The Congressional Budget Office did not publish revenue and outlay estimates for October, but it did project the monthly deficit to be $133 billion, $33 billion more than October 2018.
One of the most persistent stories of the last several years has been the “trade war” between the US and China. This conflict has become the fallback “explanation” for market moves, even when there are no comments by the officials of either government. “Fears of an escalating trade war” has become coincident with any market decline, while “hopes of a deal” justifies every advance. And while a deal will eventually be announced, if only for political purposes, it is doubtful there will be much substantive change in trade relations between the two countries. This is unfortunate, since the problem of forced technology and manufacturing transfer to China has been around for the last thirty years, and the American manufacturing base has been hollowed out over that stretch. Without some concerted and sustained effort to restore this base, however, the “trade war” with China will remain primarily an exercise in public relations on the part of multinational corporations and propaganda on the part of the administration. Production will be shifted—nominally or even in reality from China—but only to other low-cost countries. Imposing tariffs only against China is like building a wall on a portion of a border—it may seem impressive or even effective locally, but is utterly useless and counter-productive on a larger scale.
That being said, the tariffs which have been enacted to date have had little effect on the federal government’s finances—contrary to the belief of some that these duties would provide relief from ever-expanding deficits. In fiscal year 2019, Washington collected $29 billion more in customs than the prior year, which sounds pretty good until one considers that an estimated $24 billion was spent on agricultural subsidies to offset the loss of Chinese markets.
The point is that the current Chinese tariffs are too small to be an effective policy tool—either as a deficit closer or a source of funds to subsidize American manufacturing. Instead, they function rather as rhetorical devices—totems for Washington to display American resolve and for Beijing to publicize Chinese victimhood. In the meantime, most businesses in both countries have figured out logistical work-arounds which keep them out of the crosshairs. In a politics that more and more resembles a pro wrestling match, the Trade War is a circus rather than a battle.
Paradoxically, the Trade War may serve to accelerate Chinese focus on moving from domestic manufacturing into the higher margin realms like finance, entertainment content, and pharmaceuticals. Meanwhile, both Chinese and American firms can shift export manufacturing into places like Thailand, Vietnam, Cambodia, Indonesia, Mexico, and even Africa, which have ballooning young populations (unlike the US or China). The reserve army of the unemployed is not disappearing, just changing locales.
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