What happened to that ‘trade war’ that the liberal media was insistent would happen?
But at the moment, the primary conclusion to draw is that the US-China trade war isn’t yet hurting China all that much, says Evans-Pritchard: “This is a reminder that, for now at least, the main headwind to China’s economy remains the domestically driven slowdown in credit growth.” And despite what he might claim, Trump’s policies have zilch do with that.
Oh no, another left-wing narrative bites the dust. You have to understand how the media (and this includes virtually all media, including Fox News and ‘alternative media’ such as Alex Jones) works. The media does not care about accuracy or accountability, but about generating outrage and fear, which means more ad clicks and more revenue.
And what about tariffs causing high inflation? Wrong again:
The Labor Department said Thursday that the September gain in its closely watched consumer price index followed a 0.2 percent rise in August. It was the smallest monthly gain since June.
This time, instead of the let-wing media primarily being wrong, it was libertarians and some neocons, who insisted that the tariffs would cause high inflation, which they obviously didn’t. Same for the Trump tax cuts, which the left-wing media predicted would also cause high inflation.
Inflation just refuses to budge despite tariffs and increased spending (such as for tax cuts, healthcare, and defense).
So what is the explanation for this. First, there was a modest uptick in inflation after Trump won. I suspect this was due to the expectation of tax cuts rising from 20% (Trump’s odds of winning on election night) to nearly 100% (after he won), so in accordance with the ‘rational expectations’ hypothesis, the market and economy acted as if the tax cuts had already happened by increasing investment as shown below, causing the slight up-tick in inflation in late 2016 and early 2017.
Note how the uptick began as soon as he was elected, a year before the actual tax cuts went into effect.
But as predicted last year, the Trump tax cuts may actually be deflationary by encouraging de-leveraging (using the tax cuts to pay-down consumer debt) and by depressing bond yields (people and businesses using their tax cuts to buy long-term bonds). Rather than the money entering the economy, which would cause inflation, it gets invested in asset classes and used to pay down-debts, which is not as inflationary. Additionally, the tax cuts, despite their size, are still not big enough to cause much inflation.
Overall, whether the tax cuts are modestly inflationary or deflationary, there was no meaningful uptick in inflation.
The tariffs similarly did not cause inflation. This is for two reasons: despite the media hype, they are not that big of a deal (total trade with China is approx. $1 trillion annually. A 10% tariff on $15-100 billion in raw goods is inconsequential). Second, the U.S. dollar is strong, so a strong dollar encourages imports.
A counter-argument is that it’s too soon to know what the effect of the tariffs will be. But it’s already been nearly a year, and there has been little to no discernible uptick in inflation attributable to the tariffs nor weakness in the economy. Second, if market participants and economic agents were certain about impending inflation, such expectations would be be reflected in the data in accordance with the ‘rational expectations’ hypothesis, but the data and sentiment shows sanguine concerns over inflation.
For an economy with reserve currency status, such as the U.S. or Japan, fiscal and monetary policy can have the opposite expected or intended effect. If tariffs are supposed to be a tailwind on growth by causing inflation, then rather than high inflation, this triggers a ‘flight to safety’, the result being a stronger dollar and lower long-term bond yields, both of which are deflationary. The strong dollar boosts imports and lowers inflation. This is why many libertarians, who predicted high inflation juxtaposed with economic weakness (stagflation) as a result of Trump’s tariffs, were wrong. This is also why there was no trade war. For economies that lack such reserve status, actions that are supposed to be inflationary, tend to actually result in inflation (and stagflation in the case of tariffs). This is because foreign currencies and bonds experience an exodus when there is a loss of confidence in the economy, hence causing inflation and a boost to the CPI. In the U.S., there is the exact opposite (an inflow). Someone wrote awhile ago that if TARP had failed, that there would be inflation due to the money printing. I argued that due to the ‘flight to safety’, rather than the money printing causing inflation, the dollar would surge and the yield curve would flatten.
Also, because wealth is almost always denominated in U.S. dollars (such as the Forbes 400 list, which is always in dollars), policy that would cause a decline in the U.S. dollar, does not actually hurt the wealth of U.S. assets, which is a feature unique only to America. For example, policy makers will cut rates to spur growth. This is considered inflationary. For foreign countries, this carries a cost in the form of a falling currency and hence higher import costs and inflation, and a loss of wealth too.
Anyway, the stock market fell 6% a couple weeks ago. I did not write about it because I know it’s going to quickly recover as it always has done in the past. As of 10/16/2018, the S&P 500 is up 1.8%. It’s already making a big comeback and will likely make new highs soon. The liberal media hopes that by scaring people, the stock market will fall further, the economy will weaken, and Trump’s reelection hopes will fall. You have to tune-out the media, which tends to always be wrong. For much of 2018, everyone has been talking about trade wars, yet trade with China has only increased. The liberal media smeared Brett Kavanaugh in the hope of blocking his confirmation, yet he was cleared. Again, I’m not just singling-out the liberal media. Many on the ‘right’ were wrong about trade wars and tariffs too. You have to clear your mind of ideology-motivated reasoning and put facts and objective reality foremost. Scott Adams may argue that people don’t know what is real or not, but if you filter out ideology, you will generally have a higher resolution of understanding than someone who seeks ideological confirmation.