in World War II... Our allies will undoubtedly try to trade more with each other to close gaps that [Trump's] trade wars open. Ultimately, that will hurt the U.S. and its workers, especially Trump's base. For instance, German carmaker BMW, Japanese carmaker Toyota, and other foreign car companies employ 130,000 people in the United States. If, in response to new tariffs on their products, they were to begin moving their operations to France or Mexico in retaliation, it's American workers who would lose out...American allies, who rely on the staggeringly powerful U.S. market, will lose out, too.
Weighed down by tariffs, their products will become less competitive here, which is what Trump wants. However, that won't necessarily mean the end of trade deficits; it could just mean less trade everywhere, a situation that should bring to mind the global depression of the 1930s. And if you think Donald Trump is already a threat to world stability, imagine what might happen after years of economic duress. As was the case in the 1930s, when volatile conditions made it easier for dictators like Adolf Hitler to convince people that their economic woes stemmed from others, the path to a fire-and-fury world remains grimly open."Once it becomes too expensive for certain companies to continue operating as their profits go to tariffs or tariffs deflect their customers elsewhere (or nowhere), one thing is certain: it will get worse.
"Trade wars," the orange monstrosity says, "are good."
Will a full-blown trade war happen? Probably not. Over many decades, U.S. corporate managers have set up what Noam Chomsky calls "complex global supply chains to maximize profit at the expense of [U.S.] working people...The corporate sector," Chomsky adds, "relies so extensively on the global economy it has designed that it is sure to use its enormous power to try to head off a major trade war. The Trump tariffs and the retaliation might escalate, but it's likely that the threat will be contained."
Likely, but not certain. Trump's election was unlikely. And, as his former right-wing "economic-[and white-]nationalist political adviser" Steve Bannon liked to say, "Trump is Trump."
Why would the Trump administration want to play with such fire? Part of it might be that it's just too stupid and ignorant to know that it is doing any such thing. The protectionist clowns currently in power in the White House -- the doltish Commerce Secretary Wilbur Ross, the bizarro trade czar Peter Navarro, and the comically unqualified chief economic adviser Larry Kudlow -- are bobble-headed numbskulls. They have as much business shaping the U.S. political economy as I do of chairing the Stanford physics department.
Another part of the explanation is that Trump and his team believe that there is no blunder they can commit whose consequences they can't blame on something or someone else. The ridiculous Ross has already put on his tin-foil hat to attribute the steel price increases and the soybean price drops that have predictably resulted from Trump's tariff actions as the consequence of "anti-social" speculators and "profiteers."
If trade wars escalate and help push global capitalism -- itself already ripe for a collapse -- into the ditch, throwing tens of million people out of work, Trump and his authoritarian white-nationalist fans and FOX News flaks will blame it on the "unfair" Chinese and/or the Europeans and/or the Canadians and Mexicans. It will seek out and attack homeland traitors under every bed. "The politics of trade war," Paul Krugman notes, "will probably end up looking like Trump politics in general: a search for innocent people to demonize." (The list of potential targets and scapegoats is long and well-known.)