President Trump is a befuddling cocktail of inconsistency, mendacity, affirmation-seeking public posturing and poorly thought through ideas badly expressed. And yet, he keeps notching up wins in the most surprising areas.
The President’s rhetoric on North Korea has been described by many as monstrously irresponsible. He matched Kim Jong in bellicose utterings and apocalyptic threats – and now talks are scheduled between North Korea and its adversaries in South Korea and the United States. President Trump claimed he wanted China to exert pressure on Kim to modify his behaviour. It seems this is exactly what happened.
Trump announced tariffs on China amounting to $60bn. China threatened a fraction of this in retaliation and now appears to be suggesting it will take meaningful steps to open its economy. The President claimed he wanted a trade deal with South Korea. Early in 2018, he claimed the existing arrangements were horrible and threatened to pull out. A deal was struck in late March. Shortly after the deal was announced, in a speech on infrastructure in Ohio, Trump announced he would hold off signing the deal until the results of the negotiations with North Korea were clearer. He claimed the threat was a “very strong card.”
Is he an evil genius or just, like a broken clock, occasionally right? Twice a day may be rather generous to this President, but the media is generally disinclined to give credit where credit might be due. Before discussing tariffs in more details, it is worth revisiting the 11 principles from Trump’s Art of the Deal.
- Think big – “I like thinking big. I always have. To me it’s very simple: if you’re going to be thinking anyway, you might as well think big.”
- Protect the downside and the upside will take care of itself – “I always go into the deal anticipating the worst. If you plan for the worst – if you can live with the worst – the good will always take care of itself.”
- Maximize the options – “I never get too attached to one deal or one approach…I keep a lot of balls in the air, because most deals fall out, no matter how promising they seem at first.”
- Know your market – “I like to think that I have that instinct. That’s why I don’t hire a lot of number-crunchers, and I don’t trust fancy marketing surveys. I do my own surveys and draw my own conclusions.”
- Use your leverage – “The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you’re dead.”
- Enhance your location – “Perhaps the most misunderstood concept in all of real estate is that the key to success is location, location, location…First of all, you don’t necessarily need the best location. What you need is the best deal.”
- Get the word out – “One thing I’ve learned about the press is that they’re always hungry for a good story, and the more sensational the better…The point is that if you are a little different, a little outrageous, or if you do things that are bold or controversial, the press is going to write about you.”
- Fight back – “In most cases I’m very easy to get along with. I’m very good to people who are good to me. But when people treat me badly or unfairly or try to take advantage of me, my general attitude, all my life, has been to fight back very hard.”
- Deliver the goods – “You can’t con people, at least not for long. You can create excitement, you can do wonderful promotion and get all kinds of press, and you can throw in a little hyperbole. But if you don’t deliver the goods, people will eventually catch on.”
- Contain the costs – “I believe in spending what you have to. But I also believe in not spending more than you should.”
- Have fun – “Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game.”
Clearly, there are few surprises with Trump
The Facts on Tariffs
As Trump’s new economic advisor, Larry Kudlow has said, tariffs are taxes. And yet, Kudlow says, tariffs on steel and aluminium may work. Why is that? Kudlow is not the most erudite or accomplished economic commentator. His Panglossian view of the US economy immediately prior to the global financial crisis did not enhance his credibility. The theory on tariffs is that, by increasing import costs, domestic producers – steel and aluminium – will be shielded from the competition of ‘unfairly priced foreign goods’ and be able to sell more of their product, thus saving US jobs.
The national security of the United States is, the President claims, following a careful review by the Commerce Department, threatened by the persistent weakening of its own domestic steel and aluminium producers since 2001. The report recommends some alternatives for addressing this concern. The recommendations are specific. The President, however, paints with a broad brush and has not articulated precisely what the Commerce Department has recommended. His initial statements created, as do many of his statements, extreme consternation both domestically and abroad. Subsequent statements have suggested exemptions for key relationships such as Mexico, Canada and the EU. In choosing this course, rather than offering exemptions initially, the President appears to be following principles 3, 4, 5 and 6. He has suggested the exemptions may be contingent on successful negotiations with Canada and Mexico on NAFTA.
Tariffs and Tax Reform
In signing the Tax Cuts and Jobs Act into law in December 2017, President Trump was clearly delivering (principle 9) on the promise to the corporate lobby and – at least ostensibly – to the individual taxpayer: lowering the tax burden would encourage capital formation, increased commerce and increased spending. There are many who believe tax reform, by lowering the rate of corporate tax, mandating the repatriation of overseas earnings and lowering individual tax rates, is increasing economic activity and increasing wages and job formation. It may be too soon to tell, but the economy continues to defy claims of its inevitable downturn. A recent IMF report revised its forecast of economic growth in 2018 from 2.2 to 2.7%. There are “buts” of course, but they are several years out – too far out, in fact, to materially influence the common perception of improvement. It is also not clear that President Trump has yet done enough to meet the needs of principles 2 and 10. Perhaps there is more to come on those…
While it may appear that pursuing both tax reform – reducing costs – and tariffs – increasing consumer costs for products containing the goods to which the tariffs apply – is contradictory, the strategy is consistent with principle 3 and 6 above. While tax reform was clearly playing to a domestic audience in largely predictable ways, the tariff conversation is more nuanced.
Unravelling the Puzzle
The public posturing on tariffs, South Korea, North Korea and China is something that could easily be conducted quietly through back channels, thus reducing the amount of media-generated stress on the public. The problem, however, is that this would not be consistent with principle 11 – it would not be as much fun for President Trump.
While it may appear that US policy is confusing; while it may appear that trade and tax policy are going in opposite directions, it may be easier to fathom if, in all cases, the policies of this administration were viewed through the lens of Trump’s eleven core principles. There, at least, he appears to be consistent.
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