Donald Trump is standing up for American interests

China’s unfair trading practices have distorted markets around the world

Peter Navarro


US President Donald Trump, left, and Chinese President Xi Jinping in Beijing last year © EPA


When China joined the World Trade Organization in 2001, it promised to abide by the rules of the international trading order. Instead, it has broken every rule in the fair trade book on the way to expanding its annual gross domestic product from $1.3tn to $11.2tn.

Meanwhile, since 2001, under the Bush and Obama presidencies, the US economy lost more than 60,000 factories and millions of manufacturing jobs.

Only now is the American economy beginning to renew its strength on the wings of President Donald Trump’s four-point growth plan: historic tax cuts, a wave of constructive deregulation, the unleashing of America’s energy sector and progress on a number of trade fronts — from domestic investment-inducing tariffs on solar and washing machines to a new, fair deal with South Korea.

Nonetheless, progress with a relentlessly protectionist China remains elusive. It is certainly not due to a lack of American effort. When Mr Trump took office, he gave China every opportunity to negotiate an end to its unfair trade practices, hosting a summit in April at Mar-a-Lago and visiting Beijing in November. Despite these olive branches, the Chinese have refused to end their unfair trade practices; and the US trade deficit in goods with China has grown from $347bn in 2016 to $375bn during Mr Trump’s first year in office.

While the trade deficit balloons, China continues to steal US intellectual property and force American companies operating there to surrender their leading edge technologies in exchange for access to the Chinese market. Today, Chinese sovereign wealth funds and other state actors are scouring Silicon Valley trying to buy up the crown jewels of the American high-tech industry.

Nothing less than the US’s economic future is at risk from China’s assault on American technology and IP, and its mercantilist bid to capture emerging high-tech industries. In its Made in China 2025 policy manifesto, the Chinese government has explicitly targeted industries ranging from artificial intelligence, robotics and quantum computing to self-driving vehicles, automated machine tooling and advanced medical devices. If China captures these industries, the US simply will not have an economic future.

It is not just American prosperity at risk. Mr Trump’s National Security Strategy describes a National Security Innovation Base that provides the intellectual knowledge and human capital to ensure that the US remains safe. The IP China is trying to take is the very heart of this concept and a key to continued US military dominance. Because of the high stakes involved, in August Mr Trump directed Robert Lighthizer, the US trade representative, to consider investigating China’s unfair technology transfer policies and practices.

After reviewing the results of that investigation, the president imposed $50bn of tariffs on Chinese high-tech products and implemented significant investment restrictions that will prevent Chinese state capital from buying America’s future.

Critics of Mr Trump are quick to blame the stock market’s recent volatility on the president’s trade policies. The reality is that stock prices are driven by earnings growth and earnings growth is driven by economic growth. Mr Trump’s agenda has put the US economy on a path to robust growth and corporate earnings.

China’s reaction to Mr Trump’s legitimate defence of the American homeland has been a Great Wall of denial — despite incontrovertible evidence of Beijing’s illicit and protectionist behaviour. Instead, China is attacking American farmers with the threat of retaliatory tariffs in the apparent hope of rattling a key component of the coalition that put Mr Trump in office. There is a reason, however, that the president sits behind the Resolute desk in the Oval Office. And when he stands, Mr Trump stands up for the American people — and American farmers.

Mr Trump seeks only a shared prosperity based on trade peace. His vision is that of a global trading system free of the imbalances and unfair practices that now hold growth back, not just in the US but around the world. To realise this vision, trade must first be fair and reciprocal. China’s policies have distorted markets and harmed producers around the world. Others have long shared US concerns, and we welcome like-minded countries in taking concrete action with us to fight market-distorting policies.

These principles are the foundation of the Trump administration’s trade policies. It would be a welcome change if China were to embrace them too.


The writer is assistant to the US president, director of trade and industrial policy


Italian Politics and Europe’s Future

Jeffrey D. Sachs



NEW YORK – More than ever, the European Union needs unity to assert its values and interests in an age when US global leadership is on the verge of collapse, China is ascendant, and Russia wavers yet again between cooperation and confrontation with the EU. Divided, the EU is a mere helpless spectator to geopolitical upheaval. United, the EU can play a critical global role, as it uniquely combines prosperity, democracy, environmentalism, innovation, and social justice. And whether the EU regains unity of purpose, or instead spirals into disarray, will depend on what happens now in Italy.

Italy’s pivotal role stems from its position at the geographic divide between northern Europe’s prosperity and southern Europe’s crisis, and the intellectual and emotional divide between an open Europe and one trapped again by nationalism, prejudice, and fear. Italy stands also at the political divide, with an insurgent new party, the Five Star Movement (M5S), sharing the political stage with the right-wing, anti-immigrant, and anti-EU League party and the pro-EU but greatly weakened center-left Democratic Party.

The insurgent M5S finished first in the March 4 parliamentary vote with an astounding 33% of the vote, compared to 19% for the Democrats and 17% for the League. The implications of M5S’s strong victory are a topic of heated debate in Italy and around Europe.

Throughout the EU, traditional center-left and center-right pro-EU parties are losing votes. Just as in Italy, anti-EU nationalist parties like the League are gaining votes, and anti-establishment insurgencies like M5S – for example, Podemos in Spain, and Syriza in Greece – are either winning power outright or holding the balance of power between traditional pro-EU mainstream parties and anti-EU nationalist parties.

There are three reasons for Europe’s changing politics. The first, and perhaps least recognized, is a generation of disastrous US foreign policy in the Middle East and Africa. After the Cold War ended in the early 1990s, the US and local allies aimed to establish political and military hegemony in the Middle East and North Africa through US-led wars of regime change in Afghanistan, Iraq, Syria, Libya, and elsewhere. The result has been chronic violence and instability, leading to massive refugee flows into Europe that have upended politics in one EU member state after another.

The second reason is Europe’s now chronic under-investment, especially by the public sector. Under former Finance Minister Wolfgang Schäuble, a self-satisfied and economically successful Germany blocked European-wide investment-led growth, and turned the eurozone into a debtors’ prison for Greece and a dispiriting zone of stagnation for much of southern and eastern Europe. With the EU’s economic policy limited to austerity, it’s not hard to see why populism has taken root.

The third reason is structural. Northern Europe innovates, while southern and eastern Europe by and large do not, or at least not nearly at the same rate. Italy straddles the two sides of Europe: a dynamic north, and chronic malaise in the south (the Mezzogiorno). This is an old story, but also an ongoing one. It helps to explain the frontlines of EU politics. The M5S was triumphant especially in Italy’s stagnating south.

My political predilections lie with social democracy. I blame conservatives like Schäuble for driving voters into the arms of populist parties. Yet too many mainstream social-democratic leaders went quietly along with Schäuble. I also fault Chancellor Angela Merkel and other European leaders for failing to speak strongly enough against the US-led wars in the Middle East and North Africa. European leaders should have been much more energetic at the United Nations in opposing America’s hegemonic policy in the Middle East, with its catastrophic effects, including mass displacement and refugee movements.

Advocates of a strong and vibrant EU – and I am firmly among them – should be rooting for the insurgent parties to join forces with the weakened traditional social-democratic parties in order to promote sustainable development, innovation, and investment-led growth, and to block anti-EU coalitions. Or, as in Germany, they should urge the grand coalition of center-left and center-right parties to become much more dynamic and investment-oriented at European scale, both for the sake of economic good sense and to combat far-right nationalists. Or, as in France, they should cheer the amalgamation of pro-EU traditionalists and insurgents in President Emmanuel Macron’s La République En Marche ! Such pro-EU alignments give the EU time to reform its institutions, stake out a common foreign policy, and initiate investment- and innovation-led green growth in place of austerity and complacency.

Traditional social-democratic parties mostly shun the new insurgent parties, viewing them as populist, irresponsible, opportunistic, and dishonest. Such is the view in Italy on the part of the Democrats, with key politicians rejecting a coalition with M5S. That is understandable: the upstarts thoroughly defeated the Democrats at the polls, often with outsize populist promises. Yet the social democrats have been flaccid and even silent in the face of Schäuble-style austerity and irresponsible US-led wars. The traditional social-democratic parties will have to regain their dynamism and appetite for risk-taking to win again at the polls as true progressive parties.

The stakes in Italy are high. With Europe politically and geographically divided, Italy’s politics could tip the balance. A pro-EU Italy governed by an M5S-Democrat coalition could join with France and Germany to reform the EU; regain a clear foreign-policy voice for EU vis-à-vis the US, Russia, and China; and implement a strategy for green, innovation-based growth.

To forge such a coalition, the M5S would have to adopt a responsible and clearly defined economic program, and the Democrats would have to accept being the junior partner of an untested insurgent force. A possible key to mutual confidence would be for the Democrats to hold the crucial finance ministry, while M5S appoints the prime minister.

It is not surprising that US President Donald Trump’s utterly reckless former adviser, Stephen Bannon, rushed to Italy to encourage M5S and the League to form a coalition that he called the “ultimate dream,” because it would break the EU. That by itself should remind Italians of the importance of a pro-EU coalition that rejects such miserable nightmares.


Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and of the UN Sustainable Development Solutions Network. His books include The End of Poverty, Common Wealth, The Age of Sustainable Development, and, most recently, Building the New American Economy.


The Dollar’s Curious Calm in the Market Storm

With stocks swinging to and fro, why is the foreign-exchange market so calm?

By Richard Barley



DOLLAR DOWNER
ICE U.S. dollar index 

 Source: FactSet



Stocks have swung violently amid rising trade tensions and a modest cooling of the outlook for global growth. The dollar has made an equally important statement by doing not much at all.

The dollar fell in January, continuing 2017’s decline, but that trend broke as turbulence hit markets. Since then it has moved sideways: against the euro it is stuck around $1.23.


Brighter economic prospects outside the U.S. pushed the dollar lower last year against the euro and emerging-market currencies; the eurozone recorded its best growth for a decade. But now eurozone data, led by surveys like the Markit purchasing managers index, has lost steam, while U.S. data has been better behaved.


WINNERS AND LOSERS
Change against U.S. dollar since start of 2018


Source: FactSet


Data from the U.S. Commodity Futures Trading Commission suggests investors have pared back bearish bets on the dollar, but are still looking for it to fall. That will require a catalyst, although none seems to be imminent. Unlike stocks, which after a huge rally in 2017 were highly valued, the dollar has already moved a long way, with the ICE U.S. dollar index falling nearly 10%.

The dollar’s decline was likely slowed by the prospect of stimulus from tax and spending measures to support it, even if there are longer-term worries about the merits of stimulus so late in the economic cycle. The U.S. economy could get a bump while the eurozone is more exposed to global fortunes. Steadily rising interest rates could boost the dollar as well.

A broadly rising dollar would be a worrying development for emerging-market stocks and bonds, among the few bright spots for investors this year. Appreciating currencies have acted as an additional lure, boosting returns. But the rally against the dollar has stalled and some currencies like the Russian ruble and Turkish lira are being hit hard by political and economic problems of their own making.

The dollar’s sideways motion suggests there is a lack of conviction on what happens next for the global economy. That in itself, after the dollar’s sustained decline of 2017, is a signal. The dollar may just be pausing, but its lack of movement can’t be taken for granted.


Hungarian Elections

What Orbán's Third Win Could Mean for Europe

With his strong election victory on Sunday, Hungary's Viktor Orbán exceeded all expectations. What will the party's third win mean for Europe?

By Keno Verseck

Photo Gallery: Orbán Wins Big in Budapest

 

For a few days, it looked like the election might actually be close for Viktor Orbán. Pollsters had predicted a tight race and optimism flourished among Hungary's opposition parties. In the end, though, Hungarian Prime Minister Orbán and his party Fidesz scored a surprisingly clear victory on Sunday, likely obtaining yet another two-thirds majority in parliament -- for the third time in a row. Although ballots from abroad are still being counted, it is doubtful they will affect the ultimate outcome.

It's an historic victory for Orbán, but also for Hungary and the rest of Central and Southeastern Europe. Never before in Hungarian history and never since the end of the communist dictatorships has a party in the region scored such a commanding victory in three elections in a row. In an extremely divisive campaign, Orbán essentially focused on one single issule, warning against Hungary's "downfall" at the hands of "immigrants." It appears that a majority of Hungarian voters view him as the only guarantee against such a scenario.

But Orbán didn't use his victory on Sunday night as an occasion to boast of his triumph.

During an appearance shortly before midnight together with party and government members, he showed relative reserve. "We won," Orbán announced in front of cheering supporters, who could be heard shouting a chant usually associated with right-wing extremists or radical football fans: "Ria, ria, Hungaria." But Orbán called for restraint: "Hungary has achieved a big victory. But even when you get a result like this, you still have to remain modest." At the same time, Orbán said that Hungary "hasn't yet gotten to where we'd like to be," but the country is on the path that it has chosen for itself.

Election Conditions Tailored for Orbán

When speaking before their supporters after their election defeat, oppostion leaders seemed as though they had just awoken from intoxication with the cold water of reality splashed in their faces. Several party heads and top candidates announced they would step down, including Gábor Vona, the chairman of the former right-wing extremist party Jobbik. The party will still be the second strongest in parliament, but Jobbik delivered the same result it did four years ago and, as such, fared well behind expectations.

Overall, the election results show the extent to which the election conditions were tailored to Orbán's Fidesz, Hungary's only large political party. Of the party's 199 members of parliament, 106 were elected in single-member constituencies based on the first-past-the-post system. In many constituencies, Fidesz candidates only won with a relative majority, with the combined outcomes for the opposition candidates significantly higher in come cases. But the parties would have had to join forces and put up a single joint candidate in order to beat Fidesz -- and they were unable to reach such an agreement in many electoral constituencies.

For some observers, including G.M. Tam, a leftist philosopher in Budapest and former anti-communist civil rights activist, Orbán's landslide victory didn't come as a surprise. "In recent years, elections all over Europe have been decided based on the so-called immigration question," Tamás told DER SPIEGEL. He says that consensus over a common well-being and common interest is disappearing all over Europe and that an increasing number of groups in society are placing their own interest over those of minorities like foreign citizens or refugees. "Orbán is a strong and talented representative of this trend," Tamás says. "That's why he wins elections. Everyone in Hungary knows that he's corrupt and that he governs poorly, and yet many people still vote for him because they consider it important that he protects them from immigrants and minorities like the Roma."

Orbán Will Stay on Confrontation Course with EU

Political scientist Ágoston Mráz, who is closely tied to the government, described Orbán's election victory as being "extraordinarily great and also rare for Europe" -- and one that exceeded expectations even within the Fidesz camp. Mráz told DER SPIEGEL that the West must recognize that success as well. "When it comes to judging Orbán, the West is a prisoner of its own prejudices," he says. "People don't see how strong the democratic legitimization for Orbán is in Hungary." He says that Orbán is capable of formulating goals that are supported by broad swaths of the population and he offers a strong national identity for a majority of the population. In contrast to many others in the region, Mráz point out, Orbán's party has been extremely well organized for 30 years. "At this point, I think you can even speak of an Orbán era in Hungary," Mráz says.

Expecting Orbán to ease his confrontational political style is unrealistic. In terms of foreign policy, Orbán wants to reform the European Union, essentially transforming it into merely an administrator of European subsidies and a single market -- and not a Europe of shared political values that gets involved in domestic political debates. Orbán seeks to rally Central and Southeastern European countries behind that goal.

The re-elected prime minister is also likely to continue his xenophobic focus domestically as well. There is widespread discontent in Hungary over the numerous corruption scandals involving people close to Orbán and his party and over the poor state of the health and education systems and the deficient public administration. That has prompted Orbán and other Fidesz party leaders to frequently resort to anti-foreigner rhetoric in recent years. The refugee crisis in 2015, proved that the issue is sufficient to boost Orbán's public opinion poll numbers.

All of which makes his reserved appearance on election night seem disingenuous at best. Particularly since Orbán explicitly said a few weeks ago that he planned to deal rigorously with his opponents and critics -- including nongovernmental organizations. In his speech on the Hungarian national holiday on March 15, Orbán said: "After the election, we will of course seek amends -- moral, political and legal amends."


Amazon’s New Clothes May Outstrip Department Stores

By Teresa Rivas


Retail languished in the dog house for much of 2017 on worries over changing consumer habits and the relentless growth of Amazon.com (AMZN). The group got a breather earlier this year, thanks to strong holiday sales, that left some seeing signs of hope for a retail revival.

    Amazon’s New Clothes May Outstrip Department Stores / Illustration: Getty Images 



The SPDR S&P Retail ETF (XRT) is trading down on Wednesday, hurt in part by a note from Morgan Stanley that predicted Amazon will become the No. 1 U.S. apparel seller by market share this year.

Analyst Brian Nowak estimates that Amazon gained 1.5% of the U.S. apparel market share last year, a 10 basis-point year-over-year sequential gain, mostly at the expense of department stores. That trend will continue, he thinks, given that millennials are increasingly shifting their spending to the ecommerce giant (it's basically the avocado toast of retailers), along with Amazon Prime Members--a group that's now 100 million strong world-wide. Right now, Amazon is the second-largest apparel retailer, behind Walmart (WMT), but Nowak expects that these forces will push it to the top spot at some point this year.

That said, it's not totally a zero-sum game (yet). Nowak writes that Walmart and Costco Wholesale (COST) also showed "impressive gains" even with a weak industry backdrop.

Among apparel-focused stores, he also highlights that Ross Stores (ROST), Gap (GPS) and Nordstrom (JWN) gained some 10 to 15 basis points last year, thanks to Old Navy and the Rack, respectively, for the latter two. Keeping hold of that share gain "would be an impressive feat relative to how much market share AMZN is gaining." Nowak added, "[The] fact that these retailers are gaining share despite these headwinds is encouraging and highlights how their value proposition (price, quality, and selection) is resonating with consumers."

Of course, while there are winners, there are also losers, mostly department stores in this case.

Nowak estimates that Sears Holding (SHLD), Macy's (M), and JCPenney (JCP) lost 0.8% in market share last year, while Target (TGT) and Kohl's (KSS) were largely flat. Things don't look great for department stores this year either, he warns. The group will see share losses accelerate, from down 3.9%, or $1.8 billion, annually over the past decade to a decline of 7.9%, or $2.5 billion per year, through 2022. By then, he thinks department stores will account for just about 8% of the U.S. apparel market, down from some 24% in 2006.

XRT is down 1.1% to $44.61 today.