Peter Schiff: We Won the Trade War We Never Fought
Just like that, it appears the trade war is over. Although, as Peter Schiff pointed out in his latest podcast, it wasn’t really much of a war.
I don’t think I should call it a ceasefire because nobody actually fired a shot, and it’s been more of a war of words than a real conventional battle. I mean, basically a lot of saber-rattling, not a lot of fencing. But I think what happened today is we called a truce. Both sides sheathed their sabers and agreed that there’s not going to be a war.”
Stock markets rallied on the news. Peter said he doesn’t think they ever really priced in the cost of a full-blown trade war. Despite what Donald Trump claimed, they are not easy to win. Although there was certainly concern, the markets never went into full-blown panic mode over trade war rhetoric. Nevertheless, there was some palatable relief in the markets Monday.
Most people would agree that a trade war would be bad, right? Anything with a war in it is probably bad and if now there is going to be trade peace, well there’s a peace dividend and we got that today.”
Peter said that the whole thing confirms what he was thinking all along – that nothing was really going to get done. In fact, the whole thing was little more than political posturing. With trade deficits growing, Pres. Trump had to do something, so, he called out China.
And now I guess he’s going to claim another victory. Just like he’s claiming victory over the fake unemployment numbers that are now real, or the stock market bubble that is now legitimate, I guess Trump can say we won the trade war we never fought.”
The Chinese have apparently committed to reducing their trade surplus, but Peter asks a poignant question: How are they going to do that? It’s not like the Chinese government can force its people to buy American products.
Americans don’t even buy a lot of American stuff, so why should we expect the Chinese to do it?”
Peter said Trump is primarily looking for short-term political victories and isn’t willing to implement policies that will cause some initial pain for long-term gain.
Every decision that he makes appears to be a political decision. He is trying to get the biggest short-term bang for the buck. He’s not trying to preside over a turnaround. He’s not trying to enact the reforms that may have temporary pain but will result in long-term gain. He just wants to do whatever he can to generate some kind of short-term positive – or even if it’s not a real positive the appearance of it being a positive – so he can claim credit for it and campaign on it for reelection, or to try to get more Republicans to hold on to their seats in the midterm elections based on all the victories that he can claim he has.”
Peter said he thinks that despite the tough talk coming out of the administration, the trade deficit will continue to rise. One big factor will be the rising price of oil. The US is a net-importer of oil and that factors into the trade deficit. Oil prices have risen to levels not seen since the summer of 2014.
The bottom line is wages – real wages – are not rising, but the cost of living is, and these higher oil prices are going to exert an upward pressure on the overall trade deficit because the oil we import is going to cost more money.”
What’s the big deal about the trade deficit anyway? Well, the biggest problem is it has to be financed.
Foreigners, since they’re not buying American products with those dollars, they’re going to buy financial instruments. They’re going to buy bonds, and we’re going to have to pay higher interest rates to finance those deficits.”
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