Greenspan Says Trump's Tariffs are "Insane" and He's Right

Mike Mish Shedlock

Throughout his career, Greenspan has mostly been a contrarian indicator. But he has been consistently right about trade.

Alan Greenspan says Trump's Tariff Policies are ‘Insane’ and I agree.

> Former Federal Reserve Chairman Alan Greenspan called President Donald Trump’s tariff policies “insane” and said “why we’re doing it probably is very deep in the psyche of somebody.”

> Responding to a question about China at an event in New York on Wednesday, he said both sides lose out in such a clash.

> “It’s an excise tax, and people think of tariffs other than what it is, it’s a tax and everybody engaged in warfare of this type, it would mean that you’re withdrawing credit or purchasing power from a whole series of countries,” Greenspan said at New York University. “There are victors and there are losers in a tariff fight, but that doesn’t say that a more important issue is both are losing, it’s just the winner loses less.”

Greenspan also said the notion that China would outrace the U.S. in all economic respects “is a mistake,” pointing to their lower gross domestic product per capital.

Greenspan is correct on that as well.

Greenspan BS Detector

It's usually easy to detect when Greenspan is right or wrong about something.

Generally, if the public agrees with what Greenspan says, he's wrong, and vice versa.

Art of the Deal

In this case, Trump's die hard supporters believe the crazy notion that Trump really understands the "Art of the Deal".

Trump did not even wrote the book.

Please note the ‘Art of the Deal’ Ghostwriter Says Trump is ‘Deeply Disturbed’ and ‘Utterly Untrustworthly’

Arguably, that is carrying things too far, but Trump is no brilliant deal maker or businessman.

Enter the Democrats

The Democrats generally want to support the unions, and that's always the wrong thing to do.

The Wall Street Journal provides an interesting case in point: Democrats’ House Victory Complicates Passage of New Nafta, Trade Deals

> Most Democrats, backed by unions, have voiced skepticism about liberalizing trade unless the deals allow workers in the other countries to take advantage of higher labor standards and wages. Passage “will depend on whether unions will want to push it,” a senior White House official said.

NAFTA liberalized virtually nothing. Rather, it is essentially the same deal we had before.

So here we are. Trump is bragging about a deal that changed nothing and Democrats want even more Tariff stupidity.

Democrats and Republicans Skeptical

With Democrats and Republicans skeptical of free trade but Greenspan an advocate, we have a clear winner.

Not only does this setup fit my Greenspan rule, it fits a more obvious rule:

When Democrats and Republicans both want the same thing, it's nearly always worth taking the opposite side.

EU Silliness

Note that the EU and UK just finalized a 585 page document on a "customs union".

Yes, it's asinine.

Good Free Trade Agreement

A good free trade agreement can be written on a napkin with a crayon.

"Effective today, all tariffs and subsidies on all goods and services are eliminated"

That holds true no matter what any other nation does. The first nation to do so will have a monstrous advantage in jobs and wealth creation.

Greenspan was generally wrong!

Related Articles

  1. Reflections and Reader Comments on Free Trade: “China Doesn’t Play Fair!”
  2. Dear NAFTA Bashers: You Need New Charts
  3. Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

Mike "Mish" Shedlock

Comments (77)
No. 1-26
Kinuachdrach
Kinuachdrach

I guess this means Greenspan is opposed to Brexit (separation of the UK from the EU), since that will inevitably mean imposing tariffs on trade between the UK and continental Europe that is currently tariff-free?

shamrock
shamrock

At least my pork and beans are getting cheaper.

killben
killben

"but Trump is no brilliant deal maker or businessman."

The problem is everyone else but him knows this and he happens to be the President.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

I am going to be blunt - K, if you think the EU is tariff-free, you are full of shit. Knock off the stupidity

hmk
hmk

Yes please let the Chinese win. The trade screw job and IP theft has been going on way to long. The greedy capitalists here will sell our future to these ruthless bastards. No worries about what comes later i.e. their rise to become the worlds dominant military power. Well at least we got cheap stuff for a while. Better to take the medicine of higher prices now with the hopes that they will come to their senses and engage in more equitable trade. If not and then you morons will be the subjects of a regime that has murdered 50 million of their own citizens. I don't know how much simpler this could be. You people have TDS and just because he is trying to address this issue, which is way overdue, he is an idiot right?? I would argue its the other way around.

Ted R
Ted R

It would help lots if the President would explain in more detail exactly what he hopes to gain with his tariffs. I'm still a little in the dark about what Trump expects China to give him in terms of better trade deals.

Realist
Realist

Trumps tariffs are all part of his “politics of hate”. He identifies other countries as “enemies” who are supposedly taking advantage of America and hurting Americans. He then appeals to his supporters by supposedly “punishing” these other countries with tariffs.

He described NAFTA as “the worst deal in history”. He labeled Canada and Mexico as enemies who take advantage of America. He threatened them with all sorts of tariffs in order to negotiate a better deal. After negotiations were done, nothing really changed except the title, USMCA.. Now it’s a wonderful trade deal. What a bunch of crap. Yet it doesn’t matter as long as his supporters “believe” he is making great deals.

The reality is that Trump’s tariffs are really a tax on American companies and consumers. They are making American businesses “less” competitive by raising their input costs. They are a self inflicted wound. But that isn’t important as long as Trump’s supporters believe that a tariff war is a good idea because they will punish their enemies.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

"Yes please let the Chinese win"

Excellent point hmk. Let them "win" by giving us free solar panels, cheap steel for our manufacturers to build products with, etc etc etc.

Standards of living rise when goods are cheaper. I am all in favor of the Chinese producing goods at a loss for the benefit of US consumers and manufacturers.

I am 100% in favor of letting them "win". Yes, let them "win".

Mike Mish Shedlock
Mike Mish Shedlock

Editor

Thanks to the Realist for sensible comments.

Tony_CA
Tony_CA

Quoting Greenspan is ridiculous.

Schaap60
Schaap60

Not one nation has stepped forward to take the "monstrous advantage in jobs and wealth creation" unilateral free trade will provide. Funny, I wonder why?

Generally, the extreme of one bad idea (high tariffs) is an equally bad idea (unilateral free trade). I think the answer lies somewhere in the middle. The free solar panels and cheap steel will not keep coming. Once a country's capacity to produce these goods or find alternate supply sources is diminished or gone, prices will go up. That's how monopolies and cartels work to undercut competition and consolidate pricing power. That is one price of unilateral "free" trade. It is why domestic monopolies are generally broken up or heavily regulated. Also, countries may want to retain some form of domestic production capacity in case of supply disruptions, or even sanctions by a needed supplier. I'm sure there are other reasons, some of which may even be reasonable.

Perhaps Trump's tariffs are absurd as applied, but the failure of even one nation to enact unilateral free trade tells me the net benefits, if any at all, are certainly not monstrous.

Sechel
Sechel

There are some American producers who will be delighted over any tariffs and quotas Trump slaps on foreign suppliers. It simply means they can raise their prices and enjoy higher profits with less competition. Of course this is nothing more than a tax on consumers. The notion that American companies will simply produce more is not borne out by the economics of tariffs and quotas.

karljen
karljen

Greenspan says it's insane? Lol. Now we know for certain Trump is doing the right thing.

shamrock
shamrock

Meanwhile, tariffs aren't even working to lower the trade deficit, it's going to be a record high this year. I'm guessing half the problem is that this guy is such an ass clown that many people refuse to buy American anymore, including Americans.

Realist
Realist

Thanks for the compliment Mish. I certainly agree with you that Tariffs are stupid because ALL sides lose. What I find shocking is how many on this site cannot see this simple truth. They have bought into the false claim that Tariffs will MAGA because their “enemies” will suffer even more than Americans will.

Blacklisted
Blacklisted

“When Democrats and Republicans both want the same thing, it's nearly always worth taking the opposite side.”

There are two problems with this statement – (1) it’s not “nearly always”, it’s ALWAYS; and (2) Trump is NOT a Republican. He’s an Independent who had to run as an R. It is obvious that the establishment R’s have been trying to undermine Trump as much as the establishment Dems, which, unlike the R’s, is all of them.

No matter what you call Trump, or how little credit you want to give him, the fact is he is the only presidential candidate that stood up to the establishment hacks who are responsible for the mess we are in, and based on the way the establishment (which includes the press and talking heads) goes after any anti-establishment person, it’s unlikely anyone will have the balls to run for President anytime soon.

Greenspan deserves ZERO credibility.

RonJ
RonJ

Greenspan, the master of monetary insanity says Trump's tariff policy is insane.

Greenspan took the lending standard to ZERO to facilitate a record housing bubble, to replace his crashed NASDAQ bubble. The country is still suffering from his monetary and non regulatory insanity.

“There are victors and there are losers in a tariff fight, but that doesn’t say that a more important issue is both are losing, it’s just the winner loses less.”

Some 60,000 U.S. factories have closed, causing the loss of countless good paying American jobs and hollowing out communities across the country.

There is a lose lose in that as well, as people can't afford much of the cheaper goods from China, when they no longer have the income to pay for them. The Chinese in turn then lose some of the jobs they have gained.

Carl_R
Carl_R

Greenspan is entirely correct here. I'm still waiting for the other shoe to drop. The tariffs on steel, aluminum, and chips are particularly insane, and will crush American manufacturers. The tariffs will also lead to decreases in the standard of living, as well. They always do.

astroboy
astroboy

I work in the "defense" industry and if for no other reason that national security tariffs make alot of sense. The US doesn't create the steel types anymore for serious building, for example. I'd like to use Macs at work, can't do it since they're all made in China. This is a serious handicap for the work I do: I'm stuck with POS Dells that run Linux (the Linux part is OK, but OS X would be alot better many times).

Aside from this, in a perfect world not having tariffs would be fine but this is not a perfect world. Example: I haven't even tried to patent my intellectual property in China, my lawyers say with 100% certainty it would just be stolen.

The trade deficit is funding China's military build up, this is a strategic disaster. We bought the South China Sea for China. Need I say more? I won't even address the issue of jobs having gone to China, the defense issues are more than sufficient.

(True, the US interferes in far too many regions and situations than we should. But, the far Pacific is an area of top strategic importance, period, and unless things change dramatically we're going to lose that war very shortly. Don't kid yourselves, we're at war, there just aren't too many casualties yet. The US and the West can lose their security and standard of living without a shot being fired).

In a real world how to fix the trade deficit? Gold and eliminating fractional reserve lending? Perhaps that's the ideal solution but this is not an ideal world.

Tariffs are the only plausible solution I know of. That's the bottom line, even if you limit yourself to looking at geopolitical considerations alone.

DeeMiddy
DeeMiddy

What no one is touching upon and where Trump is correct (whether he realizes this or not) is that we are at war. China has been at war with the US for 30yrs and we have not fought back. I am a strong libertarian and I believe in free people and free markets. In a normal world where rationale actors are making decisions in their ECONOMIC self interest free trade provides the best outcome for all parties.

However, China does not care about making money, they care about controlling key industries and sources of production. If steel costs $200 a ton to produce they will sell it for $150 or even $50 and lose money hand over fist. They are doing this in solar and many other industries they deem strategic, while creating JVs with tech companies to steal all of their IP to use against us. Losing money does not matter to them. What matters is keeping the masses employed and fulfilling their mercantilist agenda. In the short run (10-20yrs) it is great to get input costs down and profit margins up for US companies. On a sustained basis (50-100yrs) the US is weakening its defenses and self-reliance. China is playing the long game and the US is worried about next quarters P/L.

Because of this uneconomic behavior China has created a credit bubble and has massive structural issues. They only way to expose this and stop them is to ratchet up the heat NOW and make their model implode on itself. The longer the time horizon for them the more we are playing on their turf, to shorten the time frame, this is our home field advantage.

The implications of this are large. The US and the world will go through large amounts of pain to win this war. But hey, war is never pretty or clean. Are tariffs the correct solution? I have no idea, but you cannot look at this SOLELY through an economic lens otherwise you are missing the big picture.

sunny129
sunny129

Only GLOBALISTS, wall St, US multi-Nationals and the top1% complaining about TARIFFS! Why? Their mobile capital can go anywhere in world and exploit the global labor arbtrage as they have done since 2000! They see ONLY bottomline!

They don't care for the Wage workers of America or in fact of ANY COUNTRY!

sunny129
sunny129

He is part of 1% and Wall St!

stillCJ
stillCJ

Editor

Congratulations Mish, you got this article posted on ZH. However, the comments there were not exactly "appreciative".

Mike Mish Shedlock
Mike Mish Shedlock

Editor

"If steel costs $200 a ton to produce they will sell it for $150 or even $50 and lose money hand over fist."

Hooray! That is good for US consumers and US businesses that use steel. This should be easy to see.

China is subsidizing the US!

Mike Mish Shedlock
Mike Mish Shedlock

Editor

"Not one nation has stepped forward to take the "monstrous advantage in jobs and wealth creation" unilateral free trade will provide. Funny, I wonder why?"

That's easy: It's "good politics" but extremely bad business to give into unions and companies that want subsidies.

"good politics" = vote buying Trump aligned himself with union protectionist Democrats It got him elected

It's too easy to hide behind the absurd "fair trade" mantra.

truthseeker
truthseeker

What is going on? Why did you delete my comment?


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