To trade, or not to trade.
Whether you’re a Trump supporter or not, you have to give it to the man - he is firing on all cylinders, delivering on his campaign promises.
The latest hot topic is the trade war with China – the idea of putting tariffs on imports from the Middle Kingdom.
This is an interesting subject for at least two reasons. First, any international tariffs should be considered in conjunction with currency exchange rate. Simply put – if the US introduces, say 10% fee on exports and the Chinese cheapen their currency by similar amount vs. the USD, then nothing really changed for the exporters, specially if they can secure raw materials within their country. The tariffs will be simply a tax on American consumers.
But the bigger, more interesting question is exactly how the US deficit is calculated.
To do it properly, and consider currency fluctuation, would mean that the payment of countless invoices has to be correlated to the exchange rate of the moment, which is impossible to do. What also distorts the number is the fact that interest paid on the US Treasuries held by China increases the current account deficit, even though it doesn’t immediately cost any American jobs.
Then there are business tricks that muddle the picture even more: if China buys gold in New York turns around and sells it London, it will have an effect on trade balance. I am sure that there are also way more advanced schemes out there.
And I didn’t even touch the subject of the complexity of global supply chains.
With the series negotiations just getting underway, there is a possibility that various lobbying groups will all try to cut a deal for themselves. This would be a sad conclusion indeed.
I believe the best chance for lasting peace is to let people trade and do business with each other. Business transcends religion and race, as it is a part of human nature. But there is always the reality of geopolitics.
Still, when president Trumps announces “we need to negotiate a better deal”, I cringe a little.
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Tom Kubiak is the author of The Traveler