Trade Dispute: Trump Told Macron the EU is "Worse" Than China

Mish

In a strong hint at what's going to happen next, Trump complained to French president Macron the EU is worse than China.

Please consider Trump tells Macron the EU is "worse" than China.

In their bilateral meeting in the White House's Cabinet Room, on April 24, Macron said to Trump, "Let’s work together, we both have a China problem," according to a source in the room. The source said Trump responded that the European Union is "worse than China."

"He then went on a rant about Germany and cars," the source added. (In their private meetings Trump has taken Angela Merkel to task for her country's tariffs on U.S. automobiles and the ease with which German carmakers like Mercedes, Volkswagen and BMW can sell into the U.S. market.)

Trump also says that America has a fairly balanced trading relationship with France but that the U.S-European trading relationship is very unfair.

US Trade With China"Eu

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Germany Worse than China?

For some numbers please see U.S. Trade Deficit by Country, with Current Statistics and Issues.

  1. China - $636 billion traded with a $375 billion deficit.
  2. Canada - $582 billion traded with an $18 billion deficit.
  3. Mexico - $557 billion traded with a $71 billion deficit.
  4. Japan - $204 billion traded with a $69 billion deficit.
  5. Germany - $171 billion traded with a $65 billion deficit.

This is not even close. The US has an annual trade deficit with China of $375 billion but only $65 billion with Germany.

However, China's overall trade surplus is primarily with the US. China runs a deficit with much of the world.

Germany's Surplus Greater Than China

Reuters reports Germany trumps Asia with world's largest current account surplus

Ifo said the German current account surplus — which measures the flow of goods, services and investments — was the world’s largest for the second year running in 2017 at $287 billion, followed by Japan with $203 billion.

U.S. President Donald Trump has criticized Germany for doing too little to reduce its trade surplus with the United States, accusing Germany of “very bad” trade policies.

Ifo said China slipped to third place last year with a surplus of $135 billion, less than half Germany’s.

From that aspect, Germany is far worse than China, especially when one takes into account the size of the countries.

But what's the goal? Balancing global trade or the US deficit?

Penis Envy

The US combined deficit with Canada, Mexico, Japan, and Germany was $223 billion. The US deficit with China alone was $375 billion.

For now, Trump seems hell bent on punishing Germany. Perhaps it's penis envy. Germany has the largest in the world.

Tariffs on German cars coming up.

Whatever Trump's goal, his policies will cost the US.

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Mike "Mish" Shedlock

Comments (14)
No. 1-14
Tengen
Tengen

Pretty sure balancing the US deficit isn't the goal, since it will reach nearly a trill this year, and should pass $1T annually by 2019 or 2020. If this is what striving for a goal looks like I'd hate to see the alternative.

Not sure what Trump's issue with German cars is, but he has apparently harbored it since his famed 1990 Mercedes rant at the latest. Perhaps as things were dwindling with Ivana, an alluring woman spurned his advances whilst hopping into an S-class? With Trump, that seems as likely an origin story as anything else.

Realist
Realist

Trump may indeed start a trade war. Even I didn’t think he was that stupid. However, he may prove me wrong.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

I think it's pretty clear a trade war has started

Tony_CA
Tony_CA

Mish study up on the reciprocity agreements put into place between the US, Western Europe, South Korea and Japan after WW2. Trump is just going to make a few tweaks which should have been corrected a long time ago. All will be fine-MAGA.

Tony_CA
Tony_CA

Germany needs to brought to heal for the damage they have done to Southern Europe.

SMF
SMF

In my home country of Ecuador, a small, cheap plasma TV runs me about $300. A better TV of the same size here would be about $120. Relatives living in Europe have come here to the US and brought an empty suitcase to fill it up with our cheap products to take back home. American stuff in many places is unbelievably expensive due to uneven and unfair tariffs. Even them up and people in foreign countries would benefit as well by paying less than they do now.

caradoc-again
caradoc-again

The cost of social programs has to be covered by something. I don't see Germans wanting to see their safety nets reduced anytime soon. Ageing population, possible downturn in exports through barriers or global recession. How long before Germans express anxiety through the press and at the ballot box? A more anxious, nationalistic, populist Germany in the EU will lead to change but no way to tell what changes precisely. Any EU country seen to be sucking at the German tax payers tit will receive little sympathy in the Fatherland. Guess who. Southern Europeans.

Webej
Webej

The U.S. data report U.S. goods and services trade with Canada totaled an estimated $673.9 billion in 2017. Exports were $341.2 billion; imports were $332.8 billion. The U.S. goods and services trade surplus with Canada was $8.4 billion in 2017, but a $17.5 billion goods deficit with Canada in 2017 counting only goods. The largest item in the goods category is oil!

Blacklisted
Blacklisted

Why are you talking about Germany, when the President said the EU? The trade deficit with the EU in 2016 was $147B, and in 2017 it was $151B, and based on the the first four months of 2018 we are on pace for a $178B trade deficit this year, which will get much worse no matter what Trump does, because the EU economy is imploding under govt largess and the dollar will increase, making our products more expensive even without tariffs. Armstrong's idea of indexing tariffs to the currency makes sense -

The Real Crisis Trump Will Face With Trade | Armstrong Economics
The Real Crisis Trump Will Face With Trade | Armstrong Economics

The entire problem with trade and jobs has been its focus on only the job and not the consumer. David Ricardo developed his principle that nations should pursue their own competitive advantages. In other words, just because I might want to be a brain surgeon does not mean that (1) I might be very good at it, and (2) that I am entitled to state protectionism to prevent others coming into the field who could expose me as second-rate. When the collapse of socialism is in motion, people demand state benefits and assume they can just legally take. Governments have been in serious trouble and are raising taxes to try to make ends meet, but at the same time, their economies are moving into sharp declines. The greater the instability in Europe and Asia, not to mention emerging markets, the stronger the dollar becomes. Trade has always been misunderstood for the two primary elements are jobs and currency. If you do not comprehend both elements, then you cannot properly manage trade. It is always a great topic to expose for votes during elections, but quite honestly, there is nothing any politician has ever been able to accomplish but confusion and chaos. The entire protectionism of the Great Depression was set off by (1) economic implosion in Europe reduced sales to Europe, and (2) the rise in the dollar reduced the competitiveness of US goods and lessened the cost of imports. The US entered a trade deficit with the rest of America because of the strong dollar. The dollar soared in value as European countries began to default on their sovereign debts. Trump will face the same crisis once again. One solution will be to index tariffs to the dollar. Thus, a 10% tariff across the board would be plausible on the trade issue. However, the danger of protectionism will emerge if you pick and choose between products and fail to understand the link to the currency. The left socialists are out in force to say Trump's 10% one time tax on foreign held money by U.S. corporations will do nothing for the economy. EBay was looking to take over two companies to expand domestically. They had to decline because the expansion meant they would have to bring cash in from overseas and the added tax would make both deals unattractive. Yes, some companies will bring back cash and pay out dividends and buy back their own shares. Trump should also eliminate the dividend tax; thus the money would go to shareholders who would pay their one-time tax on income. This will be a far better stimulus plan than the Fed handing money to bankers in hopes that they will lend it out, which never happens. Small businesses are turned down by the bankers for more than 80% of all loans. The banks do not invest in innovation that is the mother of jobs. Trump should impose a 10% tariff on everything, and then index it to the US dollar index. That will avoid a protectionism crisis and deal with the largest influence being the currency. The entire reason why Germany wanted the euro was to eliminate currency risk for German companies so they would not need to worry about currency swings and become noncompetitive or they would move jobs to Southern Europe. We have to start thinking out of the box. What politicians have been doing for decades is always listen to only academics who never think out the box as a rule because they have no real world experience. You cannot learn to be a pilot just from video games or reading books. It takes real world experience to fly a plan.

Trump likely doesn't know what he's talking about regarding trade, but neither does anyone else. However, in this blind leading the blind trade policy, I still like Trump's dumb luck. Europe's going to need much cheaper goods as their currency falls, so they should reduce tariffs - and they should also reduce taxes so their citizens have more of their dwindling currency.

World Trade – We Are Lost But Don't Even Know It | Armstrong Economics
World Trade – We Are Lost But Don't Even Know It | Armstrong Economics

QUESTION: Mr. Armstrong; You seem to be the only rational person who understands world trade. Trump said we already lost the Trade War. Does he have any clue as to what is really going on in world trade? HF ANSWER: Sorry, but he and just about everyone else are just brainwashed when it comes to trade. We were experiencing the same problem when the Japanese trade surplus was number one. Rubin was starting the same nonsense under Clinton back in 1997. I wrote to Rubin in May 1997. Once again, I warned of coming crazy volatility and that hit the next month with the 1997 Asian Currency Crisis. Rubin was again trying to talk the dollar down for trade but with Japan. These people are just amazingly stupid or just too lazy to do the real research. Back then, Japan was the largest holder of US debt. They had bought the debt to try to ease trade friction. When they buy US debt, that runs through the Capital Account - not the Current Account. However, the interest they earn goes back out through the Current Account. Hence, the more debt they buy to ease the trade deficit actually makes it worse. When it comes to world trade, we are simply lost in our own short-sightedness. Nobody seems to even bother to look at this issue. If we add world trade and attribute it to the flag flown by the parent company, the USA dominates the world and has a trade surplus. I had recommended to the Japanese to buy gold in New York and ship it to London and resell it there. That was a transaction which went through the Current Account and provided the impression that the trade deficit was declining. The situation is just hopeless. Nobody will listen and they just like yelling about things that make absolutely no logical sense. Tim Geithner responded:

If Central Banks listen to Armstrong for advice, why shouldn’t we?

The Misconception of Central Banks | Armstrong Economics
The Misconception of Central Banks | Armstrong Economics

QUESTION: Mr. Armstrong; I was at the Treasury Management Association of Canada (TMAC) conference in Vancouver when you appeared as a speaker as well as Peter Detallis of the Bank of Canada if I remember his name correctly. I was there at the cocktail party when the Finance Minister of Nova Scotia said you diminished the central bankers. They were right there as well and he did not know it. You introduced him to them. He was upset. I laughed at that. My question is why are you the exception to meet with central banks? HWF ANSWER: It should come as no surprise that I routinely argue against "demand-side" economics which justifies central banks manipulating demand by raising and lowering interest rates. It has never worked. That said, the Democrats vilified "supply-side" economics when Reagan lowered taxes. They vilified it calling it "trickle-down Economics." They never actually explain the difference because they want to do as they desire and then expect the central banks to clean-up their mess from the fiscal mismanagement of the economy. That said, the conspiracy theorists blame the central banks for absolutely everything and assign no blame to the politicians for the fiscal side. Consequently, it still took me some time to understand why the central banks would talk to me. They clearly knew I understood the real dynamics of the system as a whole with both the fiscal and monetary side in addition to Demand v Supply-side Economics. They also knew I lived in the real world community and was one of the few true international advisers. The difference is I really had some $3 trillion under contract which was about 50% of the US National Debt at the time. They knew I spoke with real-life experience - not theory. That was even part of the Congressional record when I testified before the House Ways & Means Committee. When our model called the 1987 Crash to the day that was one thing. But the very day of the low it confirmed that was it and the low would hold and off we would go to new highs by 1989.95. I was called in by the White House that day and asked to confirm this low would be it. There are simply times when they just really need to know what is happening and they need to rely on something that is NOT political or just the passing opinion of an analyst. Then the Tokyo Crash took place perfectly with the top of the ECM 1989.95 and again I had two central banks on the phone at the same time. The question was did the computer say they needed to intervene? I said no. It was confined to Japan. The stock market again peaked on the very day of the ECM July 20th, 1998. That was followed by the collapse of Russia and the Long-Term Capital Management Crisis. That is when the CIA called and wanted the model since it had political implications that became obvious. It has become obvious to those behind the curtain that our model is no joke. There have been WAY TOO may correct forecasts that have picked the turns and highlighted the crisis points. Over time, I learned that the central bankers are no different from the rest of us. They do NOT know everything and they are NOT in control of the world as the conspiracy people paint it. In Canada, they filed a lawsuit against the Bank of Canada to demand it focus only on Canadians and ignore international bankers and the Bank of International Settlement (BIS) (see Press release: Ban of Canada Suit _CourtCasePressRelease). They do not grasp that we are ALL CONNECTED and central banks realize that they CANNOT manage the domestic economy by ignoring the international capital flows. The Fed wanted to raise rates in 2014 by the IMF and everyone else lobbied to prevent that. Central banks have lost control of domestic economies because international considerations are causing them to realize we are ALL CONNECTED. There is such a general misconception of central banks it is unbelievable. The first cooperation took place in July 1927. That was a meeting between USA, UK, France, and Germany. They attempted to manipulate the capital flows by arguing the USA should lower interest rates and in theory, the capital would return to Europe. It failed and they could not prevent the Sovereign Debt Crisis that hit in 1931. It was Roosevelt who usurped all the power of the independent branches of the Federal Reserves and stuffed them all into one size fits all management under a Marxist socialistic theory where Washington kept an eye on the Fed. Yellen pleaded with Drahi to stop his insane negative interest rate policy. He would NOT listen. She hesitated in raising US interest rates back in 2014 hoping that Draghi would see the huge mistake he was making in creating the next crisis - the destruction of the European bond market and the pending Pension Crisis. When the ECM peaked 2015.75 and started to decline, the pressure on the Pension Funds began to escalate. The Fed broke FAITH with the rest of the central banks and began to raise rates during the last quarter 2015 after the ECM turned October 1st, 2015. Our computer system is the ONLY mechanism that is tracking the entire world. It picks up everything. This is the chart of the capital flows for the 1987 Crash. How can any central bank ignore the capital flows and the international interconnectivity of the world economy and survive? We have no conflict of interest and that is critical. We also have a track record from the early 1980s that is unbelievable on economic forecasts. In the middle of a crisis, we all need sometimes to call on someone or something. We try to contribute to society in hopes of one day perhaps AFTER the Crash & Burn, just maybe we can avoid a fall into totalitarianism. My time will be over here. We all have an experation date. My concern is for my family I will leave behind.

Realist
Realist

Hi Pi,

Mish wants everyone to eliminate their tariffs, including the US. He has stated that many times.

What I find interesting is that so many Americans believe that it is only the other guy who has tariff barriers. The reality is the US has higher tariffs than many of their trading partners.

According to the World Bank and the WTO:, less-developed countries tend to have the highest trade barriers. Developed countries are generally less restrictive: 27 of the European Union's 28 members, for example, have an applied tariff rate of 1.6% (Iceland's is even lower, at 0.7%). This may not remain the case, however, as political opposition to pro-trade policies spreads in the developed world. Nor are the 10 countries with the lowest tariffs all wealthy:

Top ten countries with the Lowest tariffs Country Weighted mean applied tariff • Singapore 0.00% • Macao (China) 0.00% • Hong Kong 0.00% • Switzerland 0.00% • Brunei 0.50% • Botswana 0.57% • Georgia 0.66% • Iceland 0.71% • Mauritius 0.74% • Canada 0.85% Source: World Bank, 2016 data

Weight applied tariff rates of countries not in the top ten: note that the US actually has a higher overall level of tariffs than almost all of their trading partners, except Mexico and China.

Mexico 4.36% China 3.54% USA 1.61% Europe 1.60% Japan 1.35% New Zealand 1.27% Australia 1.17% Norway 1.02%

I know that the Trump followers will ignore the fact that the US is actually one of the worst when it comes to tariffs.

pi314
pi314

@Realist - The trade situation is more complicated than the data you provided. For example, China does not have the same regulatory and environmental restrictions as the West. That gives them unfair trade advantage if you think about it. The elephant in the room is the hundreds of billions of dollars in trade deficits. This is not sustainable long term and we should all be grateful that someone, Trump, is addressing it.

Realist
Realist

I wasn’t referring to China. I was making the point that the US has higher tariffs than Europe, Canada, Japan, Australia, New Zealand etc. Trump is screaming at his allies for having high tariffs, when the US has even higher tariffs. As a result, he risks turning America’s friends into foes. He also risks starting a trade war, where everyone loses. As far as regulatory and environmental restrictions, the US has far fewer of those compared to the countries i have mentioned. It’s time for the US to follow the same environmental and regulatory rules as its allies. Compared to the G7 countries, the US is the dirtiest shirt.

pgp
pgp

Trade always benefits the producer who does it cheaper - obviously. Clearly if you only pay your workers peanuts it doesn't take a lot to be the biggest exporter. That's where China is in the story. The EU (eg Germany) has always had (and maintains) modern manufacturing facilities thanks to the post-war rebuild, and they've used that to produce quality products cheaply.

Free trade can only work if everyone trades on an even playing field, as happens within a country, where everyone gets paid the same and efficiencies are equivalent. Otherwise, improving efficiency is doable but fixing the wage disparity is unlikely to happen any time soon. Inevitably China and Asia will continue to be net exporters - as long as their corrupt autocratic and patriarchal political systems survive.

Inevitably, the idea of free-trade is like believing in democracy. To really work it requires an enlightened, egalitarian and standardized global civilization.... something the world is unlikely to see for centuries.


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