"Not unreasonable" for U.S. to push for fair trade with China
Adam Shell, USA TODAY, April 5, 2018
JPMorgan Chase CEO Jamie Dimon says it is “not unreasonable” for the U.S. to push for fairer trade terms with China, lauds the Trump administration for reforming the tax code and warns that markets may be underestimating the risk of a quicker pace of interest rate hikes from the Federal Reserve.
Dimon, the most influential CEO in banking and one of the most closely followed U.S. executives, offered his candid views on markets, trade tensions and government policy in his annual letter to shareholders released today.
Weighing in on the recent trade fight between China and the U.S., Dimon said the U.S. has “entered a time of uncertainty over global trade.” But he stressed that the “proper resolution of serious trade issues is good for the U.S. and for the rest of the world.”
President Trump's complaints about China, Dimon argues, are “legitimate,” noting that China is now the world’s second-largest economy and home to 20% of Fortune 500 companies, yet it “still considers itself a ‘developing nation’ that should not be subject to the same trade rules as the U.S. and other ‘developed’ countries.
Still, while Dimon says it's “not unreasonable” for the U.S. to push for more equal trade terms with China and believes both countries want to resolve their issues, he says there “is always a chance that miscalculations on the part of the various actors could lead to negative outcomes. This obviously creates higher risk and more uncertainty until resolved.”
Other key topics addressed by the well-respected banker include:
One risk facing financial markets is if the economy gains enough speed to cause inflation and wages to rise more than anticipated, as that could cause the nation’s central bank to hike interest rates more quickly and aggressively than market’s currently believe.
“We have to deal with the possibility that at one point, the Federal Reserve and other central banks may have to take more drastic action than they currently anticipate — reacting to the markets, not guiding the markets,” Dimon wrote. “While in the past, interest rates have been lower and for longer than people expected, they may go higher and faster than people expect.”
A faster rate hike scenario could catch investors off-guard, he warns, and cause markets to "get more volatile."
Trump Economic Policies
Dimon says the new tax cut law that lowered taxes on businesses and individuals and Trump’s push to pare back regulations that were hurting companies’ growth are what was needed to unleash the potential of the economy.
“Our previous tax code,” he wrote, “was increasingly uncompetitive, overly complex, and loaded with special interest provisions that created winners and losers. The good news is that the recent changes in the U.S. tax system have many of the key ingredients to fuel economic expansion.”
Dimon added: “I am pleased that we did the right thing — not the easy thing.”
The bank chief also said too often people confuse “more” regulation with “good” regulation, and what’s really needed is “smart” regulation. He says over regulation causes too much red tape and too much time and effort for businesses to comply with rules. He cited an example of it taking 10 years to get a permit to build a bridge, as the type of regulation that is holding back the economy.
“The current administration is taking steps to reduce unnecessary regulation by insisting that congressional rules around cost-benefit analysis be properly applied,” Dimon said. “It is also actively trying to put regulators in the right roles with the proper authority to use commonsense principles to make appropriate changes.”
What a trade fight would mean for Trump country
by David M. Drucker, April 05, 2018
President Trump’s hardball tactics to extract trade concessions from China could crush communities that fuel his political support, with Republicans in Congress paying the price in November.
A Brookings Institution analysis revealed that a U.S.-China trade war would impact agriculture and manufacturing and could disproportionately cost working class jobs in counties Trump carried in the 2016 election. Of the 2,783 counties affected, the president won 2,279; compared to just 449 that went for Democrat Hillary Clinton.
Nearly 1.1 million jobs in Trump country are tied to trade with China, according to the Brookings study. Voters there, supportive of the president’s agenda and long eager for the U.S. to combat Beijing’s unfair trade practices, might give the administration latitude to negotiate better terms.
But if the confrontation escalates and the economy suffers, congressional Republicans could shoulder the blame. Already facing a challenging re-election environment, they count a growing economy among their few advantages. They have minimal time to weather any storm and, unlike Trump, can’t rely on the loyalty of the GOP base.
“This could have a huge, negative impact in the midterms — and beyond — if the trade tit for tat continues,” Dave Carney, a veteran Republican strategist based in New Hampshire, said. Although, he added: “If the president gets concessions and jobs continue to grow and most importantly voters give him credit for that victory, then things will improve for his party.”
The Brookings Institution, a centrist think tank in Washington, examined industries and jobs that would be affected by a trade war with China based on the threats being lobbed back and forth since Trump began moving in March to crack down on Beijing. The Washington Post’s Greg Sargent first reported the initial data, which was later expanded and shared with the Washington Examiner.
Nothing concrete has actually happened, yet. Wall Street, and top executives at corporations who stand to lose business, are operating under the assumption that a deal will be reached before the saber-rattling evolves into an extended showdown.
On Wednesday, the Dow Jones Industrial Average opened down more than 500 points after China responded to threats from the Trump administration to hike tariffs on $50 billion in Chinese imports with a similar proposal to target more than 100 American products, among them a range of automobiles and SUVs. By the time the market closed, it was up 231 points.
“We encourage both governments to work together to resolve issues between these two important economies,” the Ford Motor Company said in a statement.
The agriculture industry, the economic backbone of many rural communities in the heartland, is less sanguine and isn’t waiting for negotiations between Washington and Beijing to falter to sound the alarm. In a press release, the American Soybean Association said “Chinese Retaliation is No Longer a ‘What If’ for Soybean Farmers.”
Soybean farmers export 60 percent of their crop, about $14 billion worth annually, to China. ASA Vice President Davie Stephens, a soybean farmer in Clinton, Ky., said he awoke Wednesday morning to a 30-40 cent per bushel drop in the price of soybeans, which appeared related to the increased specter of a trade war.
“Farmers are worried,” Stephens said in a telephone conversation. “My local community would feel the impact.”
Trump at times has been bellicose in his rhetoric, vowing that he would do whatever is necessary to force China to treat U.S. imports fairly. “When you’re already $500 Billion DOWN, you can’t lose,” he tweeted. But the administration in general sought to calm nerves, with top officials insisting that Trump is intent on avoiding a major spat with Beijing.
“You know, there are carrots and sticks in life, but he is ultimately a free trader. He's said that to me, he's said it publicly. So he wants to solve this with the least amount of pain,” Larry Kudlow, the president’s chief economic adviser and an ardent free trader, told reporters.
Republicans worried about the midterm elections don’t sound reassured. Hoping to run on a $1.3 trillion tax overhaul that accelerated economic growth in the first quarter of the year and delivered massive tax cuts, Republicans have seen their economic message usurped by Trump’s proposed tariffs.
Worse, Republicans fear that an unintended trade war might erase the economic gains they’re depending on to buttress the party against political headwinds that threaten to wipe out their majorities in the House and Senate. As Brookings discovered, more than 2.1 million jobs could be adversely affected by a confrontation with China, including almost 1 million in the 449 Clinton counties.
That’s because China’s potential retaliatory targets include white-collar industries such as pharmaceuticals and aerospace. House Republicans are defending 23 districts won by Clinton 17 months ago, and trade war aftershocks that rumble through Clinton counties could add to GOP woes in the affected red seats.
“If I were a Democrat, what I would be running up Trump’s ass is how these shenanigans are DESTROYING values in 401ks and college savings plans,” a GOP strategist said. “Most people don’t know a cashew farmer or whiskey distiller but do worry about their own retirement account and paying for college.”