No Deal

David Goldman (Spengler) writes that “Republican voters bought Trump’s message that the wicked Chinese and the feckless Mexicans have stolen jobs and wealth that rightfully belonged to Americans, and that he, Donald Trump, with his world-class negotiating skills, would go out and get them back.”

The problem is that “There’s nothing to negotiate, no pie to re-divide, no Chinese hoard to bring home. World exports are down by 12% year-on-year in terms of price and dead flat in terms of volume, something that happens during recessions. The world economy is dead in the water. The US economy grew at an annual rate of just half a percent during the first quarter, which is a recession in all but name. Japan shrank, and Europe grew by 1.6% (and has only just regained its overall output level of 2007). China is growing, but too slowly to move the needle elsewhere.”

Besides, “everyone already has had the same idea as Mr. Trump. The Bank of Japan and the European Central Bank have imposed negative interest rates on their money markets. If you buy a 10-year Japanese government bond or a 5-year German government bond, you get back less than you paid for it: you pay the government to hold your money. When it costs money to save, financial markets lose their reason to exist. The Europeans and Japanese have done this to try to keep their currencies cheap and get a bit more of the stagnant volume of world trade. Now that the Federal Reserve has backed off from raising interest rates in the face of uniformly depressing economic data, the dollar is falling, despite the best efforts of the Europeans and Japanese to cheapen their currencies.”

The only solution, Goldman argues, is wide-ranging structural reform to “encourage innovation and entrepreneurship.” No one is talking about that, and Goldman rightly worries about how Americans will react when they discover that Trump has no deal to make.