Trump’s Trade War With China – Fortune Gets The Analysis The Wrong Way Around

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Having actually worked for one of the leading business magazines out there – sure, as a freelance but still – I can tell you that most of the staff are assailed by the same basic misunderstandings of business and the economy as the rest of the press corps. You know, that professional caste that votes 90/10 D/R? There’s a slight selection effect in favour of those who can do sums, obviously enough, but not much more than that.

This analysis of Trump’s trade war with China is a useful example of that:

President Donald Trump may find it harder to claim victory over China the longer his trade war runs, even as he points to America’s ebullient economy and stock market as evidence he’s winning for now.

Unlikely to be able to claim victory as he impoverishes Americans but still:

Trump does have a point about how markets have reacted to the conflict. Since the president ordered his officials to ready tariffs on a first round of $50 billion of Chinese goods in March, U.S. stocks have risen about 10 percent, while Chinese equities have dropped more than 16%.

Err, no, how stock markets react is not a good guide to the positive effects of tariffs. Quite the opposite in fact. It’s a much better guide to how we’re all getting screwed by tariffs. That is, the better the US stock market does the more evidence we’ve got of the bad effects of tariffs and a trade war.

Think on it. Why is Trump imposing tariffs? To protect American business from competition by those dastardly foreigners. Who loses in the absence of competition from the Yellow Peril? Those American consumers who would have bought those better/cheaper Chinese goods if they were able to. Who gains from tariffs? American businesses who can now gouge the American consumer a little more in the absence of those items imported from EastAsia.

So, a rise in the US stock market is a guide to how much more profit American business can screw out of the American public. It’s a measure, a reasonably good and precise one too, of how much we the people are losing from the trade war and tariffs. More exactly, it’s the capitalised value of the ongoing losses we’re suffering from this restriction of our choices, the competition those who supply us face.

That is, the better the stock market performance the higher those costs and the more we’re losing the trade war. That is, as long as you accept that it is consumers, not producers, that matter, but then that’s the standard economic assumption ever since Adam Smith even if it gets lost in Washington DC often enough.

The US stock market rising in response to US tariffs is evidence of the losses from tariffs, not the gains.