China finds Trump does have a principle

 Protectionism hurts Beijing more than the US, and plays well politically

As presidents go, Donald Trump is unlikely to be remembered for his principles. But he has one. In Fear: Trump in the White House, Bob Woodward describes how the president wrote, “Trade is bad”, in the margins of a draft speech. When his economic adviser Gary Cohn asked why he believed this, Trump replied: “I just do. I’ve had these views for 30 years.”

This is true. In 1987 Trump published an open letter “To the American people” as a full-page newspaper ad. “It’s time for us to end our vast deficits,” he declared, “by making Japan, and others who can afford it, pay.”

In an interview with The Wall Street Journal in 1999, Trump speculated about waging a trade war against Japan. “It’s not going to last very long,” he explained, “because Japan, if they don’t sell to this country, they go out of business, OK?”

He has been nothing if not consistent — except, of course, that Japan has been replaced by China as the principal (though by no means the only) target of Trump’s protectionist policy. On the campaign trail in 2016, he repeatedly threatened to impose a 45% tariff on all Chinese imports. Back then, the journalist Salena Zito memorably observed that “the press takes [Trump] literally, but not seriously; his supporters take him seriously, but not literally.” On trade we should have taken him both seriously and literally.

Last year Trump imposed a succession of tariffs on imports, beginning with washing machines and solar products and then targeting steel and aluminium. He also imposed tariffs on Chinese imports worth $200bn (£157bn). Earlier this month, just when trade negotiations between Washington and Beijing seemed close to a conclusion, Trump carried out his threat to hike those tariffs from 10% to 25%. He has since begun the process to extend the 25% tariff to nearly all US imports from China. As happened last year, China has retaliated by slapping tariffs on US goods.

The president’s song remains the same. “Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind,” he tweeted on May 10. “An easy way to avoid Tariffs?” he asked a day later. “Make or produce your goods and products in the good old USA. It’s very simple!” And: “We will be taking in Tens of Billions of Dollars in Tariffs from China.”

The economics profession — and nearly everyone it has taught in the past 50 years — begs to differ. One recent paper, written before this year’s escalation of the trade war, calculated that “the full incidence of the tariff falls on domestic consumers, with a reduction in US real income of $1.4bn per month by the end of 2018.”

Not only do the tariffs raise the prices American consumers pay; American manufacturers and farmers are losing out as a result of China’s retaliation. Soya bean exports to China, for example, have plummeted. With opinion polls suggesting an increase in public support for free trade agreements since 2016, Trump’s strategy looks economically and politically suicidal.

Yet there is method in his madness.

If tariffs really are so self-destructive, the economic history of the United States presents something of a puzzle. From its very inception (a revolt against British control of, among other things, import duties), the American republic relied on tariffs as a source of revenue and as protection for its own nascent industries. As exporters of cotton, the Southern Democrats were the free traders; the manufacturers of the North, first as Whigs, then as Republicans, favoured an “American System” based on protection.

Though many other factors contributed to making America great, tariffs certainly did nothing to slow the rapid growth of the US economy in the 19th century. By 1872 it was the world’s biggest. Meanwhile, tariffs had become a domestic-political stick with which (as in the case of the 1828 Tariff of Abominations) the North beat the South. Later it was tariffs that divided the east of the country from the west.

Economists tend to remember with horror the 1930 Smoot–Hawley bill, which raised tariffs just as the world was tipping into depression. But the new rates were only slightly higher than those that had been imposed in 1922. It was not until the later stages of the Second World War that the United States finally committed itself to free trade, and only gradually thereafter — with a major hiccup in the 1970s — that average duties were lowered.

For roughly 150 years, in other words, the United States was a protectionist power. Tariffs were a large part of what the nation’s elected representatives fought over on Capitol Hill. The era of free trade has been precisely half as long. If it began in 1941, with the Atlantic Charter, it ended with the election of Donald Trump 75 years later.

Trump’s trade war is doubly political. Primarily, as I have argued before, it is designed to check China’s rise, and — though a blunt instrument — it is undoubtedly causing significantly more pain to China than to the US. Taking account of the gains to US producers and the government (in the form of revenue), the net cost of tariffs to the United States is in fact just $7.8bn a year — 0.04% of GDP.

True, the return to protectionism may also cost shareholders some of their wealth. Many big corporations will take a hit as they reconfigure their global supply chains. But the Chinese leadership miscalculated badly in thinking that it could make last-minute improvements to its trade deal with Trump. It thought he would make concessions rather than see US stocks take a hit. Wrong. Trump isn’t going to make a bad deal with China when he can simply lean on the Federal Reserve to “match” Chinese monetary policy with interest rate cuts.

The second political dimension of Trump’s tariffs is — as is always true of tariffs — domestic. Sure, there are losers. But at the last census farmers amounted to just 1% of the US population. And the principal losers, a recent study shows, are “workers in heavily Republican counties”. They don’t seem very likely to vote for a Democrat — especially if the nominee is Joe Biden, who thinks the Chinese are “not bad folks” and “not competition for us”.

Americans agree with Trump, not Biden. In 2018, only 38% of Americans had a favourable view of China, down from 44% the previous year. And 58% worried more about China’s economic strength than its military strength. True, not everyone thinks that tariffs are the way to counter China’s rise; but Republicans clearly do, even if Democrats don’t.

Republicans up for re-election next year are watching carefully how the trade war plays in their states. Right now, it’s playing well. As one red-state political veteran put it, “If we can’t take a few tariffs in the short run, how can we ever beat China in the long run?”

The widespread perception of Donald Trump as unprincipled is wrong. He has one principle: the protection principle. It may not be great economics. But history suggests it could be pretty good politics.

Niall Ferguson is the Milbank Family senior fellow at the Hoover Institution, Stanford

Young Americans have no clue about socialism

 Talking about the s-word could be the Democrats’ great gift to Trump

A spectre is haunting America — the spectre of socialism. The spectre of socialism past is Bernie Sanders, the veteran Vermont senator. The spectre of socialism present is Alexandria Ocasio-Cortez, or AOC, the novice representative from New York’s 14th congressional district. And the spectre of socialism future is some kind of hideous cross between Sanders, AOC and the Venezuelan tyrant Nicolas Maduro.

Who said the following? “I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die. This is now true for capitalism. The income/wealth/opportunity gap is leading to dangerous social and political divisions that threaten our cohesive fabric and capitalism itself.” If there is no reform, “we will have great conflict and some form of revolution”.

No, it was not Sanders or AOC. It was Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, which has about $160bn (£123bn) of assets under management. Dalio himself has an estimated net worth of more than $18bn. In a recent essay published on LinkedIn he tore into the system that has made him a billionaire.

You can see why the capitalists are nervous. Last week Sanders and AOC joined forces to propose new legislation (the Loan Shark Prevention Act) to “take on Wall Street greed” by capping credit card interest rates at 15%. AOC also recently endorsed Elizabeth Warren’s proposal to break up the big technology companies.

And let’s not forget February’s Green New Deal with its “10-year national mobilisation” to generate 100% of US power from “clean, renewable and zero-emission energy sources”, its state-led investment plan for high-speed rail “at a scale where air travel stops becoming necessary” and its guarantee of “economic security” for people “unable or unwilling to work”.

It used to be a favourite question of the political scientists: why is there no socialism in the US? The German writer Werner Sombart asked it in 1906. He attributed it to the unpolitical character of US trade unions; a national culture that revered capitalism and the constitution; the stability of the two-party system; and the American worker’s relatively higher standards of living compared with his European counterpart.

“On the reefs of roast beef and apple pie,” wrote Sombart, “socialistic utopias of every sort are sent to their doom.”

Writing nearly a century later, in 2000, the US sociologist Seymour Martin Lipset offered similar explanations. Without a feudal, class-stratified past and with a homegrown ideology of equality, liberty and egalitarianism, American society was less susceptible to socialist appeals. The western frontier offered new possibilities for the dissatisfied. And the American working class was too divided by ethnicity and race to feel the solidarity of Europe’s proletariat.

The best performance by a socialist candidate for the presidency was in 1912, when Eugene V Debs, of the Socialist Party of America (SPA), won more than 900,000 votes — 6% of the total. The party also secured the election of two members of the House of Representatives, dozens of state legislators and more than 100 mayors.

But its opposition to the First World War and the attraction of Franklin Roosevelt’s New Deal in the 1930s doomed the SPA to decline. It gave up running presidential candidates after 1956, when its nominee won fewer than 6,000 votes.

Yet something is afoot on the American left today. AOC is only the most famous member of the Democratic Socialists of America (DSA) to have been elected to the House last year; the Michigan congresswoman Rashida Tlaib is also a member. And there are now about 35 DSA members in state legislatures.

More striking is the polling data. A Gallup poll last August revealed that only 47% of Democrats viewed capitalism positively, down from 56% in 2016; 57% viewed socialism positively.

The big story here is the growing enthusiasm for socialism among younger Americans. Whereas only 27% of over-65s have a positive view of socialism, according to an Axios poll conducted in January, 61% of those aged 18-24 do.

Of course it all depends what you mean by “capitalism” and “socialism”. Ask Americans about “small business”, “entrepreneurs” or “free enterprise” and you get 79%-92% approval, according to Gallup. By “capitalism” they seem to understand something closer to “big business”.

In its original sense, socialism (as the Oxford English Dictionary makes clear) is a “system of social organisation based on state or collective ownership and regulation of the means of production, distribution and exchange for the common benefit of all members of society”.

That is not what young Americans think it means. They appear to associate socialism with government-provided healthcare and university education. (An ingenuous few think socialism means being sociable.)

As AOC put it in a recent interview: “What we have in mind and what my policies most closely resemble are what we see in the UK, in Norway, in Finland, in Sweden.” But how socialist is Sweden, a country often depicted as utopia by progressive types who have never been there? The country comes ninth in the World Economic Forum’s global competitiveness league table; 12th in the World Bank’s ease-of-doing-business rankings; and 19th (out of 186) in the conservative Heritage Foundation’s economic freedom rankings.

Not only do American socialists not know what socialism is; they don’t know where it is either. Socialism does still exist around the world in various forms. If you want to see state ownership in action, along with the corruption, inefficiency and poverty that invariably go with it, I recommend Caracas, Pyongyang or — more picturesque — Havana. Don’t look for it in Europe, where even Social Democratic parties have been haemorrhaging voters since the 1990s.

If you want to have a debate about the degree of redistribution you want to effect through the tax and benefits systems, don’t confuse yourself by talking about socialism. The democratic world is all capitalist now. Voters just choose how much they want to mitigate the inequalities inevitably produced by the market. At one end of the spectrum are the Chileans and Mexicans, who do very little redistribution; at the other are the Finns and the Irish, who do quite a lot. Everyone else is somewhere in between.

If Democrats are smart they will zero in on healthcare, which Republicans screwed up when they could not muster the votes to repeal and replace Obamacare. If Democrats are not smart, they will allow themselves to be associated with socialism. AOC and her followers may like the sound of that word, but most Americans retain their ancestral allergy to it. A new poll by Monmouth University, in New Jersey, has found that 57% of Americans think socialism is simply not compatible with American values.

Yes, a spectre is haunting America — the spectre of socialism. That spectre could prove helpful to Donald Trump next year.

Niall Ferguson is the Milbank Family senior fellow at the Hoover Institution, Stanford

Donald Trump won’t take on Nicolas Maduro’s muchachos in Venezuela

 The gangster boss is safe for now, thanks to Beijing and Moscow

The first and only time I have seen a man shot dead was in Venezuela. It was January 2010, and I was with a camera crew in a rough district on the outskirts of Caracas. A shot rang out. I spun round and saw a man lying in the street. He wasn’t moving.

“What just happened?” I asked the local fixer.

“Oh, the police shot that guy,” he replied.

“Why?” I asked.

“Well, he grabbed hold of a cop’s gun and so they shot him.”

“Oh well,” I said, my shock rendering me more than usually stupid. “I guess that’s better than if he had shot the cop.”

He looked at me with weary pity. “Niall,” he said. “In Venezuela the police are just another gang.”

Ever since, that has been my definition of the absence of the rule of law: when the police are just another gang.

At that time, Hugo Chavez was still the country’s president. He was a ubiquitous presence, his plump, pugnacious face painted on walls and blown up on billboards, his voice bawling from the television in speech after interminable speech.

Venezuela in those days wasn’t all bad. I enjoyed sipping scotch in Carabobo and boating on the Orinoco. But I could tell that things were not going to end well.

“The reality of Chavez’s regime,” I wrote at the time, “is that it is a sham democracy, in which the police and media are used as weapons against political opponents and the revenues from the country’s plentiful oilfields are used to buy support.

“Private property rights . . . are routinely violated. Chavez nationalises businesses more or less at will . . . And, like so many tinpot dictators in Latin American history, he makes a mockery of the rule of law by changing the constitution to suit himself.”

Chavez died of cancer in 2013, but things have only got worse under his successor, Nicolas Maduro. The Venezuelan economy has plummeted into hyperinflation. Despite the country’s vast reserves of oil, its power grid barely functions. There are chronic shortages of food and medicine. An estimated 3.4m people have fled the country.

Here is a salutary reminder for young people who find the term “socialism” enticing, as well as for all the useful idiots such as Jeremy Corbyn who sang the praises of Chavez’s regime. For a time, the Chavista party was known as the United Socialist Party of Venezuela. Chavez himself was a self-proclaimed Marxist. The core of the “Bolivarian revolution” was state control of the economy — the essence of socialism. The fact that these policies led to rampant corruption, spiralling violence and economic implosion was not the result of bad luck (much less US sanctions).

Throughout Maduro’s reign, outsiders have speculated that he would be ousted and a democratic government established. “Surely this can’t go on,” has been the refrain. But it has. My Venezuelan friends have learnt that the seemingly unsustainable can last a horribly long time, especially with the Chinese buying Maduro’s oil and the Cubans and the Russians providing other forms of support, including security forces. The opposition, never well organised or united, has been ruthlessly suppressed.

Last week there was a brief glimmer of hope. Early on Tuesday the opposition leader, Juan Guaido — who is recognised by the US and numerous other countries as Venezuela’s legitimate president — posted a video of himself at a military base, standing next to another Maduro opponent, Leopoldo Lopez, and surrounded by men in uniform. Lopez had been under house arrest since 2014 but was now apparently free. This was supposed to launch the “final phase of Operation Freedom”.

The glimmer was soon snuffed out. Guaido’s attempt to topple Maduro ended with protesters being brutally crushed by armoured cars in the streets of Caracas. Too few soldiers defected to his side. No big Chavista names jumped ship. Lopez hastily sought refuge in the Spanish embassy. Maduro appeared on state TV to declare victory.

The most surprising feature of this story is not that the attempt to oust Maduro failed. Such regimes can be dislodged only if a critical mass of the security forces defects to the side of the revolution. That’s why most revolutions fail.

No, the surprising thing has been the reaction of the administration of Donald Trump. In a perplexing statement on CNN, the secretary of state, Mike Pompeo, made it clear that the US had been working with the opposition to get Maduro out. Indeed Maduro’s plane had been “on the tarmac”, ready to fly him to Cuba, but “the Russians indicated he should stay”. Later the national security adviser, John Bolton, named three top officials in Maduro’s government — including the defence minister — who had pledged to defect but at the last minute changed their minds.

All we know about the famously belligerent Bolton suggests that he must be itching to take military action to get rid of Maduro. For Bolton it is not so much the humanitarian disaster or the urge to restore democracy that argues for the use of force; it is the fact that a hostile regime in the Americas is being propped up by Russia, China and Cuba.

Yet, as far as I can gather, the president himself has no appetite for military action. Despite his occasional tough talk, Trump prefers trade wars to actual wars. When he hears arguments for intervention in Venezuela, he has ghastly visions of Iraq and Afghanistan. According to a Pentagon briefing, US forces would have to stay in Venezuela for at least six years and spend $80bn to re-establish order.

Unfortunately, this is the way countries learn from history: patchily. So scarred is the nation by what has come to be perceived as failure in Iraq (and, before that, in Vietnam) that successful interventions have been forgotten. No one now recalls that it was the US that ended the “ethnic cleansing” of Bosnia and Kosovo, for example, and brought Slobodan Milosevic to justice. No one today discusses the invasion of Panama in 1989, which terminated the reign of a criminal despot who had much in common with Maduro, General Manuel Noriega.

How Vladimir Putin must have enjoyed getting the credit for keeping Maduro in power — and with the tiniest of Russian contingents! How fascinated the Chinese must be to find that, even in what Bolton last week called “our hemisphere”, the American colossus has no stomach for a fight.

Some readers may remember the lighthearted Scottish film Gregory’s Girl, which ends with two sexually frustrated Glasgow teenage boys setting out to hitchhike to Caracas (in the belief that girls outnumber boys in Venezuela). Well, there are not many takers for the road to Caracas in Washington today. That not only tells us how far Venezuela has fallen since the early 1980s, when Venezuelan per capita GDP was close to 40% of the US level, as opposed to 4% today. It also tells us how far American power has diminished since those days.

Niall Ferguson is the Milbank Family senior fellow at the Hoover Institution, Stanford

Maybe it should be Joe Biden, but it won’t

 Obama’s veep thinks he’s the man to beat Trump, but he’s got competition

The preacher asked that there be silence, please.

“If any objections to this wedding,
Speak now or forever, forever hold your peace.”
And I stood up and said:
“It should have been me!
No, oh, it should have been me!”
Jumped out of my seat and screamed, “It should have been me!
. . . Somebody call the police —
That woman down there is a doggone thief!”

Yvonne Fair’s It Should Have Been Me is one of the great 1970s soul hits. It was also my introduction to counterfactual history. To this day, I’m haunted by the thought of Yvonne leaping from her pew to present the startled congregation with a classic “what if?” argument: but for that woman, I’d be the one walking down the aisle.

I wonder if Joe Biden finds himself humming It Should Have Been Me when he looks back on the events of 2016. More than a year before the US election, I argued Biden stood the best chance of beating Donald Trump when it came to winning the votes of “white, male, ageing Americans”. It was not to be. Barack Obama, who had picked Biden as his running mate in 2008, took the fateful decision to back Hillary Clinton.

Obama campaign manager David Plouffe had the job of breaking the bad news. “Mr Vice-President,” Plouffe told Biden, “you’ve had a great career . . . Do you really want it to end in a hotel room in Des Moines, coming in third to Bernie Sanders?”

As the votes were tallied on the night of November 8, 2016 — as Democrats grappled with the realisation that Clinton had lost to Trump — Biden had every right to jump out of his seat and scream: “It should have been me! . . . Somebody call the police / That woman down there is a doggone thief!”

Last week — despite still lacking an endorsement from Obama — Biden decided to launch his third bid for the Democratic nomination. He has opted to position himself, from the outset, as the candidate who can beat Trump. The opening salvo of Biden 2020 was a three-minutes-plus video revolving round events in Charlottesville, Virginia, in August 2017, when clashes between neo-Nazis and anti-fascist protesters culminated in the murder of Heather Heyer.

According to Biden, Trump’s statement at that time — that there were “some very fine people on both sides” — had “assigned a moral equivalence between those spreading hate and those with the courage to stand against it. And in that moment, I knew the threat to this nation was unlike any I had ever seen in my lifetime.”

Now Biden was born in 1942, so we’re being asked to believe that Trump is a bigger threat to the United States of America than either the Axis powers in the Second World War or the Soviet Union in the Cold War. But the implausibility of that claim is not the reason Biden will struggle to be the Democratic candidate next year.

Nor, for that matter, is he going to be thwarted by the efforts of his foes to “#MeToo” him (yes, it’s now a transitive verb) with complaints of overfamiliar physical contact by seven women. Sure, Biden is a touchy-feely politician. But anyone who knows his biography — the deaths of his wife and daughter in a car crash in 1972, just weeks after his election to the Senate; the death from brain cancer of his son Beau in 2015 — must surely cut the man some slack. He’s no predator.

Biden’s real problem is that he finds himself on the right wing of a party that has lurched leftwards in the past 2½ years. A new generation of radicals in the House of Representatives — exemplified by Alexandria Ocasio-Cortez and Ilhan Omar — has created an atmosphere in which nominating Biden would seem a betrayal. Despite the failure of their female candidate in 2016, many activists yearn to nominate another in 2020, ideally a “woman of colour” (which is why Senator Kamala Harris is a real contender).

There has also been a marked shift to the left on policy. The key issues in this contest will be healthcare, student debt, climate change and taxing the rich. On this terrain, Biden looks conservative. His past support for the tough 1984 Comprehensive Crime Control Act and his failure to back the lawyer Anita Hill when she accused Justice Clarence Thomas of sexual harassment during his Supreme Court confirmation hearings — these are the things today’s progressives really hold against him.

Is all this just a roundabout way of saying that Biden is too old and too male to be president? No, because the person most likely to beat him to the nomination is an even older guy. Step forward, Vermont senator and democratic socialist Sanders (born in 1941). He may be six to eight points behind Biden in polls, but at this early stage that isn’t significant.

I can think of three reasons Sanders is more likely than Biden to win. First, unlike Biden, Sanders ran a campaign in 2016 and his machine is still in pretty good shape. Take fundraising. Not only did Sanders lead the field in total donations in the first quarter of this year; he also has the most donations from the most people (per 1,000 residents) in the most states (20), while others are still heavily reliant on their home states. Biden has some big donors, no doubt; Sanders has an army of smaller ones.

Second, there’s the new Democratic primary calendar. As early as March 10 next year, about half the convention delegates will have been awarded, compared with just a third at the same stage in 2016, because six states have brought their primaries forward. As delegates aren’t allocated on a winner-takes-all basis, no candidate is likely to have a majority by the time of the Democrats’ Milwaukee convention in July. But Sanders could be so far ahead of everyone else that it would be hard to deny him.

Finally, the so-called superdelegates, who were a key reason Clinton beat Sanders in 2016, may be less powerful in 2020.

Yes, I know. It’s much too early to be speculating about who’ll be running against Trump next year. The media favourite Beto O’Rourke may yet turn out to be the white Obama. Pete Buttigieg, the multilingual mayor of South Bend, Indiana, is also worth watching.

Yet one thing does seem pretty clear: whoever wins the Democratic nomination will be taking on a man who, for all his character flaws, is presiding over full employment and 3% growth; who took on China long before the policy elite realised that American primacy was under threat; whose inflammatory stances on immigration and political correctness play very well with older voters; and whose mastery of social media is unrivalled in global politics.

Biden was not the only man singing It Should Have Been Me on election night 2016. Even more than Biden, Sanders had been robbed of the Democratic nomination by the party establishment. He won’t be so easily robbed this time.

If Bernie ends up singing the same old song on election night, it will simply be because Trump confounds his many critics by winning re-election.


Niall Ferguson is the Milbank Family senior fellow at the Hoover Institution, Stanford

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