Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


China is Targeting Average Americans in Trade War

The People’s Republic of China is taking trade warfare to a disturbing new level. New Chinese tariffs target individuals and appear to be designed to punish average Americans for voting for President Donald J. Trump (R-New York).

The best example of such a targeted tariff is a 25% duty on U.S. soybeans. America’s soybean-producing counties supported Trump’s presidential bid by a margin of 12%, The Washington Post calculated. Since China buys 60% of America’s soybean exports it appears that the tariff is designed to punish farmers and their neighbors for voting for Trump. Soybean prices plunged by more than 5% after news of the tariffs broke.

Nor are soybeans the only product of rural America that the People’s Republic is targeting with tariffs. Other duties; levied in retaliation for Trump’s planned tariffs on a wide variety of Chinese goods, including tariffs on pork, and automobiles (Trump won in car-producing states; including Michigan, Tennessee, and Alabama) indicate targeted trade warfare.

How China is trying to Influence US Elections with Tariffs

The Chinese tariffs appear to be designed to influence the US Congressional election which is scheduled for November. The levies are tailored to products likely to be grown or manufactured in districts and states represented by Republicans.

The Chinese are sending Congressional Republicans a clear message, either take Trump’s ability to set tariffs away or face a lousy economy and a potential loss in the fall. The Constitution gives Congress not the president the authority to regulate foreign trade.

That power has been historically delegated to the President because most members of Congress do not care about trade issues. The Chinese are trying to make Congress care about trade, by using it to hurt Senators and Representatives reelection chances.

The current round of Chinese tariffs is also designed to reward states that voted for Trump’s opponent Hillary Clinton (D-New York). Technology companies like Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT); which are based in states that voted for Clinton like California and Washington are not hit by the tariffs.

A New Type of Trade War

The Chinese are launching a new type of limited trade war, designed to target specific individuals and regions. Instead of an all-out trade war which might unify the country, the Communist Party is using targeted sanctions in an effort to turn Americans against each other.

The soybean tariff is designed to turn farmers and their representatives in Congress against Trump. Most farmers voted for Trump and still support him but doubts are growing, and Democrats are targeting farmers. A group called Farmers for Free Trade led by former Democratic Senator Max Bacchus plans to run ads critical of the tariffs on TV shows Trump voters are likely to watch.

Another hope is to drive a wedge between Trump and business. Trump’s relationship with business has been mixed, business groups like the administration’s policies but they have little respect for the man. Organizations like the National Association of Manufacturers are already criticizing Trump’s trade policy.

The hope in Beijing is to avoid a full-blown trade war and reward China’s friends in the United States with targeted tariffs. The tactic is new, interesting and unproven. It shows that the Chinese have a sophisticated knowledge of American politics and how they work.

It’s About Congress, not Trade

Ironically, Trump’s new round of tariffs has little or nothing to do with trade and everything to do with the upcoming Congressional election. The president and other Republican leaders are desperately trying to stave off losses in November by attempting to rally populist voters who have strong anti-trade sentiments.

It is no coincidence that Trump announced the tariffs shortly after an embarrassing GOP loss in Pennsylvania’s 18th Congressional District on 13 March 2018. Leftist Democrat Conor Lamb beat Republican Rick Saccone by just 627 votes in a district Trump won by 19.6 points in November 2016.

Not even Trump’s personal involvement in the race was able to protect Saccone from defeat. That loss came right on the heels of an even more embarrassing Republican defeat in the Alabama U.S. Senate special election in December. Both candidates Trump campaigned for in Alabama; moderate Republican Luther Strange and populist Republican Roy Moore lost.

Photo by Steve McCrank/Staff Photographer

Republicans’ fear is that Trump is losing the support of working-class whites who are drifting back to their traditional home in the Democratic Party. One way to solidify GOP support among the white working class is to take a hard line on trade, which Trump is doing.

Fears of a Congressional loss also explain Trump’s new hardline on immigration. In recent weeks Trump has changed his mind on DACA (a path to citizenship for certain illegal immigrants), promised to send troops to the border to stop an imaginary invasion from Honduras, and started talking about building the border wall again.

Trump’s hope here is not to mobilize large numbers of voters but to energize enough populist supporters to make the difference in September. Many of the Congressional elections are likely to be close, like the 18th District in Pennsylvania. So all Republicans need to do is mobilize a few hundred more voters than the Democrats.

The GOP is turning to anti-trade populism to achieve that goal because its historic support from the Religious Right is drying up. Republicans also face a new wave of radicalized populist Democratic opponents, some of whom are capable of mobilizing just enough voters to win elections.

The Dangers of Trade Warfare

China’s moves indicate that we might be facing a dangerous new wave of trade warfare. The world might be moving into an era of politicized trade disputes designed to punish individual voters or politicians.

The danger here is that average people, especially farmers will be hurt by the new trade warfare. A horrendous development would be that Trump has calculated that the voters of factory workers enraged by trade are more important than those of farmers. Remember factory workers far outnumber farmers, and at the end of the day, numbers are what matters in politics.

If that is the case we might be entering a terrible new era in which economic good is sacrificed for short-term political gain. Hopefully, a sensible resolution to this trade conflict that protects the livelihood of farmers can be found. Trade policy needs to be depoliticized now before average people are hurt by unnecessary conflict.