Jack Rasmus

In postings on this blog in recent months–and my recent exchange with Ben Leet–the topic of a financial transactions tax on banks, shadow banks, and financial speculators has come up. Such a tax could easily cover much of the coming $1 trillion a year US budget deficits now baked into the US economy as a consequence of Trump’s $5 trillion in tax cuts for businesses and investors passed in January 2018. I therefore thought it might be of some interest to readers of this blog to repost my April 2016 article on estimating how much a financial transactions tax could raise US revenues, offset the $1 trillion a year in US deficits, and allow a repeal of the Trump tax cut handout to business and speculators (who are using it to buyback stocks, raise dividends, and finance mergers and acquisitions to the tune of more than $2.1 trillion). Here’s my April 2016 post on the financial transactions tax reposted once again:

(The subject of a financial transactions tax is framed in the context of financing Medicare for All–i.e. single payer healthcare. For readers interested in going directly to my calculations of a financial transactions tax on just four security categories (stocks, bonds, derivatives, forex), see the bold type in the blog post below)

“How a Financial Transactions Tax Could Fund Single Payer Healthcare (Medicare for All)“, My April 2016 Post

As US presidential candidate, Bernie Sanders, gained momentum in the presidential primaries earlier this year (2016), the attack on his proposed economic programs have grown proportionally.

Leading the assault have been supporters of Hillary Clinton, especially Paul Krugman, and other ‘stars’ of the economics profession like Christine Romer, Laura Tyson, Alan Kreuger, and Austan Goolsbe—all of whom have served in past Democrat administrations and are no doubt looking to return again in some capacity in a Hillary Clinton administration. Sometimes referred to as the ‘gang of four’, this past month all have been aggressively attacking Sanders’ economic programs and reforms. However, the target of their attacks, which began in February and continue, is Sanders’ proposals for financing a single payer-universal health care program by means of a financial transactions tax.

The irony of the Krugman-Gang of Four attack is that Sanders’ proposals represent what were once Democratic Party positions and programs—positions that have been abandoned by the Democratic Party and its mouthpiece economists since the 1980s as that party has morphed into a wing of the neoliberal agenda.

The Krugman-Gang of Four have been especially agitated that their own economic models are being used to show that Sanders’ proposals would greatly benefit the vast majority in the US. But debating Krugman and his gang of four neoliberal colleagues on the ground of their faulty economic model—a model that failed miserably under Obama since 2009 to produce a sustained, real economic recovery in the US—is not necessary. Their model has been broken for some time. Some straight-forward historical facts and recent comparative studies are all that’s need to show that a real financial transaction tax can generate more revenue than is needed to fund a single-payer type program. Here’s how:

A REAL FINANCIAL TRANSACTIONS TAX

Let’s take four major financial securities: stocks, bonds, derivatives, and foreign currency purchases (forex).

$1.75 trillion in revenue from stock, bonds, and derivatives trades, plus another $660 billion in forex trade tax revenue, amounts to $2.41 trillion in total revenue raised from a financial transaction tax of 2.5% on stocks and bonds, 0.25% on derivatives, and 1% on US dollar to other currency conversions.

Paying for Single Payer Health Care

Nearly every advanced economy in the world provides a version of single payer health care to its citizens—except the USA. On the other hand, no country spends as much on health care as the US. The UK spends 9% of GDP, Japan about 10%, France and Germany 11%, for example. The USA, in contrast, pays 17% plus of its GDP on health care. Given that the most recent US GDP is about $18 trillion a year, 17% of $18 trillion equals just over $3 trillion a year.

If the USA spent, like other advanced economies with single payer, about 10% of its GDP a year on health care, it would cost $1.8 trillion instead of $3 trillion a year. The US would save $1.2 trillion.

Where does that current $1.2 trillion go? Not for health services for its citizens. It goes to health insurance companies and other ‘middlemen’, who don’t deliver one iota of health care services. They are the ‘paper pushers’, who skim off $1.2 trillion a year in profits that average returns of 20% a year and more. They are economic parasites, or what economists refer to as ‘rentier capitalists’ who don’t produce anything but suck profits and wages from those who do actually produce something. They then used the $1.2 trillion a year to buy up each other, expand globally, and deliver record dividend and stock buybacks for their shareholders.

In other words, a true financial transactions tax, that is still quite reasonable at tax rates of 0.25% to 2.5% can pay for all of a Single Payer health care program in the US and still have hundreds of billions left over–$641 billion to be exact ($2.41 minus $1.8 trillion).

That $641 billion residual could then be used to better fund current Medicare programs. It could eliminate the current 20% charge for Medicare Part B physicians services and provide totally free Part D prescription drugs for everyone over 65 years. The savings for seniors over 65 years from this, and the tens of thousands of dollars saved every year by working families who now have to pay that amount for private company health insurance, would now be freed up with a single payer system, to be spent on other real goods and services.

A financial transaction tax and single payer program would consequently have the added positive effect of creating the greatest boost in real wages and household income, and therefore consumption, in US economic history. More consumer demand would mean more real investment.

Yes, there would be less spending by the wealth speculating in stocks, bonds, derivatives, forex and other financial securities. But so what? If rich and wealthy investors don’t like that, well then let them eat cake…or some other four letter word.

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I rarely repost commentaries but the following excellent contribution by Ben Leet is worthwhile reading. Ben comments on my prior post on $2 trillion in buybacks, dividends and M&A spending in the wake of the Trump tax cuts. (Now Trump is actually proposing even more tax cuts). Ben notes the CBO data on US budget deficits and debt, and how just a financial transactions tax would resolve the problem. I offer a short reply to some of his points. We both agree another serious economic recession, and perhaps even more severe crisis, is around the corner. Ben projects 2020, as even a majority of mainstream economists now do; I estimate earlier, in 2019. The data citations alone are worth reading. (Thanks Ben).

$2 Trillion in Stock Buybacks, Dividends, & M&A spending for 2018

Ben Leet

May 27, 2018 at 11:36 am | Reply

“The CBO report shows the publicly owned debt to rise from 76% of GDP to 96% by 2028. Here’s the link, see page 4 :https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53651-outlook.pdf — an increase (from 76% to 96% of GDP) of 20% of $23 trillion (the average GDP for 2018 through 2028) is $4.6 trillion of additional debt. So new debt = $4.6 trillion. The page 4 chart shows a cumulative added debt of $12 trillion, but with growth of GDP the percent does not climb that high. They assume a 4.9% of GDP average annual deficit, that would be $1.1tr. average deficit for 10 years. And they assume no recession. ?? At the same time many Republicans are proposing a balanced budget amendment to the Constitution. My solution is to tax financial assets. I found a stat from the Tax Policy Center (Urban Institute) that said $488 billion was collected nationally in state and local property taxes. I calculate that the same tax rate applied to financial assets would generate $1.1 trillion a year. This is about equal to the amount of income taxes paid by about 80% of the lower-earning tax payers. I looked at the tax figures from the Joint Committee on Taxation. So, let the top-earning 24.4% with incomes over $100,000 pay income taxes and tax the wealth of the 1% at the real estate property tax rate, and get the same revenue. Maybe raise that wealth tax rate to 2 or 2.5%, and eliminate the deficit, and the debt, eventually. Wealth (net worth) has doubled since January 2009, from $48 trillion to $98.7 trillion (adjusted for inflation, an increase of 87%). With $50 trillion in new wealth in 9 years, it’s time for a tax on that wealth. The federal budget for 2018 is $4.1 trillion, by comparison. The Social Security Trust Fund is $2.9 trillion. It’s time for a wealth tax. My blog is http://benL8.blogspot.com, Economics Without Greed. Thank you JR.

jackrasmus
May 27, 2018 at 12:32 pm | Reply

“Excellent contribution once again, Ben. Thanks for the data. Re. the CBO estimate of the federal debt increase over the next decade, the data I saw was $9.5 trillion–and that partially accepts some of the phony growth forecasts by Trump and Ryan and, as you note, assumes no recession for another ten years which would make it nearly 20 years without recession, when the average historically between recessions is 8-9 years (which we’re now at). A majority of even mainstream economists predict recession in 2020. I am predicting 2019 and perhaps early 2019.

I’m certain the Federal debt will exceed $10trillion more by 2028 and, if recession, at least $2 trillion more. The Fed will have to raise rates even higher to fund this deficit, and perhaps even higher if the US trade war results in China, Japan, and others buying less Treasury bonds.

I can’t believe the economic stupidity of the economic and political elites in the US now determining policy–fiscal, monetary, trade…etc. The quality of their leadership compared to past US capitalists is astounding!

And you’re right about the revenue obtainable from a financial transactions tax. I’ve written about it with estimations several times in the past, including in 2016 when I challenged Democrats attacking Sanders’ call for a financial transaction tax (which he then mostly shelved talking about publicly). The Democrats leadership–the money bags that took over the party with Clinton (aka the DLC faction)–sabotaged Sanders anyway. The Democrats will never never propose such a tax. They’re too close to moneybag bankers like Goldman Sachs and others.”

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For my detailed explanation of the Trump Tax cuts and who’s getting them, watch my hour long video interview with the Henry George School of Social Science earlier this year. How $4 to $5 trillion goes to US businesses and investors.

To watch go to: http://www.hgsss.org/smart-talk-with-ed-dodson-dr-jack-rasmus/

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For latest estimates of where the Trump Tax cuts for business are going, listen to my Alternative Visions radio show of May 25, 2018. 1st Quarter buybacks running at $178b per quarter; dividends at $113b per quarter; and M&A spending at $840b per year–for total of more than $2 trillion (for US largest 500 corporations only!).

TO listen go to:

http://prn.fm/alternative-visions-2-trillion-stock-buybacks-dividends-ma-2018-supreme-courts-epic-systems-decision-05-25-18/

Or go to:

http://alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Dr. Rasmus provides the latest, 1st quarter 2018, updates on accelerating S&P 500 US corporate stock buybacks, dividend payouts, and spending on corporate mergers and acquisitions. Latest data for 1st quarter 2018 show $178b in buybacks and $113b in dividends and $840b in M&A spending estimates for 2018 for year—i.e. for a combined $2.01 trillion for just the S&P 500 largest corporations for the coming year alone. 2nd quarter estimates of buybacks for all US corporations now running even higher, at $6.1b per day! How the Trump-Congress $5 trillion tax cuts are the impetus for the more than $2 trillion boost in capital incomes for 2018-19. Massive US budget deficits coming as result. The Congressional Budget Office (CBO) estimate this week the Trump budget deficit will be $9.5 trillion, and $2.3 trillion greater than Trump-Ryan claim. (Dr. Rasmus estimate: $12.4 trillion and higher if recession occurs within next decade). Consequences for the US and global economy of the massive deficit-debt are discussed.

The show concludes with explanation of last week’s US Supreme Court’s ‘Epic Systems Corp. vs. Lewis’ decision, denying workers the right to engage in mutual, collective action to defend their working conditions and forcing them to individually arbitrate their disputes with their company. A threshold SCOTUS decision that will overturn the 1935 Wagner Act giving workers the right to unionize for the first time in the US. SCOTUS decision the latest in intense legal attack on workers rights now underway, driven by Koch brothers and other anti-worker, anti-union groups. Rasmus briefly reviews the history of how courts and laws were used to prevent worker-union rights. US now returning to pre-1935 period in US labor history with Epic Systems decision.

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Listen to my most recent radio interview with ‘Loud & Clear’ radio, Washington DC, on the class forces behind the current US-China trade negotiations.(see below after comments)

In previous print articles I argued there were three groups contending for control of US trade negotiations with China: big bankers and multinational corporations in the US primarily concerned with obtaining deeper access and penetration of China markets; the US defense-war faction concerned with China technology transfer involving nextgen technologies (5G, AI, cybersecurity) that have deep military implications; and Trump who is concerned mostly with pandering to his US domestic political base and getting some kind of China-US trade deficit reduction (preferably big increase in China purchase of US goods) that he can then exaggerate and pump up politically to show his domestic political base in the red states that his ‘economic nationalist’ theme (America First) is alive. Trump is looking at trade gains to boost his support in his base, for the upcoming midterm elections and as a potential bulwark against the Mueller decision soon forthcoming.

After the US trade team went to Beijing in early May, it was clear that the US negotiations leadership had defaulted to the US bankers and multinationals, as Steve Mnuchin, US Treasury Secretary (and former CEO of Goldman Sachs investment bank) assumed formal leadership and direction of the US team and US-China trade negotiations. Further substantiating this internal power shift, anti-China hardliner and representative of the US war-defense faction on the team, Peter Navarro, was dropped from the US trade team. Subsequent trade negotiations shifted to discussions between Mnuchin and his CHina counterpart, Liu He, in private formats and one-one communications between Mnuchin-He. The shift meant that getting more access to China markets (the big bankers primary goal), and a little something for Trump to boast about to his base, had now clearly taken precedence over the tech transfer issue of primary concern to the US war establishment.

Since early May, however, the defense-war faction has struck back. The US military and their Congressional allies have upped their anti-China rhetoric and moves. Efforts to scuttle the June 12 meeting with No. Korea were launched, and the US military most recently acted to remove China from the pacific naval joint maneuvers. Their Congressional allies also opposed Trump’s unilateral decision to restore China telecom company, ZTE, business in the US. Having made concessions, lifting blockages on US agricultural imports and merger deals involving US-China companies in China, China responded by retreating as well.

In typical Trump flip-flop, opportunist fashion, the US president then reversed himself on ZTE, and joined in with anti-China rhetoric, blaming China for the likely failure of talks with No. Korea on June 12. As this writer predicted, it was unlikely from the outset that talks with No. Korea would actually occur and, if they did, would have no positive outcome. It’s mostly Trump seeking publicity for his base and opportunistically manipulating the possibility of a peace deal with No. Korea. The US war-defense establishment does not want a resolution of differences with No. Korea; nor does it want a deal with China on trade unless it involves a rollback of China tech transfer and tech development. China will not accede on that, but will increase US banker access to its markets and even increase its purchase of US exports. But for now, the US war faction has blunted both the progress of trade negotiations with China as well as possible negotiations with No. Korea.

The splits within the US trade team and the three factions will continue contending with each other, reducing the likelihood of any trade deal with China. Meanwhile, China continues its trade negotiation efforts with Europe, and in particular Germany, which the Trump administration and Congress are intent on increasingly alienating.

Even in defense of its own interests, US capitalists appear intent on shooting themselves in the foot, as they say. The quality of US capitalist leadership, and even more so of its political representatives, has deteriorated badly in the 21st century. Like Trump, their arrogance over-estimates their power to bully and push around allies and adversaries alike. Trump’s pursuit of his ultra right economic nationalist policies, combined with the aggressiveness of US war-defense faction, will have the long run effect of reducing US hegemony in the global economy and not re-establishing it in a new Neoliberal structure int he 21st century.

TO listen to my brief Loud & Clear radio interview, go to:

https://www.spreaker.com/user/radiosputnik/trade-war-on-hold-but-for-how-long

Watch for my latest, 3rd in a series, print article on US trade policy in transition, “The Trump Deja Vu Trade War?”, to be posted here this weekend. How Trump’s Neoliberal 2.0 trade offensive compares with the Reagan 1985 and Nixon 1971 versions.

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by Dr. Jack Rasmus
copyright 2018

If Trump’s trade policy toward US allies is ‘phony’, by seeking only token adjustments to trade relations, then the US trade offensive targeting China is for real.

While Trump has repeatedly exempted US allies from tariffs (steel and aluminum), pitched ‘softball’ deals (South Korea), and tweeted repeatedly how well negotiations are going with NAFTA, in stark contrast the actions and words of the US toward China and trade negotiations in progress have been ‘hardball’.

Contrary to media hype, the Trump trade offensive targeting China is not a product of just the past few months. It did not arise in early March with an impulsive tweet by Trump or with his attention-getting declaration to impose tariffs on steel and aluminum producers worldwide. The US trade offensive targeting China was set in motion at least a year ago, in spring 2017. It surfaced last August 2017.

The US Plan to Target China

In August 2017 Trump formally gave the US Office of Trade (OUST) the task of identifying how China was transferring US technology, “undermining US companies’ control over their technology in China”, as well as seeking to do so by acquiring US companies in the US. On August 18, 2017, the OUST laid out in writing four charges in a formal investigation it was undertaking, accusing China of actions designed to “obtain cutting edge in IP (intellectual property) and generate technology transfer”. All four charges were intensely technology transfer related.
That August 2017 scope of investigation document and objectives was then reproduced verbatim on March 22, 2018, with expected recommendations, in the 58 page OUST report of March 22, 2018—not Trump tweets or the steel-aluminum tariffs—publicly launched Trump’s trade offensive against China. The main theme of the report was that China was ‘guilty’ of aggressively seeking technology transfer at the expense of US corporations, both in China and the US.

Based on the OUST report of March 22, 2018, Trump announced plans to impose $50 billion in tariffs on 1300 China general imports, ranging from chemicals to jet parts, industrial equipment, machinery, communication satellites, aircraft parts, medical equipment, trucks, and even helicopters, nuclear equipment, rifles, guns and artillery.. Trump may have appeared in March 2018 to have shifted gears in his trade policy—from a general, worldwide steel-aluminum tariffs focus to a focus targeting China trade— but China has been the planned primary target for at least the past year. Trump just set it in motion publicly on March 23, 2018. A confrontation with China over trade had been planned from the outset.

Trajectory of US-China Trade Negotiations

But an announced plan to impose tariffs at some point in the future is not the same as the implementation of those tariffs. Despite Trump’s March announcement, and declaration of $50 billion in tariffs on China goods imports, a delay of at least 60 days must take place before any further definition or actual implementation of the $50 billion by the US might occur—thus giving ample time for unofficial pre-negotiations to occur between the countries’ trade missions. Technically, the US could even wait for another six months before actually implementing any tariffs. To date there has been only talk and threat of tariffs—on China or on US allies. With China, Trump has merely ‘notched an arrow’ from his trade quiver. The bow hasn’t even been drawn, let alone the arrow let fly.

Following Trump’s threat of $50 billion in tariffs, China immediately sent its main trade negotiator, Liu, to Washington and assumed a cautious, almost conciliatory approach. China responded initially with a modest $3 billion in tariffs on US exports. It also made it clear the $3 billion was in response to US steel and aluminum tariffs, and not Trump’s $50 billion. More action could follow, as it forewarned it was considering additional tariffs of 15% to 25% on US products, especially agricultural, in response to Trump’s $50 billion announcement. China was waiting to see the details. At the same time it signaled it was willing to open China brokerages and insurance companies to western-US 51% ownership (and 100% within three years), and that it would buy more semiconductor chips from the US instead of Korea or Taiwan. It was all a token public response. China was keeping its arrows in its quiver.

Following Trump’s mid-March tariff tantrum, behind the scenes China and US trade representatives continued to negotiate. By the end of March all that had still only occurred was Trump’s announcement of $50 billion of tariffs, without further details, and China’s $3 billion token response to prior US steel-aluminum tariffs. From there, however, events began to deteriorate.
On April 3, 2018, Trump defined the $50 billion of tariffs—25% on a wide range of 1300 of China’s consumer and industrial imports to the US. The arrow was being drawn. The list of tariffed items was the verbatim USTR Report’s ‘list’. Influential business groups in the US, like the Business Roundtable, US Chamber of Commerce, and National Association of Manufacturers immediately criticized the move, calling for the US instead to work with its allies to pressure China to reform—not to use tariffs as the trade reform weapon.

China now responded more aggressively as well, promising an equal tariff response, declaring it was not afraid of a trade war with the US. That was a welcoming invitation for a Trump tweet which followed, as Trump declared he believed the US could not “lose a trade war” with China and maybe it wasn’t such a bad thing to have one. Trump tweeted further that maybe another $100 billion in US tariffs might get China’s attention.

China now notched its own arrow, noting it would raise 15%-25% tariffs on the US and responded to Trump’s $50 billion, identifying their own $50 billion tariffs on 128 US exports targeting US agricultural products and especially US soybeans, but also cars, oil and chemicals, aircraft and industrial productions—the production of which is also heavily concentrated in the Midwest US and thus Trump’s domestic political base.

This particular targeting clearly aggravated Trump, disrupting his plans to mobilize that base for domestic political purposes before the November elections. He angrily tweeted perhaps another $100 billion in China tariffs were called for. In response, China declared it was prepared to announce another $100 billion in tariffs as well, if Trump followed through with his threat of imposing $100 billion more tariffs.

Trump advisors, Larry Kudlow and Mnuchin, tried to clean up Trump’s remarks. Kudlow assured the stock markets, which plummeted with the developments, saying “These are just first proposals…I doubt that there will be any concrete actions for several months”.

In reply to Trump’s threat of another $100 billion, China Commerce Ministry spokesman, Gao Feng, declared it would not hesitate to put in place ‘detailed countermeasures’ that didn’t ‘exclude any options’. And China Foreign Ministry spokesman, Geng Shuang, added in an official news briefing, “The United States with one hand wields the threat of sanctions, and at the same time says they are willing to talk. I’m not sure who the United States is putting on this act for”…Under the current circumstances, both sides even more cannot have talks on these issues”.
But all this was still a war of words, not yet a bona fide trade war. To use the metaphor once more: arrows were taken from quivers and bows about to be drawn, but no one was yet prepared to let anything fly.

Through the remainder of April negotiations by second tier trade representatives continued in the background. Meanwhile US capitalists in the Business Roundtable and other prime US corporate organizations added their input to the public commentary process on the Trump tariffs that will continue formally until May 22 at least. Most warned a trade war with China would be economically devastating for their business.

In the first week of May, the Trump trade team of Treasury Secretary Steve Mnuchin, US trade representative, Robert Lighthizer, Trump trade advisor, Peter Navarro and White House director of Trump’s economic council, Larry Kudlow, headed off to Beijing for negotiations. The composition of the US trade team is notable. It reveals deep splits within the US elite, some reflecting Trump interests and others reflecting more traditional elite interests in finance and the Pentagon-War industries. While interests clearly overlapped, the splits reflect differing priorities in the China trade negotiations.

Treasury Secretary, Steve Mnuchin—the US financial sector and US multinational companies doing business in China; China ‘hardliners’, Robert Lighthizer, the current US trade representative, and Peter Navarro, Trump trade advisor—the interests of the Pentagon and US defense sector; and Larry Kudlow, head of Trump’s Economic Council—likely most concerned with the domestic political impact of the negotiations for Trump.

One of the first reports when the two trade teams first met in Beijing last week was from Mnuchin, who reported the negotiations were going extremely well. Mnuchin of course knew that before he left for Beijing. China had already indicated it was going to approve 51% US corporate ownership of China companies in March; and it further signaled it would approve 100% ownership within three more years. US bankers have always wanted a deeper penetration of China and now they’ll have it. They didn’t even have to give up anything to get it. That doesn’t sound like a ‘trade war’, at least not yet. China was cleverly driving a wedge between the bankers-multinational corporations wanting more access to its markets and the Pentagon-War industries faction of the US trade team that want a stop to technology transfer.

But if one were to believe the US press, the US negotiating team came back from Beijing this past weekend empty-handed and a trade war was imminent. If that were true, there would be no reason for China’s chief negotiator, Liu, coming to Washington for further talks later this week, which was quietly announced after the US trade team returned. US-China trade negotiations are thus continuing, notwithstanding Trump tweets and schizophrenic bombast: One day after the US team’s return demanding China reduce its $337 billion deficit by $200 billion by 2020; another day calling China president, Xi Jinping, his ‘good friend’.

US-China trade negotiations will almost certainly take months to conclude, if ever, certainly extending well beyond the November 2018 US midterm elections. This delay will put pressure on Trump to quickly come to some kind of token agreements with NAFTA and other trade partner negotiations also underway. A NAFTA deal is likely within weeks. And it will look more like the South Korea ‘softball’ trade deal negotiated by Trump a few months ago than not.

Early agreements before the end of this summer are necessary for Trump to tout his ‘economic nationalism’ strategy and declare it is succeeding before the November elections. One can also expect more ‘off the wall’ tweets by Trump designed to ‘sound tough’ on China trade and negotiations in progress for the same domestic US political purposes. But they will be more Trump hyperbole and bombast, designed for his domestic political base while his negotiators try to work out the China-US trade changes. It’s unlikely Trump wants a China trade deal before the US November elections. There’s more political traction for him to publicly bash China on trade up to the elections.

What the US Wants from China Trade?

What Trump wants from US allies trade partners are token adjustments to current trade relations that he can then exaggerate and misrepresent to his domestic political base as evidence that his ‘economic nationalism’ theme raised during the 2016 US elections is still being pursued. The US traditional elite will allow him to do that, but won’t permit a major disruption of US-partner trade relations in general. That’s why NAFTA, and later trade negotiations with Europe, will look more like South Korea’s ‘softball’ deal when concluded.

China, on the other hand, is another question. The issues are more strategic. US elites—both the traditional and the Trump wing—want more from China than they want from other US trade partners. With China, it’s not just a question of ‘token’ changes that Trump might then hype and exaggerate for domestic political purposes.

Currently, the US is pursuing a ‘dual track’ trade offensive: seeking token concessions from allies that won’t upset the basic character of past trade relations but will allow Trump to exaggerate and misrepresent the changes for his domestic political purposes, proving to his base that he’s continuing to pursue his promised ‘economic nationalism’. The key to the first track is ‘token’ adjustments to trade. But, in the second track, what the US elite want from China is a fundamental change in US-China trade relations and those changes aren’t limited to token reductions in the US deficit in goods trade with China.

US-Trump trade objectives in its negotiations with China are threefold: first, to gain access for US multinational companies into China markets, especially for US banks and shadow banks (investment banks, hedge funds, equity firms, etc.), but also for US auto companies, energy companies, and tech companies. Expanding US foreign direct investment into other economies is always a main objective of US trade negotiations everywhere. Despite all the talk about goods trade deficits, for the US trade deals are always more about ensuring US ‘money capital flows’ from the US into other economies, than they are about ‘goods flows’ coming from other countries to the US. Access to markets means first and foremost access for US finance capital.
The US second objective is to obtain some visible concessions from China that reduce that country’s goods exports to the US, without China in turn reducing US agricultural and energy related exports to China.

But the main and most strategic objective of the US is to thwart China’s current rate of technology transfer from US companies in China and from China companies acquiring US companies in the US.

The key technology transfer categories are Artificial Intelligence software and hardware, next generation 5G wireless, and nextgen cyber-security software. The US obfuscates the categories by calling it ‘intellectual property’. But it is the latest technology in these three areas that will spawn not only new industries, and whoever (US or China) is ‘first to market’ will dominate the industries and products for decades to come, but the technologies further represent the key to future military dominance as well as economic.

The US is concerned that China may leapfrog into comparable military capability. Already virtually all the new patents being filed in these tech areas are by China and the US. The rest of the world is left far behind. China’s 2017 long term strategy document, ‘China 2025’, clearly lays out its planning for achieving dominance in these technologies over the coming decade. It has succeeded in getting the attention of the US elite, both economic and military.

The US defense sector—i.e. Lighthizer and Navarro—want to stop, or at least dramatically slow, China’s acquisitions of technology related US companies. While tariffs are on paper only so far, the US has been clearly targeting China companies hunting for US acquisitions. Stopping deals with ZTE and Qualcomm corporate acquisitions recently are but the first of more such US actions to come. The US financial-multinational corporation sector want more access to China markets and thus more authority to acquire China companies, whereas the US War Industries-Defense sector wants more limits on China company acquisitions of US corporations.

Trump may want both of these, but even more so he wants some kind of ‘win’ trade deal he can boast to his base about. China will offer a deal conceding on the last two objectives, while holding out on the tech transfer issue.

The contradiction the US faces in negotiations is thus internal. It is that the representatives of the US elite cannot agree on what are the priority changes they want from China. There are at least three US diverging elite interests on the US side, reflecting at least three major objectives sought by the US. That allows China to ‘play off’ one sector of the US elite against the other, giving it a long term advantage in negotiations with the US on trade.

Should the US elite settle for short term concessions from China—allowing for more US financial firms access to China, more US company ownership of Chinese companies, and/or moderate short term gains in China goods exports—but fail to slow China’s technology strategy, then it will represent another ‘defeat’ for the US in relation to China’s growing challenge to US global economic-military dominance. It will represent another success for China, similar in strategic importance to its recent ‘One Belt-One Road’ initiative, its launching of the Asian Infrastructure Investment Bank, the adoption of its currency by the IMF for world exchange, and its current development of an Asian common market filling the gap by the US failure to establish its free trade Transpacific Partnership treaty. Technology parity by China with the US may in fact have a greater impact on US dominance than all the above in the long run.

But there’s more to US-China trade than deficits, market access and even technology transfer. There are Trump’s domestic political objectives behind the China-US trade dispute as well. Trump’s political priority has two dimensions: one is to maximize the turnout of the Republican base in the upcoming midterm November 2018 elections. Trump cannot afford to lose either the House or the Senate, or his agenda on immigration, walls, and deportations is finished. Trump also needs to agitate and mobilize his domestic base as a counterweight to traditional US elite resistance when he fires Mueller, the special counsel investigating his pre- and post-election relationships with Russian business Oligarchs.

Thus multiple objectives are contending among and between the different factions behind the US-China trade negotiations: technology transfer for the military hardliners, market access for the bankers and multinational corporations, and Trump getting relatively quick concessions he can sell to his ‘America First’ economic nationalist domestic political base before November. Which is the priority and which secondary. Market access has already been conceded by China, so the alternatives are a trade war over technology transfer or some token adjustments to goods imports to the US that Trump can ‘sell’ to his base. If the latter, China-US trade negotiations outcomes will look more like South Korea and NAFTA. If the US insists on technology transfer, then arrows will be drawn and let fly.

Only then will it become clear that the current US-China trade negotiations are the opening phase in a real trade war, or just another case example of Trump hyperbole for purposes of pandering to his domestic political base.

Jack Rasmus is author of the book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus.

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Evidence is now emerging where the lion’s share of Trump tax cuts are going. Just as Bush and Obama business tax cuts throughout the post-2008 period, they’re flowing again into: US stock buybacks and EU-Japan stock markets–as well as now into corporate mergers & acquisitions.

Also discussed on the Alternative Visions show posted here: how foreign buyers of US Treasury debt is falling from 55% of total Treasury debt issued in 2008 to only 16% in the last few months as the Fed ramps up its bond issues in order to finance the annual $trillion deficits now coming due to Trump tax cuts and defense spending hikes. That means the Fed will have to raise interest rates even more than projected in coming months in order to finance the US projected $1.2 trillion budget deficit next year. As I have argued, that will precipitate a recession in 2019 and a major stock market contraction, when the key benchmark federal funds rate exceeds 2.5% from its current 1.75%.

To Listen GO TO:

http://prn.fm/alternative-visions-key-economic-reports-evidence-trumps-5t-tax-cuts-going-05-04-18/

Or GO TO:

http://alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Jack Rasmus comments on today’s Jobs Report, explaining why little wage growth is occurring, and on the Federal Reserve Bank’s plans for interest rate hikes in 2018-19. The Fed is raising rates not because of a 2% inflation target, but to finance $1 trillion annual budget deficits for the next decade and a total Federal debt of more than $33 trillion by 2027 due largely to Trump’s $5t tax cuts. Early evidence of where the tax windfall for business and investors is going is discussed: stock buybacks-dividend payouts now exceeding last year’s $1 total by as much as 50% for 2018. Apple’s record $100 billion buyback plan. Also, tax windfall funneling into Mergers & Acquisitions activity, now running at $1.7 trillion and double the pace of 2016-17. Third, US investors’ tax windfall being diverted to Japan and Europe stock markets, projected at $1.2 trillion now compared to $350 billion a year earlier. Another report discussed is Deutsche Bank’s warning that US government debt levels have doubled the probability of a US debt crisis. And a final report that foreign investors are slowing new purchases of their US Treasury $6.3 trillion debt significantly: Foreign held US debt has fallen from 55% in 2008 to 43% in 2017, and foreign buyers of current accelerating Fed auctions of Treasuries now constitute only 16% to the total.

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What’s the connection between China’s military presence in Djibouti, South China Sea, and US-China Trade disputes? Listen to my commentary on Loud and Clear radio on May 4.

Go to: https://www.spreaker.com/user/radiosputnik/geopolitics-and-trade-collide-in-u-s-chi

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Dr. Jack Rasmus
Copyright 2018

What’s going on with Trump’s trade offensive? There’s a dual track policy underway: One a phony trade war with US allies; the other a potential (but not yet) trade war with China, that may also in the end prove less than a bonafide ‘trade war’ as well.

Trump’s trade team heads off to Beijing this week to attempt to negotiate terms of a new US-China trade deal. The US decision whether to continue the exemptions on Steel and Aluminum tariffs with the European Union occurs comes due this week as well. And this past week Trump also declared “we’re doing very nicely with NAFTA”.

So what’s all the talk about a Trump ‘trade war’? Is it media hype? Typical Trump hyperbole? Is there really a trade war in the making? Indeed, was there ever? And how much of it is really about reducing the US global trade deficit—and how much about the resurrection of Trump’s ‘economic nationalism’ theme for the consumption of his domestic political base in an election year?

One thing for certain, what’s underway is not a ‘trade war’.

Trump announced his 25% steel and 10% aluminum tariffs in early March, getting the attention of the US press with his typical Trump bombast, off-the-wall tweets and extremist statements. The steel-aluminum tariffs were originally to apply worldwide. But the exemptions began almost immediately. In fact, all US major trading partners were quickly suspended from the tariffs—except for China.

By mid-March, Canada and Mexico were let off the tariff hook, even though they were among the top four largest steel importers to the US, with Canada largest and Mexico fourth largest. Thereafter, Brazil (second largest steel importer), Germany, and others steel importers were exempted as well. And Canada, by far the largest aluminum importer to the US, accounting for 43% of US aluminum imports, was exempted for imports of that product.

South Korea ‘Softball’ Trade Template

The Trump administration’s signal to its allies was the US-South Korea deal that soon followed. The South Koreans were pitched a ‘softball’ trade deal. South Korea, the third largest US steel importer last year, was exempted from steel tariffs, now permanently as part of the final deal. So much for steel tariffs. Moreover, no other significant tariffs were imposed on South Korea as part of the bilateral treaty revisions. No wonder the South Koreans were described as ‘ecstatic’ about the deal.

What the US got in the quickly renegotiated US-South Korea free trade deal was more access for US auto makers into Korea’s auto markets. And quotas on Korean truck imports into the US. Korean auto companies, Kia and Hyundai, had already made significant inroads to the US auto market. US auto makers have become dependent on US truck sales to stay afloat; they didn’t want Korean to challenge them in the truck market as well. Except for these auto agreements, there were no major tariffs or other obstructions to South Korea imports to the US. Not surprising, the South Koreans were ecstatic they got off so easily in the negotiations. Clearly, the US-South Korea deal had nothing to do with Steel or Aluminum. If anything, it was a token adjustment of US-Korea auto trade and little more.

So the Korean deal was a ‘big nothing’ trade renegotiation. And so far as US trade deficits are concerned, steel-aluminum imports are insignificant. Steel-aluminum tariffs do nothing for the US global trade deficit. US steel and aluminum imports combined make up only $47 billion—a fraction of total US imports of $2.36 trillion in 2017.

The steel-aluminum tariffs were more of a Trump publicity tactic, to get the attention of the media and US trade allies. And if the tariffs were the signal, then the South Korea deal is now the template. It’s not about steel or aluminum tariffs. But you wouldn’t know that if you listened to Trump’s speech in Pennsylvania. Canada and Mexico import more steel to the US than South Korea. But in a final NAFTA revision they too will be virtually exempted from steel-aluminum tariffs when those negotiations are completed.

NAFTA as South Korea Redux

According to reports of the NAFTA negotiations, most details have already been negotiated with Mexico and Canada and the parties are close to a final deal. Typical of the ‘softball’ US approach with NAFTA—like South Korea—is the US recent dropping of its key demand that half the value of US autos and parts imported to the US be made in the US. That’s now gone. So a deal on NAFTA is imminent. Certainly before the Mexican elections this summer. But it will have little besides token adjustments to steel or autos. Trump threats to withdraw from NAFTA were never real. They were always merely to tell his base what they wanted to hear.

For what Trump wants from NAFTA is not a significant reduction of steel, auto, or any other imports to the US. What the US wants is more access for US corporations’ investment into Mexico and Canada; more protection for patents of US pharmaceutical companies to gouge consumers in those countries like they do in the US; and a shift in power to the trade dispute tribunals favoring the US. He’ll sell the exaggerated token adjustments to his political base, which will applaud his latest, inflated ‘fake news’—while the big corporations and financial elites in the US will silently nod their heads in agreement for the incremental gains he’s obtained for them.

In the most recent development concerning NAFTA negotiations, Trump has extended the deadline for a final revision for another thirty days—a development which means the parties are very close to a final resolution. The revisions will most likely look like the South Korean deal in many details—with quotas (not tariffs) on auto parts trade and more US access for US business investment and token limits on imports to the US.

Launching US-Europe Trade Negotiations: Macron’s Visit/Merkel’s Snub

After NAFTA comes Europe, later this year and in 2019. Like the NAFTA negotiations, Europe deadlines on steel and aluminum tariffs were just extended another thirty days. That’s just the beginning of likely further extensions. Europe will be less amenable to steel, aluminum or any other tariffs than the US NAFTA or South Korean partners. French president Macron’s visit last week to the US should be viewed as the opening of negotiations on trade between the US and Europe. But the European economy is again weakening and France, Germany, the UK and others are desperate to maintain export levels, which is the main means by which they keep their economies going.

Europe also wants to keep the Iran Deal in place, which means important exports and trade for it, while Trump wants to end the deal as he’s promised his domestic political base. A tentative agreement may have been reached between Trump and Macron during the latter’s recent visit to the US: Trump will formally pull the US out of the Iran Deal by May 12 but then will do nothing real apart from the announcement—much like the US withdrawal from the Climate Treaty. Europe will continue its trade deals with Iran. The US and Europe will then jointly try to negotiate an addendum with Iran. In short, France and Europe get to keep their business deals and Trump gets to pander to his political base before the elections in November. Like the Europe steel-aluminum tariff exemptions due this week, that announcement will soon follow as well within a week.

While Macron was treated like royalty by Trump during his visit to the US, German Chancellor Merkel, who followed within days, was treated more like a minor partner and snubbed. The snubbing wasn’t about trade, however. It was more about Germany’s refusal to participate in the Syrian bombings, as well as US dislike for the growing resistance in Germany to go along with extreme economic sanctions on Russia. Long run, what the US has always wanted from Germany is to substitute US natural gas imports (which the US now has a surplus due to fracking technology) for Russian gas and for Germany to stop building gas pipelines with Russia. Trump will likely focus on political concessions from Europe while seeking only token changes to imports from Europe to the US. In other words, the content of a US-Europe trade deal may differ from NAFTA of South Korea but the ‘form’ will remain dominated by token adjustments, with little net import reduction to the US.

The UK economy is slowing rapidly, German industrial production has slowed in the last three of four months. And signs are accumulating that globally trade, upon which Europe is especially dependent, is slowing once again. The UK in particular is an economic basket case. Brexit negotiations are in shambles. And the Conservative Party’s days are numbered. Trump therefore will not demand extreme concessions from the UK. Nor will he from the rest of Europe, also now slowing economically—though not as severe as the UK—and important to Trump-US interests in concluding any trade deal with China, providing cover for US policy in the middle East, and with regard to Russian sanctions and US support for a collapsed Ukraine. Politics will dictate token trade adjustments with Europe.

Trump’s Political Objectives

Except for the case of China, therefore, the Trump trade war is mostly tough talking trade for show. Trump wants some token concessions from its US allies trading partners. Token concessions he can then ‘sell’ to his political base in an election year. He’s playing to his ‘America First’ economic nationalist political base, agitating it for electoral purposes next November. He is in election mode, giving campaign speeches throughout the US as if this were September 2016 again. He may also be mobilizing that base in anticipation of the eventual firing of Mueller he plans and the political firestorm that may provoke from the traditional elites in the US. He’s given them massive tax cuts and now some gains from trade negotiations without upsetting the global capitalist trade structure he once promised to do.

Trump is betting that delivering on taxes and trade to the elite will keep enough of them at bay. While delivering on immigration, the wall, and hyped (but phony) trade deals with US allies will convince his ‘America First’ political base he’s delivering for them as well. The so-called trade war is phony because it is designed to produce token adjustments to US trade relations with allies, which Trump will then inflate, exaggerate and lie about to his domestic political base, as they fall for his economic nationalism theme once again.

Is China the Trade Target?

But where does that leave US-China trade? Certainly many believe that is headed for a ‘trade war’. Tit-for-tat $50 billion tariffs have been levied by both the US and China on each other. Trump has threatened another $100 billion and China has said it will similarly follow suit. Even the products to be tariffed have been identified—the US targeted a wide range of imports from China and China in turn targeting US agricultural products and other industrial goods from the US Midwest, and thus Trump’s political base.

Trump’s trade team is by now in Beijing. It represents the major interest groups of Trump’s administration: Treasury Secretary Mnuchin—the bankers and big US multinational corporations. Trade representative hardliners, Robert Lighthizer and Peter Navarro—the Pentagon and US war production industries. And Larry Kudlow the Trump administration’s economic nationalists. Will the Trump phony trade war apply to China as well? Or will it be an actual economic war? Is it really about reducing the US $375 billion annual trade deficit with China? Or about US bankers wanting more access and ownership of operations in China? Or is it about China’s attempt to technologically leapfrog the US in the next generation war-making and cyber security software capability?

The second part of this three part series will address the China-US element of Trump trade policy and strategy.

Jack Rasmus is author of the recently published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.
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As Trump’s trade team (Lighthizer, Navarro, Mnuchin. Kudlow) prepare to head off to China to ‘negotiate’ trade, what will be the main objectives? Will it be reducing the trade deficit, gaining more access of US multinational corporations and US banks to China’s market, or reducing US technology transfer to China? And what is the role of Trump’s domestic political objectives in the mix? Listen to my 28 minute discussion and ‘debate’ on Loud and Clear Radio on the topic, and my view that technology transfer (US defense establishment) and domestic politics (Trump’s red state base) are the primary objectives, while trade deficit and market access are secondary. China will offer access to its markets and provide token adjustments to its tariff policy to allow more US agricultural goods access–but will not be so ‘easy’ on the matter of technology (AI, cybersecurity, 5G) transfer. Who will prevail on the US team–the defense establishment (Navarro, Lighthizer)–as the Trump team goes to China next week? Or will US big capitalists (Mnuchin) who want more access to China? Or Kudlow (some trade deficit reduction and reduced China imports tot he US) that will allow Trump to boast to his political base some exaggerated achievement?

To listen go to: https://www.spreaker.com/user/radiosputnik/trumps-trade-war-with-china-debate-rages_2

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