We bet that Trump would never go full retard in his trade war with China.

Were we wrong?

Maybe.

Out of the money

Last week, our no-real-trade-war bet was moving further and further out of the money. Team Trump didn’t yet go full retard, but — raising tariffs on $200 billion of Chinese imports — it was losing IQ points fast.

Our prediction was based on the guess that Trump cares more about stock prices than trade policy. A real trade war would cause the stock market to sink…we thought…and the president wasn’t fool enough to risk it.

He’s setting up the Fed to take the blame for the next sell-off. He doesn’t want fingers pointing at him.

But in the most recent tweets, it looks like tariffs were never a negotiating tactic, but an end in themselves:

‘Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped.

‘Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch!’

If this were true, of course — that you could tax imports and make yourself richer and stronger — there would be many more tariffs in the world. And not just for countries. States…and even counties…would close their borders to imports.

North Dakota might want to build its own oil refineries. West Virginia could develop its own version of Silicon Valley. Imagine New York City banning movies from California to protect its own film industry. Who wouldn’t want to block outside competition if that would make you better off? If prosperity were as simple as that, everyone would do it.

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Free-trade zone

Maybe trade should be controlled by the feds, after all. Apparently, even our readers think so. Here’s a sample from Friday’s mailbox:

‘We should ban all Chinese imports. We can make all that $500 billion worth of imported crap right here at home. It would be a perfectly fine arrangement. Americans would win on the deal.

‘Finally, if you want an end game to the trade discussions, we should demand all Chinese goods be priced at American labour rates for the labour contribution involved in their production. There is no reason to compete with Chinese labour. We have plenty of competition here at home. Tariffs should be applied at whatever level required to achieve labour price parity.’

Yes, we have competition at home because, internally, the US is a free-trade zone; Alabamians, for example, don’t need to ask permission to buy an avocado from California.

And people in San Francisco can still buy automobiles made in Birmingham…even though wage rates and the cost of living are substantially lower in Dixie than they are in Northern California.

Until the European Union was created, the US had the largest free-trade zone in the world. Our guess is that this was a major cause of US prosperity. And a further guess is that prosperity led people to, generally, favour open markets and free-ish trade, without the feds involved — because it paid.

But what happened when it stopped paying? That’s what we’re finding out now.

The average working guy has had no real raise in 45 years; open markets don’t seem to work for him. For him, it’s no longer a positive-sum game. It’s a zero-sum game…and he’s losing.

He doesn’t realise how the feds tilted the playing field against him, with their fake money and fake interest rates.

Instead, he thinks there’s something wrong with the basic win-win deal. Capitalism sucks, he thinks. Free trade is a scam, he believes. He wants the feds to do something. He wants the fixers to fix it.

But we’ll come back to this…as the week moves along; it might be important.

In the meantime…

Hell on earth

Can we think of a country that has banned foreign imports and prospered? Many have tried. And at least one is still trying: North Korea. How does that work out for them?

Do people in Pyongyang go out to the local Walmart and buy locally made dishwashers…better than those the Chinese make?

Do they buy sparkling water…bottled locally, cheaper than the San Pellegrino imported from Italy?

Do they go out to the auto lots, turn up their noses at Mercedes, Acura, and Ford so they can buy the locally made machines?

Nope. They don’t buy much of anything because they don’t have any money. Imports are almost completely non-existent. The shelves are almost bare; the average North Korean is barely surviving. Because the NoKo feds control trade and everything else.

Banning trade didn’t work for North Korea. Instead, it created a Hell on Earth. But how about the US? Would it create an Eden here?

So, let’s go back to the basics for a minute. Real wealth is created by win-win deals between willing people. Both sides come out ahead. The feds do not create wealth. All they do is move it around, in win-lose deals. Trade is no exception. When the feds control trade, some people win. Others lose.

Donald Trump let the cat out of the bag last week:

‘Waivers on some products will be granted, or go to new source!’

No doubt, the phone lines lit up, as companies called their lobbyists on Friday.

Consumers simply want the best product at the best price. But the politicians/cronies/insiders/Deep Staters/et al. are playing a different game.

They angle for waivers, tax credits, special deals, subsidies, payoffs — and even sanctions against their foreign competitors.

Deals will be offered. Contracts will be made. Lunches will be had. Hearings will be held. Research papers will be written. Pressure will be applied. Money will change hands.

The public will pay higher prices. A few people will get higher profits. American prosperity will decline even faster. And people will want more cheap fixes.

More to come…

Regards,

Bill Bonner