Notes from the front of 12-03-2018

Trump’s protectionism – aiming at China, killing jobs

Trump’s unilateral imposition of tariffs against steel and aluminium imports will not restore US manufacturing jobs. If pursued, the much more likely impact will be to destroy them.

Trump follows a long line of US presidents who have imposed tariffs on steel imports including Lyndon Johnson, Nixon, Carter and Reagan. Yet employment in the basic steel industry in the US has fallen from around 650,000 in the 1950s to 140,000 now, and none of the previous protectionist measures arrested or reversed that decline. The decline in steel simply mirrors the long decline of the US economy, as investment has steadily declined as a proportion of GDP.

The protectionists do not understand fundamental economics. Steel and aluminium are not consumption goods. They are used as inputs into other industries and products, everything from cars to cans, homes to farming equipment. Any measures which drives up prices increases the input prices for all those other sectors. This leads either to higher prices for the finished goods of those sectors or lower output and jobs in those sectors, or some combination of the two. Jobs and purchasing power are lost and workers are worse off.

Trump specifically mentions China in his protectionist rants, even though it is not in the top 10 of steel exporters to the US. Canada, Brazil, Korea and Mexico all export large multiples of the steel that China does.

This is a blatantly political act, where Trump hopes to bend other countries to his will under threat of sanctions. Many in the Administration are fixated on their hope of stopping China’s rise.

Mainstream economic opinion opposes trade wars, based on the calamitous experience of the 1930s. But in the absence of alternative to revive growth, charlatans like Trump can continue to set the agenda.

Trump’s concedes to talk directly with North Korea

On 8 March Chung Eui-yong, South Korea’s national security adviser, announced that President Donald Trump had accepted an invitation to meet with North Korean leader Kim Jong Un. Chung indicated that Kim’s invitation to Trump was accompanied by an offer to halt the DPRK’s ballistic missile testing programme.

Kim had earlier met South Korean emissaries in North Korea and issued invitations for talks both to Trump and to South Korean President Moon Jae-in.

Trump’s acceptance of the invitation is a diplomatic victory for Kim who, despite the scorn and mockery of the West, has managed to pressure the US. The latter recently suffered a set back at the Seoul Winter Olympics, when it so publicly failed to undermine North-South rapprochement. Instead of welcoming the evolving dialogue on the Korean peninsula, US Vice President Mike Pence announced new sanctions on the North and refused to acknowledge the North Korean delegation’s presence at the games. This backfired on the US.

Pence’s poorly judged approach, whilst reflecting Trump’s policy of ‘maximum pressure’ on the DPRK, conflicted with Moon’s objective of opening up dialogue with the North. With this division between the US and South Korea, over their respective policies towards the North, becoming so evident, the US has had to adjust its public rhetoric.

Kim is taking up the opportunity of détente between South and North Korea, and on that basis invited the US to talks.

Whether Trump’s shift is merely a superficial tactical move remains to be seen. It is now, and for decades has been, in Washington’s power to achieve a halt to the North Korea’s nuclear program if it is willing in exchange to provide real security guarantees to the DPRK.

Contrary to its exaggerated rhetoric North Korea does not have any military capacity to inflict damage on the US mainland or on Guam. It is a small, poor and undeveloped country that engages in aggressive talk in response to real provocations from the US. The threats of the latter however should be taken seriously as it has deployed the most advanced hardware, including nuclear firepower, in close proximity to the North and carries out regular military exercises on the North’s land and sea borders in which it simulates invasions.

US weapons could easily obliterate the DPRK, a threat the US has made many times. In his speech last year to the UN President Trump threatened to ‘totally destroy‘ North Korea. At the end of February this year President George W. Bush’s UN ambassador John Bolton set out a legal case for a US pre-emptive nuclear attack on North Korea, without provocation.

Since the Korean War’s July 1953 ceasefire the US has refused to agree a peace settlement to formally end that war. Instead it has maintained a situation of armed truce, does not recognise North Korea’s right to exist and has imposed against the DPRK the longest lasting sanctions against any country.

The US has consistently blocked North-South dialogue and since Bush’s 2002 ‘axis of evil’ speech its public policy has been for ‘regime change’ in the North.

For any Trump talks with Kim to really succeed, the US will have to reverse these longstanding policies and offer clear security guarantees, including ending its war preparations against North Korea.