PB: How far are you willing to push adversaries?
Trump: I will demand anything I can get. When you're doing business, you take people to the brink of breaking them without having them break, to the maximum point their heads can handle—without breaking them. That's the sign of a good businessman: Somebody else would take them 15 steps beyond their breaking point.
PB: What if your pushing results in losing the deal?
Trump: Then I pushed him too far. I would have made a mistake. But I don't. I push to the maximum of what he can stand and I get a better deal than he gets.
PB: How do you feel about Japan’s economic pre-eminence?
Trump: Japan gets almost 70 percent of its oil from the Persian Gulf, relies on ships led back home by our destroyers, battleships, helicopters, frog men. Then the Japanese sail home, where they give the oil to fuel their factories so that they can knock the hell out of General Motors, Chrysler, and Ford. Their openly screwing us is a disgrace. Why aren't they paying us? The Japanese cajole us, they bow to us, they tell us how great we are and then they pick our pockets. We're losing hundreds of billions of dollars a year while they laugh at our stupidity. The Japanese have their great scientists making cars and VCRs and we have our great scientists making missiles so we can defend Japan. Why aren't we being reimbursed for our costs? The Japanese double-screw the US, a real trick: First they take all our money with their consumer goods, then they put it back in buying all of Manhattan. So either way, we lose.
PB: A group of Japanese visitors to New York was recently asked if there were anything in the US they would like to buy. The answer: towels.
Trump: That's fair trade: They'll take the towels and we'll buy their cars. It doesn’t sound like a good deal to me. They have totally outsmarted the American politician; They have no respect for us, because they're getting a free ride. Of course, it's not just the Japanese or the Europeans—the Saudis, the Kuwaitis walk all over us.
PB: Sometimes you sound like a Presidential candidate stirring up the voters.
Trump: I don't want the Presidency. I'm going to help a lot of people with my foundation—and for me, the grass isn't always greener.
PB: But if the grass ever did look greener, which political party do you think you'd be more comfortable with?
Trump: Well, if I ever ran for office, I'd do better as a Democrat than as a Republican—and that's not because I'd be more liberal, because I'm conservative. But the working guy would elect me. He likes me. When I walk down the street, those cabbies start yelling out their windows.
PB: What's the first thing President Trump would do upon entering the Oval Office?
Trump: Many things. A toughness of attitude would prevail. I'd throw a tax on every Mercedes-Benz rolling into this country and on all Japanese products, and we'd have wonderful allies again.
And so here we are. We now call it "national security".
After numerous flip-flops we are back to a 1990 trade mentality. Did his position ever change, or is this all part of the deal?
Eurointelligence Chimes In
It is generally advisable not to make any forecasts that concern Donald Trump. But when it comes to German cars he has been only too consistent ever since his Playboy interview in 1990 when he promised "I’d throw a tax on every Mercedes-Benz rolling into this country"
Trump yesterday started a process that could could end with the imposition of a 25% tariff on imported cars by this time next year. The US Department of Commerce has up to 270 days to investigate the matter, and then Trump has 90 days to make a decision on the basis of the Department's report. Congress is not involved.
We have the sense that this is not the last time we will be writing about the 1962 Trade Act, under which Trump has been launching this action. It includes the catch-all national security override which Trump has also used to justify the steel and aluminium tariffs. There is no need even to discuss the merit of this argument. But we don’t think that it is possible, legally, to obtain a judicial override of a President’s invocation of national security.
No country in the eurozone would be more affected than Germany. German car makers exported half a million cars last year at a total value of €20bn. FAZ runs an estimate by Gabriel Felbermayr, of the Ifo Institute, who puts the total damage to the German economy at €5bn. That number strikes us as too low. It does not sufficiently take into account all of the total network effects: expectations of further trade tariffs, lower investments in supply chains given those expectations, and financial effects such as lower stock prices.
If the US were to impose tariffs on cars, the EU would almost certainly retaliate. In seven days, Trump will decide whether to end the EU's exemption from import tariffs on steel and aluminium. The expectation in Brussels is that the exemption will be cancelled. The EU will then impose retaliatory tariffs on a selected range of US products.
FAZ concludes that the result of the Department of Commerce's investigation should be a foregone conclusion despite the promise of a fair and transparent procedure. They took note of Trump tweeting that there will soon be very good news for US automobile workers.
The decision will also test the solidarity of the EU, since Germany is going to be the country most affected by this. France and Spain export no cars to the US. Fiat owns Chrysler, but produces its vehicles for the US market in the US itself.
The FT quotes some experts in the US as expressing hope that these tariffs would never be introduced because the US consumer would revolt, or the Republican Party would. It sounds to us like the over-confident forecasts in 2016 by liberal US commentators who predicted Trump would not become the Republican candidate, and then that he would never be elected.
The trouble in this particular case is that the EU, and Germany specifically, will find it hard to engage with Trump in a process of deal-making. Germany is totally over-reliant on the good functioning of the global trading system. Trump wants Germany to cancel the Nordstream 2 gas pipeline, switch from US to Russian gas, and raise military spending. We see no chance of a deal here.
1990 Policy Still Intact
Given that his trade policy dates all the way back to 1990, one can reasonably conclude his trade policy is not a bluff. He is doing exactly what he said he would do.
By the way, how did Trump get elected?
The answer is blue collar workers in Ohio, Indiana, Michigan, and Wisconsin voted for Trump. Those are states that Hillary ignored because they were in her pocket.
FAZ noted in an article that the EU is in a genuine dilemma. Iran is now asking the EU to increase oil purchases, and to insist that European banks will continue to fund business with Iran. Iran will otherwise withdraw from the nuclear deal.
Berthold Kohler, a FAZ commentator not normally lost for words, expresses genuine bafflement at the sight of Trump threatening tariffs on cars, and of Merkel and President Xi Jinping agreeing to preserve the multilateral trading system. We note that it is easy for the world’s largest and second largest exporters to agree to this because they are both dependent on countries like the US to run persistent trade deficits. Unlike China, however, Germany does not have a plan B.
France Turns to Russia
Le Monde noted in its coverage of Emmanuel Macron’s bilateral meeting with Vladimir Putin in St Petersburg that there is now a completely different tone from only a few months ago.
EU-Russia relations are thawing, thanks largely to Donald Trump. Given the known position of the (likely) new Italian government, we are convinced that the EU’s sanctions against Russia will be gradually phased out, starting soon.
Expect a Trade War
Trump believes trade wars are winnable.
At times, Trump appears to waver, but his 1990 conviction always returns. It's all part of the deal.
But it's a deal that Germany will never accept. Nor is it a deal that Germany should accept.
For starters, paying 20% more for Liquid Natural Gas (LNG) from the US instead of pipeline gas from Nordstream 2 is silly. Besides, the LNG infrastructure is not even in place.
More importantly, Trump has proven, time and time again, his word cannot be trusted. At any point in time, any country can and should expect Trump will make further demands.
Economic and political commentators expect there will not be a global trade war because everyone loses.
Yes, everyone does lose.
But what if Trump doesn't think so?
Don't worry. It's all part of the ego.
Mike "Mish" Shedlock