Exploring the US-Mexico Trade Relationship, Part 2

Despite Trump's tough talk on Mexico, U.S. states have a different imperative.

Public demands from states along the U.S.-Mexico border – California, Arizona, New Mexico and Texas – will prove to be the biggest opposition against any changes the administration of U.S. President Donald Trump may try to make regarding trade with Mexico and related border controls. These states’ economies depend on bilateral trade with Mexico. Elected officials from the border states will feel more pressure to respond to their states’ needs rather than to support federal plans that would potentially jeopardize local economies and their own re-elections.
  • U.S. states along the Mexico border have economies that rely heavily on Mexico as both an export market and for integrated production of goods.
  • Together, these four state economies account for a quarter of U.S. gross domestic product.
  • Border states have the largest numbers of eligible Hispanic and Latino voters nationwide.
  • Politicians in border states must meet the needs and demands of their electorates – even if they contradict the federal government’s plans and desires – or risk losing re-election.
Last week’s Deep Dive evaluated U.S.-Mexico trade relations at the national level by examining four case studies. This week, we follow up with an evaluation of select U.S. state economies and their relationships with Mexico. At the national level of the U.S.-Mexico bilateral trade relationship, the United States has more comparative leverage over Mexico in trade negotiations. However, analyzing this relationship at the state level shows that there are economic and social incentives for the U.S. to avoid aggressively pursuing the reintroduction of trade barriers – financial or physical – against Mexico.
Construction workers continue work on the United States-Mexico border fence on a massive construction project to revamp federal facilities at the San Ysidro Port of Entry border crossing on Jan. 26, 2017 in San Ysidro, California. President Donald Trump has ordered work to begin on building a wall along the Mexican border, angering his southern neighbor with his hardline stance on immigration. DAVID MCNEW/AFP/Getty Images

While tension over U.S.-Mexico relations is spurring unity and nationalism in Mexico, the same issue proves to be a divisive one in the U.S. There is a lack of consensus and unity in the United States over the question of trade with Mexico. Some U.S. states, such as Michigan, have large populations that attribute job loss to close production and trade ties with Mexico. At the same time, the economic livelihoods of other states – particularly California, Arizona, New Mexico and Texas – strongly depend on trade flows with Mexico. These states are very likely to oppose any changes in U.S.-Mexico trade that are deemed detrimental. Eleven of the top 20 U.S. cities that export to Mexico can be found within these four states. The border states have a combined GDP of $4.5 trillion and account for a quarter of total U.S. GDP, according to the U.S. Bureau of Economic Analysis. Because of their economic weight and size, these border states’ economic imperatives will be the main source of opposition facing the Trump administration when making changes to the North American Free Trade Agreement (NAFTA) or Mexico policy in general.
Border Crossings
Eighty-five percent of trade between the U.S. and Mexico takes place by truck or railway, according to the U.S. Bureau of Transportation Statistics. Given that most of the goods exchanged between Mexico and the U.S. pass through the shared land border, it is important to understand the geography and crossings. The U.S.-Mexico border possesses two geopolitically significant features. First, the border measures approximately 2,000 miles and is one of the world’s longest continuous binational borders. Second, there is an absence of physical barriers along this border, making it relatively easy to cross. The border follows the Rio Grande River in places, but this body of water does not impede crossing in the same way that a sea or ocean would. Additionally, the land is relatively flat along the border, with no mountainous barriers that would make passage difficult. Furthermore, the desert climate on both sides of the border does not particularly impede trade; modern vehicles, technology and logistics have largely overcome this climatic factor. These natural geographic features facilitate the flow of land trade, although man-made physical barriers (fences or walls) do exist at certain parts of the border.
U.S. government trade figures estimate two-way trade across the border at $1.4 billion per day. In addition to aquatic ports like San Diego and Houston, there are 25 major ports of land entry between the U.S. and Mexico. Among these are 39 crossing points (high-volume locations such as Laredo, Brownsville and Nogales have multiple crossing points), of which 22 are open all day, every day. The majority of U.S.-Mexico land ports divide traffic into three different categories: standard, Ready Lane and Secure Electronic Network for Travelers Rapid Inspection (SENTRI). The standard lanes are the slowest, with wait times of up to several hours, because all processing takes place manually at the point of entry. In contrast, the Ready Lane uses radio frequency enabled identification documents that can be read by a computer instead of being manually entered into a system used by the U.S. Customs and Border Protection (CBP). The SENTRI program is reserved for low-risk crossers who have passed a security clearance, and it aims to have participants cross the border in 15 minutes or less. CBP also is working to enable a system that would allow trade cargo to be cleared at its point of origin in Mexico to expedite border crossing times, particularly for commercial vehicles where profits depend in part on just-in-time deliveries. Border crossing delays can cost billions of dollars in trade. In 2011, Bloomberg estimated that delays at the U.S.-Mexico crossing cost the U.S. economy up to $7.8 billion annually.

US Border States
The question of U.S.-Mexico bilateral trade is often discussed at the national level; the first part of this two-part series is an example of such a discussion. However, the U.S. is composed of 50 individual states, and each one is a separate political and economic entity. Within the U.S. federal system, the states enjoy a large degree of power as Washington, D.C. is a city constructed for government administration but does not hold much power. The real power in the United States exists in various hubs scattered throughout the country and in dynamic regional economies that are relatively evenly matched. The U.S.’ energy capital is in Texas, its financial capital is in New York, its agricultural capital is in Illinois, and its technology capital is in California, to highlight some examples.
Within this system, the national government does not closely regulate which specific economic activities U.S. states pursue, nor does it specify destinations for international trade. Mexico figures as a prominent destination for U.S. exports in general and ranks as one of the top three export destinations for 33 of the 50 states. However, Mexico only ranks as the top export destination for four states. It is no coincidence that these four states are those along the U.S.-Mexico border. The geographic proximity of California, Arizona, New Mexico and Texas to the Mexican border heavily impacts these states’ economies and demographics, and politicians’ stances as they relate to national politics. Mexico, too, is made up of individual states. However, as noted earlier, as to the question of U.S.-Mexico bilateral trade, these states share a general consensus that supports free trade between Mexico and the U.S. Due to the Mexican states’ unity regarding bilateral trade (they all agree that keeping a free-trade system in place with the U.S. is beneficial overall), a state-level discussion of Mexico’s economy is not necessary in the same way that a state-level discussion is necessary for the U.S.
California’s $2.48 trillion GDP in 2015 was larger than the GDP of most countries. If it were its own nation, California would rank around seventh in the world for GDP size. Exports account for about 11 percent of the state’s GDP, and Mexico is the leading destination for Californian exports. In 2015, the U.S. Census Bureau reported that California’s exports to Mexico totaled $26.79 billion, and California’s imports from Mexico totaled $45.09 billion. Three of the top five categories for California exports are the same as imports, and all of these categories reflect high-value-added goods. This overlap of categories – computer and electronic products, transportation equipment and electrical equipment, appliances and components – suggests an integrated production framework for goods. This means that California and Mexico depend on access to each other’s markets to keep their respective economies going.

The San Ysidro Port of Entry in California helps to benchmark the high volume of vehicles, persons and goods that cross the border daily. San Ysidro is the busiest land port in the Western Hemisphere and remains continuously open. On any given day, 70,000 northbound vehicle passengers and 20,000 pedestrians are processed here. According to the U.S. Customs and Border Protection, the northbound capacity of this border crossing now has 24 lanes for passenger vehicles and 29 lanes for pedestrian traffic.
Arizona boasted a $290.9 billion GDP in 2015, with about 7.7 percent coming from exports. Arizona’s exports to Mexico in 2015 were valued at $9.2 billion, while imports from Mexico totaled $7.6 billion. Among the top five import and export products, there is overlap in two categories: electric machinery and nuclear reactors, and boilers and machinery. This suggests a moderate level of production integration between Arizona and Mexico.
New Mexico
New Mexico’s GDP was $93.3 billion in 2015, with about 4 percent of that derived from exports. New Mexico’s exports to Mexico in 2015 were valued at $1.7 billion, while imports totaled $296 million. Among the top five imports and exports, there is overlap in two categories: electric machinery and nuclear reactors, and boilers and machinery. This indicates a moderate level of production integration between New Mexico and Mexico.
Texas had $1.48 trillion in GDP in 2015. Nearly 17 percent of this was derived from exports, with Mexico as the leading destination. In 2015, the U.S. Census Bureau reported that Texas’ exports to Mexico totaled $92.49 billion, and imports from Mexico totaled $84.01 billion. Four of the top five categories for Texas exports are the same as imports, and all of these categories reflect high-value-added goods. This overlap of categories – computer and electronic products, transportation equipment, petroleum/oil products and electrical equipment – suggest a highly integrated production framework between Texan and Mexican counterparts. In other words, both Texas and Mexico depend on access to the other’s markets to keep their economies going.

In Texas, 56.4 percent of the state’s trade occurs by land, and the Laredo border crossings are the busiest in the state. The Texas Comptroller General’s Office reported that border crossings in the Texan city of Laredo accounted for $204 billion (32 percent) of the state’s international trade for 2015. In other words, the $204 billion that passed through the Laredo border was equivalent to 12.5 percent of the state’s entire GDP for the year.

The sheer size of the California and Texas economies – the largest and second largest state economies in the U.S. – speak for themselves in terms of economic clout. Though smaller than the economies of the other border states, Arizona’s and New Mexico’s economies are still significant. The American Enterprise Institute used 2015 GDP figures to compare U.S. state economies with GDP levels of foreign nations. In this report, Arizona’s GDP was roughly the size of Israel’s, and New Mexico’s GDP was equivalent to Ukraine’s. Together, these four U.S. state economies are highly dependent on fluid trade with Mexico. Jeopardizing the economic growth of these four states by implementing trade measures against Mexico would mean jeopardizing a quarter of the U.S. economy.

As we saw in Part 1 of this Deep Dive, Mexico cannot apply enough pressure on its own to encourage the United States to retain NAFTA or otherwise engage in free trade. However, the U.S. border states have significant leverage that they can use to influence the federal government’s behavior. These states’ interests – in favor of free trade – align with Mexico’s, so it is likely that Mexico will be relatively unaffected in the foreseeable future.
In addition to economic ties, border-state demographics also influence state-level relations with Mexico. The U.S. states along the southern border have high levels of biculturalism with Mexico. While biculturalism may exist in other U.S. states, it is not as concentrated or Mexico-specific as it is in the border states.
New Mexico is the U.S. state with the highest percentage of Hispanics among the total state population, according to Pew Research Center. (Note: For the following statistics, we use the terms Hispanic and Latino according to what was used in the original studies we cite.) The state is home to 994,000 Hispanics, accounting for 48 percent of the state’s population. Among New Mexico’s Hispanic community, 83 percent of people were born in the U.S. and 67 percent are of Mexican origin. Similarly, Arizona’s Hispanic population of 2,056,000 accounts for nearly a third of its total population. Among Arizona’s Hispanic community, 72 percent of people are U.S.-born and 90 percent are of Mexican origin. In numeric terms, Texas has the second largest Hispanic population in the U.S., at 10,405,000. This accounts for 39 percent of Texas’ total population. Among the state’s Hispanic demographic, 70 percent were born in the U.S. and 87 percent are of Mexican origin.

With a Hispanic population of 14,991,000, California is home to the largest Hispanic population in the U.S., according to the Pew Research Center. Eighty-four percent of these Hispanics are of Mexican origin. In Los Angeles alone, 1.2 million residents are of Mexican origin. If they were located in Mexico, the Mexican population of Los Angeles would rank as the eighth largest city in the country (after Mexico City, Ecatepec, Tijuana, Puebla, Guadalajara, León and Juárez). Hispanics account for 39 percent of California’s total population and contribute 48 percent of the state’s total number of births. Approximately two-thirds of California’s Hispanics are U.S.-born citizens and one-third are foreign-born. Additionally, California is one of the U.S. states with the highest concentrations of Spanish-speakers. In Southern California, between Los Angeles and the Mexican border, 40 percent of the population speaks Spanish.

This growing prevalence of biculturalism along the U.S.-Mexico border is not an inherent problem for the United States. Many Hispanics in these states consider themselves to be Americans. However, biculturalism becomes potentially problematic when the dominant culture (in this case, American culture) ignores the minority culture (Mexican) or, in a more extreme case, takes steps to marginalize the minority culture. This can take many shapes, including ignoring public opinion of minority cultures and taking economic or political actions that benefit the dominant culture at the cost of the minority culture.

Creating administrative or physical barriers against U.S.-Mexico border trade would also be culturally disruptive in the border states, where individuals regularly cross the border as part of their everyday lives. According to the latest annualized figures from the U.S. Bureau of Transportation Statistics, nearly 211.7 million people crossed the border in personal vehicles in 2015 and 41.18 million crossed the border as pedestrians.

Moreover, the four border states led the country with the largest share of Latino voters as part of the total eligible voter population in 2016, according to Pew Research Center. New Mexico leads the rankings with 40 percent of eligible voters being Latino. Texas ranks second, with Latinos accounting for 28.1 percent of eligible voters, while California is close behind with 28 percent. In Arizona, 21.5 percent of eligible voters are Latino, putting the state in fourth place. These high percentages of Latino voters mean that biculturalism can play a role in border-state election results.
Impact on Internal US Politics
Senators and representatives must respond to their constituents’ needs or they will be voted out of office. For this reason, elected officials tend to be sensitive to the demographics present in their districts. In the border states, this often includes looking out for the interests of local businesses and the Hispanic population. To do this, senators and representatives are more likely to adopt a position that is favorable to their constituents than to adopt a position favorable on the national level.

The political posturing of elected representatives from these border states is already reflecting this stance. Of particular interest are the stances of elected members of the Republican Party, which traditionally supports some type of border security. Many Republicans in border states agree on the point of improving border security measures but have come out against Trump’s plans for Mexico, which include building a border wall, because of the threat these plans pose to local economies.

California’s state government fully understands the strong connection between the state’s economic activity and trade with Mexico. It also understands that any measures to reduce the flow of U.S.-Mexico trade would negatively and notably affect the state’s economy. The state’s top three officials – Governor Jerry Brown, Lt. Governor Gavin Newsom and Attorney General Xavier Becerra – have not only been strong critics of the recent executive orders that impact immigration and call for the erection of a border wall, but they have also stated they will pursue legal means to impede the execution of such orders. At the federal level, Democratic California senators Dianne Feinstein and Kamala Harris have spoken out against Trump’s latest policies. Among California’s 53 members in the House of Representatives, only 14 are Republicans. Of the 14 California Republicans, only three (Devin Nunes, Ed Royce and Jeff Denham) have made public comments to express mild backing or qualify their “support” of the Trump administration.

On the political front, Arizona’s two Republican senators, John McCain and Jeff Flake, have been some of the nation’s most vocal elected officials against Trump’s potential trade and immigration measures against Mexico. The former said that the planned immigration changes were improperly vetted, and the latter called them “unacceptable.” The four Democrats that represent Arizona in Congress have fallen along party lines, opposing Trump’s executive orders and other plans. Of Arizona’s five Republican representatives, three have expressed their support for Trump’s wall along the Mexican border. However, Martha McSally tempered her support by saying she favored the measures because they support immigration and security reforms, but she does not necessarily support a comprehensive immigration ban or stoppage.

On the whole, New Mexico’s federal lawmakers do not support Trump’s plans for Mexico trade and immigration in their current forms. Democratic Senator Tom Udall said that he conceptually supports the idea of improved border security, but he questions whether Trump’s current plan will achieve that. He also expressed concern over the potential for federal security officers to interfere with local operations. New Mexico’s other senator, Democrat Martin Heinrich, reacted to Trump’s plans by sponsoring a bill to protect the personal information of individuals registered under the U.S. DREAM Act. The state’s two Democratic representatives criticized Trump administration measures saying they jeopardize U.S. standing and lack specificity. The lone Republican representative, Steve Pearce, said that while the state does need a better border security system, a wall won’t work.

The Texan delegation to the U.S. Congress has not offered resounding support for Trump’s proposed border wall. In late December, the Texas Tribune published a compilation of the stance of Texas’ 36 lower house representatives. Among these, 11 belong to the Democratic Party. The Democrats unanimously expressed their opposition to a wall along the entire border. About half felt the idea was not to be taken seriously. The other half argued that security concerns can be dealt with through technology and that a wall does not address the greater problem of general immigration reform.

The responses are more nuanced on the Republican side of the aisle, but fall short of full support for Trump’s plans. Both Texas senators and 25 of its representatives are Republican, and they all fall into this camp. The Tribune noted that 40 percent of Texas Republicans in Congress failed to provide the news outlet with a public statement; two senators and 15 representatives did provide a statement. A general consensus exists among this group that more border security is merited. Some advocated better enforcement of the Secure Fence Act, which provides 700 miles of walls and fences along the 2,000-mile U.S.-Mexico border. Others called for new legislation. Many advocated for better use of technology and better-equipped border guards for increased control, noting that building a wall in certain parts of the state either does not make sense or is not feasible. None of the representatives who commented believe a wall alone would effectively deal with security issues at the border.
California, Arizona, New Mexico and Texas will pose the greatest challenges to the Trump administration’s initiatives for increasing tariffs on Mexican goods and building a wall across the entire length of the shared border. These state economies depend on trade with Mexico and account for a significant portion of the national GDP. The growing presence of a bicultural electorate in border states generally supports positive ties with Mexico as well. As a result, elected officials from these states will be forced to oppose any moves that hinder or discourage free trade with Mexico, both in terms of administrative and physical barriers. Alternately, they will face being voted out in the next election cycle. These states’ economic imperatives contrast sharply with the president’s plans for U.S.-Mexico trade and border relations and will be the leading trump card against Trump.

An Opportunity to Rebuild Our Dangerously Weakened Military

I’m ready to work with President Trump to undo the damage of the 2011 budget ‘sequester.’

By John McCain

      On the deck of the USS John C. Stennis, June 15, 2016. Photo: Shizuo Kambayashi/Associated Press

As he assumes the awesome responsibilities of the presidency, Donald Trump has inherited a world on fire and a U.S. military weakened by years of senseless budget cuts. I am encouraged that he recognizes these problems and has pledged to rebuild the military. The work to get the armed forces back up to speed must begin now.

The world order America has led since the end of World War II—which has benefited the American people most of all—is now under unprecedented strain. The U.S. has entered an era of great-power competition, even as it continues to face an enduring conflict against Islamist extremist groups.

Yet many Americans have forgotten that the world order is not self-sustaining. Not all threats have purely military solutions, but they all have military dimensions. Hard power matters: It is what gives the U.S. leverage to deter aggression and achieve peace through strength.

The Budget Control Act of 2011, which cut and arbitrarily capped military spending for a decade, epitomizes this country’s forgetfulness about its role in the world. The provision, known as the “sequester,” was designed to be so harmful to the military that Congress would be forced to enact reforms to control federal spending. Reforms never came, so the cutting and capping of military spending did. The military has paid a terrible price.

From 2010 though 2014, the defense budget was cut by 21%, according to analysis from the Center for Strategic and Budget Assessments. Across the board, the military got smaller and less capable. Critical investments in new technologies were deferred, which helped adversaries like Russia and China close the gap. The combination of rising threats, declining budgets, aging equipment, shrinking forces and high operational tempo has produced a military readiness crisis.

President Trump is now commander in chief of a military that is underfunded, undersized and unready to meet the diverse and complex array of threats confronting our nation. That is why every member of the Joint Chiefs of Staff has testified to Senate Armed Services Committee that years of budget cuts have placed the lives of the men and women of our armed forces at greater risk.

U.S. President Donald Trump salutes military personnel as he leaves after the Presidential Inauguration at the US Capitol in Washington, D.C., U.S. January 20, 2017. REUTERS\Saul Loeb\Pool Photo: pool/Reuters        

President Trump has committed to eliminating the defense sequester and rebuilding the military. I fully agree, and we need to get started right away. There are two main tasks.

The first is modernizing the military for the new realities of deterring conflict and competing with great powers that possess advanced capabilities. For too long, the U.S. has taken for granted that its forces could operate anywhere and dominate any environment with minimal effort. That assumption no longer holds. However, with greater investments in technology such as hypersonic munitions and artificial intelligence, the military can become much more capable over the next five years.

The second priority is regaining capacity for the military to perform its current missions at acceptable levels of risk. Today the armed forces simply do not have enough ships, aircraft, vehicles, munitions, equipment and personnel. Adding capacity alone is not the answer, and increasing capacity, especially personnel, must be done deliberately and sustainably. But this is a yearslong process that should begin immediately.

The military has to become not only bigger but more efficient. There is room to cut wasteful spending at the Defense Department. And patience remains important: The harm that has been done to the military over eight years will not be reversed quickly. But the longer the wait, the longer it will take to reform.

This won’t come cheap. It will require a base defense budget for fiscal year 2018, excluding current war costs, of $640 billion. That’s $54 billion above current plans, and sustained growth will be required for years thereafter. Defense is the country’s No. 1 priority. It must be a political priority on par with repealing and replacing ObamaCare, investing in public-works projects, and reforming the tax code.

I was a humble foot soldier in the Reagan Revolution. The 40th president is remembered as one of the greatest because he embraced his role as commander in chief, rebuilt America’s military and secured peace through strength. President Trump has a similar opportunity. If he is committed to seize that opportunity, I will be a committed partner in that effort.

Mr. McCain, a Republican from Arizona, is chairman of the Senate Armed Services Committee.


by Jeff Thomas

In 1978, ABC News created a new programme in the US, named for the “20/20” measurement of visual acuity. For 38 years, the programme has remained popular through its format of in-depth news stories.


The 20/20 number is itself of significance in the present year’s news events. In January of this year, the Dow closed above 20,000 for the first time in history. New President Donald Trump glowed in the event, which many of his supporters say is due to the expectations of what his presidency will do for business.

If, however, we measure the Dow against the price of gold (the foremost measure of wealth for the last several thousand years) the Dow presently comes in at roughly 18.1 ounces of gold.

However, the Dow reached its peak as compared to gold in 1999, at 49 ounces. Since that time, the Dow has fallen more than 62%.

Dow’s 19-Year Performance

Of course, valued in dollars, the Dow would seem to have done well and, for some years, the dollar’s value has steadily increased against other currencies. However, as readers of this publication may be aware, the dollar is only doing well against other currencies, as so many other currencies are in trouble and may soon collapse. The dollar is therefore merely the best-looking horse in the glue factory.


For many of us, the above number of zeroes is difficult to contemplate, yet twenty trillion dollars is the level of debt that the US will reach by June of 2017 at the present rate of increase.

(As compared to 1999, this is an increase of over 249%.) The present debt equates to roughly $160,000 per taxpayer. Added to that debt would be credit card, auto, mortgage, and student debt. The question would then arise: “How is it possible that that level of debt can ever be paid?” The answer, of course, is that repayment is utterly impossible. The US taxpayer is presently digging a hole that’s too deep to get out of and his government is doing the same.

And so, regardless of any positive spin that the media might put on the present situation, the 20/20 news is not terribly promising.

The Dow’s Future

Markets periodically form bubbles. The present bubble is one for the record books.

Accompanying any bubble is the perception by many that “The sky’s the limit!” Although this invariably proves false, brokers and others who benefit from market transactions are fond of saying, “We’re nowhere near the top.” The more enthusiasm they can create for greater flurries of buying, the more money they make. Not surprisingly, then, major bull markets typically don’t end with a whimper, but with a major upside spike. We can therefore expect that, at some point, a black swan, armed with a pin, will burst the bubble, and we shall witness a market with its collective jaw once again on the floor, aghast over what had been inevitable.

The Debt’s Future

Historically, national debts have also often formed bubbles. For literally thousands of years, political leaders have seen debt as a temporary solution to their own mismanagement. And if one leader increases debt significantly, his successor can generally be counted on to do the same. What goes up must come down, and when massive debt comes down, it invariably does so with a crash. Today, we’re witnessing the greatest level of debt in history, and the resultant crash can also be expected to be the greatest in history.

In 2007/2008, we entered the Greater Depression, yet the media have done an effective job of convincing the public that it was merely a recession. Their greatest argument in doing so has been to say, “How can we be in a recession if the Dow is going up?” And the public have nodded their approval. In so doing, they’ve justified continued borrowing to themselves and, not surprisingly, governments have done the same.

The crash, when it arrives, will take many people unawares and they will lose much, and possibly all, of their wealth. (The level of personal debt is so great now that most people are already bankrupt; they just don’t realise it yet.)

Markets and fiat currencies survive primarily on confidence. As long as the public believe that a market will rise, as long as they believe that a fiat currency has value, that confidence may assure the continuation. However, when the black swan pricks the bubble, that confidence vanishes overnight.

If our foresight is 20/20, we’ll take a lesson from a very consistent history and admit to ourselves that a collapse is in our future and may even be around the corner.

If this is so, we might consider another “20/20”: the year 2020, which will be the year that the new president will be up for possible re-election. If an economic collapse occurs on his watch, it will matter little how well-intended he might have been, or even how successful some of his plans might have been. Any potential he might have had or accomplishments he might have made will pale with the importance of an economic collapse. If it occurs on his watch, he will be vilified by all but his hard-core supporters.

In such cases, history shows that the next leader that a people choose is always from the opposing philosophy of the one that “caused” the crash. In 2020, Americans can expect to see a major wave of preference for a collectivist leader, a wave that first occurred in 1932 with the election of Franklin Roosevelt, after a similar but lesser crash.

It’s a truism that the severity of a hangover is relative to the amount of alcohol consumed the night before. In the present case, the high has been the most extreme in history. The hangover can therefore be expected to be the most prolonged in history.

Following the crash of 1929, the hangover did not truly end until 1946. A seventeen-year advancement of collectivism would therefore be likely to be the minimum that can be expected for the US. By that time, conditions can be expected to be truly Orwellian.

However, this does not mean that all in the US are doomed. It only means that they would be wise to consider what their choices are. They may choose to get out of the market, or even to get out of the US and head for a country that is not in such great danger of economic collapse. It’s a big world and the choices are many.

Donald Trump’s Plot Against America

Bernard-Henri Lévy

Donald Trump

NEW YORK – On the day of Donald Trump’s inauguration, I met Philip Roth.
This was a surreal experience, given that, in his 2004 novel, The Plot Against America, Roth precisely described the sinister and chilling nightmare in which the United States now finds itself.
We met, along with our mutual friend Adam Gopnik, in Roth’s book-lined Manhattan apartment, where he has moved after announcing his retirement from writing.
Roth had spent the morning watching television, and, like many Americans, he had seen the stupefying images of the fussing, overgrown baby who, with diminutive fists raised, insulted the US establishment, the American people, and the world.
As his readers know, the author of The Plot Against America has a special fondness for literary heroines. So we dwelled on the case of Melania Trump, the new First Lady, who maintained a strangely absent air throughout the ceremony. Was she projecting lucidity? Were we observing the look of someone who has intimate knowledge of the catastrophes that are yet to come? Or was she just the most beautiful girl at the party – the one an avid adolescent had asked to dance, and then held on tightly?
The world is now collectively writing a new novel. Roth skillfully distilled the tragic and the comic elements of this process, and we spoke of the forces that might be able to stand up to the dark tide of vulgarity and violence under Trump.
The first is the sovereign people, who poured into the streets of every large city in the country with the knowledge that, in terms of total votes, it is they, not Trump, who won the election.
Second, there are some Republicans who understand that Trump, the former Democrat-turned-populist, and the Grand Old Party that he used as a stepping-stone to power are in a fight to the death.
A third force is the CIA, whose headquarters Trump visited the day after his inauguration. He positioned himself in front of the Memorial Wall – on which are engraved the names of 117 agents who have been killed in the line of duty – and issued a grotesque and puerile self-congratulation for the number of supporters who had come to Washington to celebrate his ascension.
Meanwhile, the American intelligence community will not soon forget that Trump doubted their probity in the matter of Russian hacking to influence the election in his favor.
I asked Roth if he thought that it was strange that the greatest democracy in the world must fall back on such an unlikely set of checks and balances. What is strange, he answered, with a burst of laughter and his head thrown back, is this new state of suspended insurrection, for which the improbably elected president bears responsibility. One might think that, owing to this insurgency from within, Trump could serve an even shorter term than that of the protagonist in The Plot Against America.
Of course, Roth’s novel and today’s situation are not precisely comparable.
Roth’s story unfolds in 1940, and depicts the heroic aviator and Nazi sympathizer Charles Lindbergh triumphed over incumbent President Franklin Delano Roosevelt. And Lindbergh was a virulent anti-Semite.
Trump, nevertheless, employs rhetoric that is reminiscent of Mussolini. And he has professed his solidarity with the worst populists and outright fascist leaders on the other side of the Atlantic, from Nigel Farage and Viktor Orbán, to Marine Le Pen and Vladimir Putin.
Then there is that slogan, “America First.” It is astounding that those words have not turned stomachs across the American political spectrum.
After all, as anyone with a modicum of historical and political awareness should know, “America First” was American Nazi sympathizers’ slogan in 1940, during Lindbergh’s time.
It was the response thrown back at those who wanted the US to resist Hitler’s Germany.
It was used to denounce the Jewish “warmongers” who were accused of placing their interests over the national interest.
And it is this slogan, which Trump repeated on the Capitol steps, that leads the likes of former Ku Klux Klan leader David Duke to unmask himself and crow, “We did it!”
Trump knows all of this, and when it is pointed out to him, he replies that he is looking toward the future, not back at the past.
But there are only two teams in this game: nihilists with no memory, and those who know that languages have a history and, therefore, an id. The first team thinks that a speaker can invoke a white-supremacist slogan repeatedly in a single speech without having malign intentions; the second team knows that the genealogy of words cannot be denied without the past taking its revenge.
Trump, a would-be ally to the most unsavory and hated demagogues of our time, is being rejected worldwide. But consider this particularly odd and sinister twist: America’s most unpopular president recently visited Jerusalem, and developed an affinity for the very same people that his fictional predecessor considered to be subhuman.
May the recipients of Trump’s sudden solicitude be as wary of this new friend as they are of their enemies.
May they never forget that Israel’s fate is too serious of a matter to be used as a pretext for an impulsive, uncultured adventurer to demonstrate his authority or supposed deal-making talents.
And may they be spared the dilemma, depicted in Roth’s novel, of having to choose between two equally dreadful fates: that of the victim, Winchell, or the willing hostage, Bengelsdorf.
America has not read enough of Philip Roth.
His world or Trump’s: that is the question.

Apocalypse now

Winners and losers in a China-America trade war

A trade war would be a catastrophe; but not for everybody

ECONOMIC Armageddon became a bit more likely when Donald Trump took office on January 20th, given his threats to impose a 45% tariff on Chinese imports. “No one will emerge as a winner in a trade war,” Xi Jinping, China’s president, intoned just days earlier. He was not quite right. In any catastrophe, a few survive; some even thrive.
Tariffs that high would serve as a tax on American shoppers buying phones, computers and clothes (see chart). They might not dent their wallets too much—a study found that in 2010 goods and services from China made up less than 3% of consumer spending. Poorer Americans would be hit harder, however, as they spend a higher share of their income on tradable goods.

American importers would suffer from a tariff. Importers of electronics and clothing enjoy higher retail and wholesale margins than other importers. A tariff would eat into them. Their competitors, relying on domestic suppliers, could benefit and raise prices.

A squeeze on trade between America and China would be painful but not catastrophic for China’s economy. It has weaned itself off export-led growth. Analysts from Morgan Stanley, an investment bank, find that even in a worst-case scenario, with tariffs of 45% imposed on both directions of trade between China and America, exports would fall by almost 13% and GDP growth would be crimped by 1.4 percentage points.

The biggest Chinese firms included in the MSCI China stock index are less reliant on American customers than those in the American equivalent are on Chinese customers. America accounts for more than 10% of revenues for fewer than 2% of the Chinese firms included (though their shares would suffer in a trade war as foreign investors run for cover).

In the short run, countries woven into China’s supply chains, such as Taiwan and South Korea, would lose out from the stifled demand for their wares. But other countries could win, if any tariff was restricted to China. Toy manufacturers in Mexico and clothes-stitchers in Vietnam could enjoy a surge in demand. Numbers crunched by Deutsche Bank suggest that a 10% fall in American imports from China could leave a gap which, if plugged by Mexico, could boost Mexican exports by almost 3%. Assuming they can get through the wall, of course.

Trump’s Momma Didn’t Raise No Fool

Editor's note: Today, we're sharing another insightful essay from Agora founder Bill Bonner on President Trump. As Bill says, Trump faces a losing battle with the Deep State. But there's a likely possibility he'll succeed in something else...


We left off yesterday after exploring one of two major directions for the next four years.

President Trump could really “go to war” with the Deep State. And lose.

If this were to happen, investors would almost certainly get caught in the crossfire.

But don’t worry. This is extremely unlikely. The only way to bring the Deep State to heel is to cut off the EZ money funding that feeds it.

Mr. Trump has not even suggested it. It’s not going to happen, not voluntarily at least.
Today, we explore the more likely possibility: The Lion of Queens will lie down with the swamp foxes of the Potomac… and together they will feast on the poor little lambs who elected him.

What Would Donald Do?

Most dear readers want us to give “The Donald” a break. Many think we are criticizing him.

One even went so far as to suggest we were a “Hillary-loving closet liberal.”

Alas, our lonely mission is to look… to laugh… to try to understand. Nothing more.

Novelists often invent characters. They put them in a situation. Then they ask: What would this character do?

“Character is fate,” said the ancients.

So today we ask: WWDD? What would Donald do?

Little by little, we come to understand Mr. Trump better. He is a scoundrel and a cad, a tough hustler from beyond the East River, shrewd and egomaniacal. But we say that as much in admiration as disgust.

And little by little, we have a clearer idea of what he may do. He is what he is. He will do what he will do.

We are not criticizing; he may be just what we need. Every empire has to come to an end. Trump might be the man for the job.

Moneymen and Gunmen

Immediately after his election victory, Mr. Trump brought the most powerful swamp critters – the moneymen and the gunmen – to his Trump Tower HQ in Midtown Manhattan.

He loaded up his cabinet with Goldman and Pentagon alumni. Then he backed away from slashing the benefits promised by Obamacare, saying his new plan would provide coverage for all the sheep.

And now, Trump’s pick to lead the Department of Energy, former Texas governor Rick Perry, says that when he pledged to abolish the department while campaigning for the presidency in 2012, he didn’t know how important it really was.

As Perry put it at his confirmation hearing last week:

In fact, after being briefed on so many of the vital functions of the Department of Energy, I regret recommending its elimination.

Trump’s momma didn’t raise no fool.

Protected by big money, big guns, big oil, and big medicine, he will be free to spar with the less-important Deep Staters – academics, the media, the bureaucracy, businesses, foreigners, and the small fry.

Enemies of the People

Neither Republican nor Democrat, neither Liberal nor Conservative, this is the essence of Trumpismo – keeping the cronies off balance while remaining the hero of the little guys.

Delighting the guys in the red hats, Team Trump will take on a few token “enemies of the people” and keep the cash flowing to the most powerful insiders.

What will be the result? A boom on Wall Street? GDP growth of 4%? A catastrophic depression?

Who knows? Lucky presidents are better than smart ones. And Mr. Trump is famously lucky.

He could even be both.