The Facts, Ma’am, Just The Facts

“Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” So said Founding Father, lawyer, and President John Adams when successfully defending British soldiers who were charged with murder for firing on a crowd of Americans during a 1770 rally, precursor of our War of Independence. Pedants point out that Adams was quoting earlier writers, which might have been what former vice president Joe Biden was attempting to do almost 150 years later, when he informed a bemused Iowa audience, “We choose truth over facts,” a version of “Facts are the enemy of truth,” uttered by what must be Biden’s role model, Miguel de Cervantes’ Don Quixote.

At a time when both Trump and his haters have lost the ability to separate facts from the dictates of their passions, as Adams would put it, sorting one from the other is no easy chore, but here goes.

Trump says that his tariffs are hurting the Chinese economy. That is a fact. China’s economy has slowed, forcing lay-offs and requiring the government to open the credit taps just when it was hoping to reduce the level of indebtedness of the government and the companies it supports.

Chinese authorities say that despite the tariffs their economy continues to grow at an annual rate of 6.2%. That is not a fact. A detailed analysis of corporate profits, rail freight and other data difficult to massage puts the growth figure at half the officially proclaimed 6.2%. And many firms are moving manufacturing facilities out of China to avoid US tariffs. Others are forced to absorb some of the tariffs’ costs by lowering their prices and profit margins. Meanwhile, their government is allowing the value of the yuan to drift lower, reducing its purchasing power on international markets, making its people poorer.

Trump also says that the Chinese are paying all the tariffs, which are no burden on American consumers. That is decidedly not a fact. America’s importing companies are sending their checks to the Treasury to pay the tariffs. To recoup, they are passing the cost on to their customers by raising prices, and to their shareholders by absorbing some of the cost of the tariffs, denting profits. China is bearing some but far from all of the cost of this war.

It is a bit more difficult to decide which party to the debate over the effect of Trump’s trade policy on the American economy has the facts on its side. The anti-Trumpers say the President’s tariffs are inflicting serious damage on the American economy, while members of the administration join the President in denying that to be the case.

Fact: “There’s no question that our growth is significantly higher than that of the rest of the world,” as Treasury Secretary Steven Mnuchin claims.
Not a fact: Mnuchin’s other claim, “We have not yet seen any impact on the US economy.” The impact is plain for the unblinkered to see. Goldman Sachs economists are guessing that the tariff war is knocking about one-half of one percentage point off US growth. Here’s why:
Uncertainty about the future course of Trump’s tariff policy has reduced business investment.
Retaliatory tariffs have added to the woes of the agriculture sector.
Ripple effects are non-trivial. Example: farmers’ woes are reducing the demand for the products of equipment manufacturer Deere & Co.
Short term pain for long term gain say Trumpkins.

Fact: Trump is right that the trade war is hurting China more than it is hurting the US. That is because China sells a lot more to America than America sells to China. He is also right that “China has been ripping this country off for 25 years … and … whether it’s good for our country or bad for our country short-term, long-term it’s imperative that somebody does this.”

Not a fact: Trump’s claim that the fall in the yuan relative to the dollar is due solely to currency manipulation by China’s rulers. In fact it is due more to the relative economic health of the American and Chinese economies. Trump can claim credit for weakening the Chinese economy and at least some of the credit for the stellar performance of the American economy. Having taken credit for the fall of China’s economy and the rise of America’s, it ill behooves Trump to complain of the decline of the yuan relative to the dollar, for which he is partly responsible.

Late last week Vice Premier Liu He asked Trump to postpone the scheduled October 1 increase in tariffs from 25% to 30% on $250 billion of Chinese goods in recognition of the 70th anniversary of the founding of the People’s Republic of China, which falls on October 1st. Trump did, saying he did so to honor China’s president, Xi Jinping and by implication put the American stamp of approval on the murderous regime over which Xi presides.

In return, the Chinese are offering to separate trade issues from thornier ones related to national security – read, Huawei. Which, of course is in their interest, since it is trade that gives Trump leverage in discussion of issues seemingly unrelated to it. And to step up purchases of agricultural products, give US companies greater access to their markets and increase protection of IP. These are repeats of previously unimplemented promises; we’ll know more this week where the PRC delegation is sitting down in Washington with our delegation for the thirteenth round of trade negotiations. Our team is led by Mnuchin and U.S. Trade Representative Robert Lighthizer. The Treasury Secretary, attuned to financial markets, is eager to buy what the Chinese are selling and declare peace in our time. By contrast, our Trade Representative is more aware of the gap between Chinese promises and performance — promises to give greater protection to our IP while simultaneously refusing to incorporate that protection into Chinese law. In the end, all will be decided by the two presidents, Trump and Xi who, like two battered fighters, seem to be leaning on each other to prevent both from falling.

This recent exchange of good-will gestures should not be taken as a harbinger of a long-term solution to the current trade imbroglio. Trump will likely make some tariff concessions, the Chinese some purchases of products they desperately need.

But Xi would lose more than face if he bowed to Trump and abandoned his plan to make China Great Again by subsidizing national champions and stealing intellectual property in order to dominate the product markets of the future and replace America as the world’s leading economic and political power. Nor can Trump abandon his plan to decouple the US economy from China’s by maintaining some tariffs, restricting Huawei’s ability to damage US security, making it more difficult for Chinese techies to acquire skills in the US that are then put at the disposal of the communist regime. All of which have broad bipartisan support.

The irreconcilable nature of the long-term goals of the incumbent and its challenger is the most stubborn fact of all.