Victor Davis Hanson
American Greatness
- Trump’s So-Called “Trade War.”
Many call the American effort to obtain either tariff parity or a reduction in the roughly $1 trillion trade deficit and fifty years of consecutive trade deficits “a trade war.” But then what do they call the policies of the past half-century by Europe, Asia, China, and others to ensure asymmetrical tariffs, pseudo-health and security trade restrictions, and large surpluses?
A trade peace? Trade fairness?
- Do Nations Prefer Surpluses or Deficits?
Why do most nations prefer trade surpluses and protective tariffs?
Are Europe, Asia, China, and others stupid? Are they suicidal in continuing their trade surpluses and protective or asymmetrical tariffs?
Is the United States uniquely brilliant in maintaining a half-century of cumulative trade deficits? Do Americans alone discover the advantages of a $1 trillion annual trade deficit and small or nonexistent tariffs?
Why don’t America’s trading partners prefer deficits like ours—given we supposedly believe they are either advantageous or perhaps irrelevant?
- Would Our Trade Partners Prefer to Trade Places With Us?
Would our trade partners prefer to have America’s supposed benefits of a $1-trillion trade deficit? Would the United States then “suffer” like they do by running up $200 billion annual surpluses?
- What if Wages Went Up at the Rate of the Stock Market?
What would now be the reaction of the stock market if over the last decade wages had increased at the rate of stocks—and the stocks at the rate of wages?
- Is Wall Street’s Panic Based on What Might Happen—Or What Is Happening?
Is Wall Street’s meltdown a fear of what might happen in the future? Or is it reacting to March’s latest jobs report that there were 93,000 more jobs created than predicted? Was the Wall Street panic predicated on reports of much lower oil prices? Did the furor arise over the March inflation report that the annualized inflation rate dipped to 2.6% per year?
- Is the Frenzy Caused by the Trump Economic Agenda?
Is Wall Street’s worry that Trump’s impending tax cuts, more deregulation, greater budget cuts, and continued efforts to eliminate budget deficits and reduce national debt will stall economic growth?
- What About North American Neighbors?
If the U.S. was running a $63 billion-plus trade surplus with Canada, refusing to meet its NATO requirements to spend 2 percent of GDP on defense, and instead spent only 1.37 percent, would Canada become concerned?
If Mexico were running a $171 billion trade deficit with the U.S., if Americans in Mexico were sending over $60 billion per year out of Mexico to the U.S., and if American drug dealers were making $20 billion by selling fentanyl and opioids to Mexico, would Mexico be angry?
- Is the Trump Agenda Bad Economic News?
Is the current panic over tariffs amplified by Trump’s other policies?
Is the sudden end of 10,000 illegal entries a day bothering Wall Street?
Are the media furious that the Red Sea is suddenly navigable again, the Houthis in Yemen curtailing their attacks?
Is the outrage due to the targeting of approximately $200 billion in budget cuts or plans to shave off $500 billion from the annual budget? Does the conundrum arise because Trump is sanctioning Iran, unapologetically supporting Israel, and seeking an end to the Ukraine War?
- Was the Biden Record Preferable?
Should Trump try to match Biden’s $7 trillion addition to the national debt? Should he return to allowing 12 million illegal aliens into the country? Was the 2021 Afghanistan pullout a good model? Is Wall Street worried that Trump may copy the Biden New Green Deal, his electric vehicle mandates, and more green regulations?
- Why the Negotiations and Why Now?
Why are 70 countries now wishing to negotiate tariffs with America either down to zero or reciprocally to the same rate as ours?
Is that a good thing? If so, why did our trade partners not wish to lower their trade barriers far earlier?
Did they suddenly and spontaneously decide they were acting unfairly and, on their own prompt, now want to make amends?
What’s Next?
If there soon is a rush of nations to cut a deal with the U.S. and not to be left out of the American market, will there follow another hysterical Wall Street spasm—but not to sell, but instead to buy stocks at bargain prices?
VDH posits good questions as usual. But there an aspect of US trade deficits that Dr. Hanson is ignoring that make it more suboptimal for the EU and the rest of the world to run deficits than the US.
It the fact that the $ is the worlds reserve currency. The US prints them to pay for imports. The money goes overseas where it is used in other countries to build stuff and pay for stuff that never finds its way back to the US.
A lot of it goes into Treasuries since the US is the safest haven in the world. So we print $, buy stuff overseas with it and get a lot of stuff for nothing because the dollars never find their way back to the US except as investments in Treasuries which drives down interest rates or maybe the stock or real estate market which increases their value.
Something for nothing, pretty good!
This is specious crap. No-one is buying US treasuries except the Federal Reserve that is printing the money to do it. The US is near default on its obligations and is using inflation to run down its repayments. US treasuries are not ‘the safest haven in the world’ because the US is run by a cabal of voodoo ideological ‘economists’ that will justify anything to keep the printing presses running. Well you can delude yourselves but no-one else.
The reaction of the world to US profligacy and irresponsibility is dumping the dollar. Oil is no longer required to be paid for in dollars and that means $8t held by the world to do so is also no longer required. The US is on an economic precipice and if Trump’s correction is not seen out, the $US will become as worthless as the Wiemar Mark.
Except perhaps, for the unintended consequences such as the loss of factory jobs, foreign ownership of farmland, and reliance on other countries for critical materials in emergencies.
There are many messages about tariffs and deficits and everything else related to the economy. VDH’s questions are practical and to the point. Trump wants to bring basic (and necessary for security purposes) manufacturing segments back to the USA – pharmaceutical, steel, semi-conductors, etc. Things we need at hand as a nation and for which another country can hold us hostage.
Dear Professor Hanson,
I respect you as a historian, but an economist you are not. Your seeming support for Trump’s tariffs has been thoroughly refuted by the folks at the WSJ. I will not repeat their arguments. You ask the right questions but completely ignore the unintended consequences of Trump’s actions. I will make my argument by asking you several questions in return.
1. Does it make sense to remedy a $1 trillion trade deficit by obliterating $ten trillion in stock market valuations?
2. Does it make sense to threaten your friends and allies, allies you will need to confront China?
3. As a historian, you should know how the Smoot-Hawley tariffs choked the Japanese economy in the 1930s and eventually led to Pearl Harbor. Trump’s draconian tariffs on China could have similar unintended consequences.
4. Gordon Chang, familiar with the Chinese mentality, argues they will not accept the punishing tariffs lying down. Xi’s hold on power is precarious, and to consolidate it, he will lash out with attacks/provocations in the Philippines, Taiwan, or elsewhere. Is that what we want?
5. Most bizarrely – why was Russia excluded from the tariffs?
Your questions are superficial and do not address pertinent issues.
1. They are not economic arguments.
2. The stock market, in a distorted debt driven economy, is not indicative of value but is an over-valued Ponzi scheme. Buffet’s selling out of his holdings is proof of that.
3. Friends or allies do not plunder your country and call it ‘good for you’. The only people who will assist the US against China are those within China’s immediate vicinity. Canada and Mexico have been complicit with China in avoiding US economic imposts.
4. Just what action can the US take with anyone if it is economically laid to waste?
5. China, unlike Imperial Japan, does not source its energy needs from the US. China has no absolute right to access to US markets on its own terms anymore than Imperial Japan had a right to invade Manchuria. Your assertion is morally bankrupt. The threat of force has never been conducive to trade relations.
6. Chinese aggression will face 13 US carrier groups and the subversion of their trade with the world. China is not ready to challenge the US navy no matter what Gordan Chang says. China is vulnerable to economic boycott by the West.
7. Russia is not integrated into the Western economic dynamic. It is not an exporter of goods into the West and deals mostly with commodities. What around you is made in Russia?
Oh well for these comments …ツ
Tariffs are a tax on consumers. Countries and companies won’t be paying it. You and I will. And this tax is being instituted as a ‘war emergency’ rather than through our elected representatives in congress.
It’s unconstitutional.
And oh by the way- we’re never going to be economically independent. We don’t have a 12 month growing season. Fine if we want to correct our dependence on China and secure our supply chains. But we need some partners to make that happen. Or we can all just eat canned peaches all winter and stop eating bananas and tomatoes 🙂
Tariffs are not a tax on consumers. This is ignorant garbage. A tariff will not necessarily be passed onto to consumers depending upon the competitive profile of that economic sector. Where competitors to tariffed imports exist, they will benefit. Where no competitors exist it will encourage local production. The second part part of your post does not merit a serious reply.
It is a simple mathematical identity that a country cannot consume more than it produces without running an aggregate trade deficit. The focus on bilateral trade deficits in goods is idiotic. At least the US can finance its debt in dollars-while foreigners are still willing to take them.
I also find it amusing that Hanson and Trump, two economic illiterates, ignore the US trade surplus in services in their calculations.
If you want an intelligent case ron how the US should use tariffs and capital flow controls, read the work of Michael Pettis.
Doomazz
Since you insult two prominent Americans, please supply your bonafides so readers can judge your credibilty. If not forthcoming, you will self identify as an ignorant left-wing troll.
……and where does Michael Pettis ply his trade, Peking University in Beijing.
Out on a limb here but, Michael Pettis, is all hat and no cattle. Lived all over the world and is now settled in Beijing of all places.
Reeks of Keynesian theory.
Sorry, but I’m betting on the only guy in the room that has actually built something rather than just theorize about it.
Trump, the real estate billionaire, the genius that can succeed in the NY real-estate market is an ‘economic illiterate’. America produces one thing in abundance, morons – here’s the proof in B/W.
PA
We shouldn’t embarrass our poor politicians after all they are working hard for us. Harry.
Bush 1 caused me to vote for Clinton. I was unable to understand NAFTA.
Thanks VDH and DJT
. . . and the direction implied by those Socratic questions needed only strategic adjustments (in targeting and time), now announced.
Thanks Victor! Why is it, do you think, that you are the only one capable of asking these obvious questions? It is true that I have a pretty low opinion of most politicians and media personalities but it’s not because I believe that they are stupid. But what is it that enables you to formulate these questions when the people who have the national platforms don’t seem to have a clue as to what really is going on?
Sorry, I didn’t see or read your previous post. But saying that Trump does not understand trade is a real stretch. The money may only be a piece of paper (fiat), but the government, along with all central banks, can print as much paper money as it wants. The government is a significant cause of inflation. These hurt fixed incomes or loans the most. There are winners and there are losers when the money supply is manipulated. Trade is only balanced in the fact that each party is willing to trade with the other. America has been willingly taken advantage of long enough because we have let other countries do so. Our magnanimity is met with disdain and is viewed as a sign of weakness by our trading partners, friends, and foes alike. WWII ended 80 years ago, and we still treat other countries as if the Marshall Plan were still in effect. It’s time to stop. The whole purpose is to achieve parity. You can’t spend more than you have, whether through personal finance or between countries, which is what America has been doing for half a century.
These are the main decision traps that people in government consistently fall into: framing political issues incorrectly; plunging into decisions before completely understanding interrelated problems to be solved; taking short-sighted shortcuts to long-term decision making; shooting from their hips (and lips) during sound bytes; group failure (failure by overly-politicized committees); fooling themselves by misperceived feedbacks (and not keeping up with them); gross overconfidence in their party’s judgements; failing to audit their interrelated decision processes and their historical results.–However, politician’s biggest failures are their failures to learn by their clumsy mistakes in judgement that they (or others in their political party) have made and/or admit them.
Perfectly said, Steven.
Here’s 11 & 12
11 do you think china is less of a threat to your freedom than DJT?
12 much like Europe in the 1930s where Germany could have been kept within her borders by acting after the Rhineland was remilitarized, after the Anschluss, after Munich & by moving on the western frontier after September 1939, the west can still confront and defeat the Chinese hegemons by acting now, the longer the west waits to act to address what is an unsustainable trajectory the more costly standing up to the CCP will be. Are you hoping for a future that is a continuation of the Pax America or do you want your grand kids speaking Mandarin at work?
Adding to my previous post:
Trump does NOT understand trade. Unless a forced sale like slavery, market transactions are not ZERO-SUM. That is, one party cannot “take advantage” of the other party. There is no such thing as a “Rip-off.” Disagree, fine, but then define what that means so we can recognize it. Except by fraud, or a forced sale, trading exchanges are balanced between the parties. There are no “Rip-offs.”
Second, trade is always balanced. If we buy more from nation K than it buys from us, the “physical” imbalance is usually made up by letters of credit, or a loan, or with a substitute financial product. Or, there could be a change in the currency exchange ratios, but there is NO natural value to any nation’s currency, unless it is official pegged to gold or some other precious metal. The US left the gold standard long ago. When a foreigner accepts our currency for “stuff,” the foreigner is only getting a piece of paper that is valued by what the piece of paper can buy in nation which printed the paper.
Do you really believe we are not being taken advantage of by China factoring in their stealing intellectual property and patents along with the large tariffs they charge us? Cheating is not fair trade. As for many of the other western countries it seems like our trade deficits are funding their national defense for which they continue to under fund. There are many other examples. I’m having a hard time believing we aren’t being taken advantage of.
Arroww, please think about what you wrote. When I lived near Pittsburgh there was a massive steel mill that defined the town and employed my grandma, father, and Uncle. The downtown area was packed with stores and restaurants and pedestrians and kids in the streets with bikes etc. Now the mill’s been closed for decades and nearly zero stores are left, boarded up and empty and the night time streets are dangerous. If China, with its 1.7 billion people and the power it wields wants to pay slave wages akin to 50 cents an hour versus 30-40 dollars per hour w/o unions or the many costly regulations etc. to make the same steel products (many that Americans invented), then sell those same products to citizen businesses here in America, can you see how you complaining that our “choice” of steel comes with a steep price when looked at from above, at a distance, over decades, and how now that many, not you but many, might be now seeing we can correct much of this while we are still a powerhouse country that, even though it has has slipped quite a bit, might be able to hang onto, and even restore, areas like the rust belt with its mills and support businesses; the oil rigs that I worked in North Dakota in the 70’s, before crazy regulations imposed by climate change liars and scammers, when I made 13/per hour (minimum wage was 3.65) and saved up to buy an American-made Plymouth Roadrunner and drove it to visit Pittsburgh where I saw the mill slipping and “Made in China” was a joke.
Arguments about trade always seem to come down to what happened to the rust belt. However, the US remains a manufacturing powerhouse. But much shifted away from the northern states (and from California). These were often blue states, under Democratic Party governance These days new manufacturing plants are often set up in southern states. But the US remains a manufacturing powerhouse, just not generally for a lot of goods that you’ll find at Wal Mart. From a CATO report.
“Simply put, the United States remains a manufacturing powerhouse. In 2020 it was the world’s fourth‐largest steel producer and in 2021 was the second-largest automaker and largest aerospace exporter. Accounting for nearly 16 percent of global manufacturing output in 2021—second only to China, which has four times the population of the United States—the US had a greater share than Japan, Germany, and South Korea combined. By itself, the US manufacturing sector would constitute the world’s eighth‐largest economy.. “
https://www.cato.org/blog/united-states-remains-manufacturing-powerhouse
You should be asking why PA can’t compete with southern states. It’s not trade that did it to them.
Arguments about trade always seem to come down to what happened to the rust belt. Rust belt woes aside, the US remains a manufacturing powerhouse, but much shifted away from the northern states (and from California). These were often blue states, under Democratic Party governance These days new manufacturing plants are often set up in southern states. The US still does a huge amount of manufacturing, but it is often highly automatic requiring fewer workers. From a CATO report.
“Simply put, the United States remains a manufacturing powerhouse. In 2020 it was the world’s fourth‐largest steel producer and in 2021 was the second-largest automaker and largest aerospace exporter. Accounting for nearly 16 percent of global manufacturing output in 2021—second only to China, which has four times the population of the United States—the US had a greater share than Japan, Germany, and South Korea combined. By itself, the US manufacturing sector would constitute the world’s eighth‐largest economy.. “
https://www.cato.org/blog/united-states-remains-manufacturing-powerhouse
You should ask why PA can’t participate in some of that.
Fred, read a text about Economics. Pending that, I will reply.
What happened to the Happy Steel mill? Why did it lose business?
Why didn’t Happy change or upgrade its operations to meet the competition?
At one time, England was the workshop of the world. Then other competitors produced things cheaper. UK lost markets. Capitalism is ALWAYS a story of changes in production and prices. You imply we should protect US jobs? Will you pay to employ tens of thousands of Milkmen and their routes? Will you pay to employ men who delivered ice for grandma’s icebox? Will you give up your phone to return to manually operated switch boards? Will you destroy John Deere’s to bring back the local horse stable?
VDH,
Today’s essay put everything, all of it into perspective.
But the early comments from the Wall Street types are challenging you.
Then you look at the stock market today and as I write this comment Dow down 1,164, SMP down 190, NASDAQ down 728.
Victor there is no reason the stock market should be down so much after yesterday big gains.
You asked ten common sense questions but as today shows the reality of what’s happening doesn’t translate to the stock market.
Victor can you tell us what is actually going on here.
Personally, I think a large part of it is programmed trading. Computers pick up a slight trend, and either buy or sell depending on the trend, and they feed on themselves. Not rational decisions based on what is going on, just programmed trading. FWIW.
11. Will San Diego County be affordable and clean again?
Eventually! But first, Mexico needs to clean up the Tijuana River estuary. They keep waiting for America to pay for it.
I have ‘reasonable’ answers to many of your questions, but the space to do so is greater than this comment box. Key issue that you did not address –> do you, VDH, reject the logic of Comparative Advantage that Ricardo presented?
Painting with a broad brush, I think most of these issues simply arise from the NORMAL operation of international capitalism. The dialectics of trade deal with several manifestations of inequality, unequal resource endowments, managerial and education skills, and ethical values which many non-Western nations have yet to develop ( honesty, and sound legal systems).
were that the case, there would be no tariffs. The EU doesn’t just tariff; it use taxes, fees, health codes, subsidies and state ownership to protect its economies from US products. Now it is proposing to go after US digital services. Amazing, all those stupid Europeans and Asians protecting their people at our peoples’ expense. we are neck deep in the big muddy and Wall Street says to push on. (apologies to Pete Seeger).
Arroww is right on track. I am an admirer of VDH, but listening to his views on tariffs and trade has lead me to believe he doesn’t understand basic economics.
Victor, why not talk to your colleague at Hoover, Thomas Sowell? Or Professor Douglas Irwin at Dartmouth, who has just given a lecture series on these exact topics to students in Isreal at an economic workshop?
Even better, why not have Itwin as a guest on your show?
As a short term tactical weapon Trump’s tarriffs may have benefit. As a long term policy he will decrease the wealth of the nation, if he continues along these lines.
I have generally supported Trump but he has two big weaknesses. He will never admit to being wrong except in his judgment about specific people. Also, he seems intellectually lazy; he seems ignorant of and unwilling to learn economics. Business acumen is not the same as economic understanding. He needs to get some economists his team, beyond Peter Nabarro.
Neil, I too am an admirer of VDH, but listening to his views on tariffs and trade has led me to believe he doesn’t understand basic economics. I also agree that Trump is intellectually lazy and ignorant of basic economics. Moreover, Trump does not read and that is tragic. This deficiency comes across when he speaks impromptu. His vocabulary is limited to words adolescents use: fantastic, very bad, horrible, beautiful, pissed off, etc.
ARROWW, you have plenty of room here to address questions with “reasonable” answers…Try answering one. I’ll wait.
The NORMAL operation of international capitalism is far from normal. It’s the result of our politicians selling us out to benefit themselves.
Feels like the Socratic Method with those 10 questions.
I really like VDH, but he needs to get together for a few lunches at the Hoover Institute with Thomas Sowell as he is pretty ill informed regarding trade. All of us have a trade deficit with some entities. I certainly run one with Trader Joe’s, Home Depot and some poker buddies. But I have a trade surplus with my clients who have a deficit with me.
Trade decisions are made by individuals and not countries. If we buy some foreign made products that suit our needs or desires we are not cumulatively causing the country harm, unless you are going to subscribe to the notion that we harmed some unknown American who might have sold us something we didn’t particularly want or need or at a price we didn’t want to pay.
Yes, it would be nice if everyone dropped their tariffs to zero, but there would still be trade deficits between countries. There are apparently no tariffs between the US and Australia, yet Australia runs a trade deficit with the US. Is that bad for Australia but better for the US?
Imposing tariffs on imported goods imposes a cost and reduces choices of a country’s own citizens. Should a timber yard, building supply store, or contractor be discouraged from using Canadian lumber because the Canadians impose tariffs on American dairy products to the frustration of the American dairy industry? Canadians are also getting stiffed.
As a free people, we should be able to buy pretty much what we want with only very limited exceptions such as for safety standards.
Agree with Harry. As Milton Friedman says, tariffs protect consumers against lower prices.
“As a free people, we should be able to buy pretty much what we want with only very limited exceptions such as for safety standards.”
Yes, we should, but we can’t, because free trade really doesn’t exist. Do you think the Chinese, or any other country, can manufacture things better than the USA by paying adequate wages or addressing environmental concerns with the same scrutiny as we do in America?
I think you dissemble. Your lumberyard point of view skews against other industries of importance to us, in what we buy and what we sell. We can produce our own lumber, we just need to function under the same environmental rules as the ones trying to sell it to us at undercut prices. If a country wants to sell us mahogany or teak they should expect a tariff similar to those they put on a John Deere tractor.
The desirability or need for the product and shipping costs should be the determinant, not a trade barrier. Further, I want the same realistic price analysis on a Mahindra as I do on a Case or John Deere. Oh, wait, they make Mahindra and Kubota in the USA now. Why? to negate their punitive tariffs on US goods they assess by building them here. That helps the foreign corporations, but at the expense of their home country workers.
The puppet masters make the world go round but thank the good Lord that He holds the world in the palm of His hand.
Victor Davis Hanson has a remarkable ability to expose how the U.S. media has long abandoned true journalistic principles in favor of partisan allegiance to the Democrats’ increasingly disruptive and un-American agenda. Thank you, Victor, for your unwavering commitment to a thoughtful and reasoned perspective—one that sheds light on President Trump’s efforts to restore sanity and secure a future grounded in the common good.
If only VDH’s writings, articles and books, were required reading for all in Congress!
Joe, good idea. I like it as VDH is usually offering clear and simple suggestions, so simple that even the simpletons in Congress might understand…
Great Idea!