"Stop China" Kumbaya: Tom Friedman joins Steve Bannon

Trade wars make strange bedfellows. So is the current standoff between US and China. After three decades of diplomacy and WTO-like agreements, President Trump is trying sanctions and open confrontation to cajole China into respecting international rule of law and intellectual property.

According to Friedman -the most iconic mouthpiece for globalization since its famous book "The Lexus and The Olive Tree" coined the term twenty years ago, back in 1999-, it's due time for a "High Noon" moment of reckoning. Here's Friedman on the subject and on the record in his NYT op ed column:

"I’m glad Trump is confronting China on its market access barriers. Those are the real issue — not the bilateral trade imbalance. This is long overdue. But trade is not a zero-sum game. China can thrive and rise, and we can, too, at the same time. That’s what’s been happening for the past 40 years. But we’d be even better off if China offered the kind of easy access to its market for U.S. manufacturers that it enjoys in America. It’s time to recalibrate U.S.-China economic ties before it really is too late.  

What do I mean? China’s formula for success had three pillars. 

The first was a lot of hard work; delayed gratification; high savings; smart investments in infrastructure, education and research; and a Darwinian system of capitalism. In China’s “jungle capitalism,” 30 companies in the same business emerge and compete to see which becomes the alpha male and wins the government’s backing to go global. This system has produced high levels of innovation — Alibaba, Tencent, DJI — despite a censored internet, lack of a free press and an authoritarian government.

The second pillar was a system of cheating on World Trade Organization rules; the forced transfers of technology; the stealing of the intellectual property of others; nonreciprocal trade rules; and massive government support for the winners of both its Darwinian competitions and inefficient state-owned industries. 

The third pillar — never acknowledged by China — was a stable global trading system built by U.S. statesmen and sustained by the U.S. Navy. It’s been the U.S. Navy in the Pacific that has assured China’s trading partners there that China’s economic domination wouldn’t result in China’s geopolitical domination over them — and therefore made them open to massive trade and investment from China."

Bannon used the financial CNBC network to celebrate Trump's war trade stance:

This "coming together" in a tough stance reached even the Democratic trade committee chair, the rabid anti-Trump Chris Van Hollen, asking for even tougher stances on chinese companies such as ZTE

Economic forces seem to be realigning against China in a long-term game-changing bet. Market signs seem to indicate that there is no shortage of players wanting to gamble for this option. The stakes are high, the dimensions and global character of China's economic position in the world make the ripple effects on the interconnected international economy hard to predict:

In any case, the new strategic scenario seems headed to break the self-imposed boundaries of conventional wisdom, particularly the myth of an invincible authoritarian, state-controlled China model advantage over free market, entrepreneurial economies of the West.

For Trump's base, the realities of his trade war look different:

Free trade doesn't necessarily mean "free range" , one-sided trade deals, particularly when the other side has been voicing for years a "Made in China 2025" plan with targets of 90 percent "made in China" products.

It begs to wonder what kind of free trader is the government that accepts deals with an ultra-nationalist partner with an ultra-mercantilist policy such as China.

In any case, Trump is not provoking a trade war, but reacting to one that started decades ago and has been escalating at broad daylight.

It takes two to tango. This might be a rocky dance.

Betting the Ranch: Trump's tariff war gamble

Trade wars should be regulated by Congress. So should raising taxes such as tariffs on farmers and consumers . 

Success may dilute the risks and gravity of leaving such degree of power out of the control of Congress (COTUS) , but for those who (correctly) criticized executive over-extension in the cases of Iraq war and Obamacare, this war without troops (for now) should be equally put under constitutional surveillance, since the Constitution is pretty clear: 

It’s in Congress’s power “to lay and collect taxes, duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States,” and regulate trade between the US and other countries.

Over the years, and with the excuse of "war powers" and "national security", COTUS has turned this critical power to POTUS, with far-reaching, long-term consequences now in stark evidence. 

Would President Trump be able to start a trade war of this magnitude if he had to pass a law through Congress as the Constitution requires? 

One thing is for sure, even for those who oppose protectionism and correctly consider tariffs taxes on US consumers and companies (remember the GOP platform?): a trade war with China is a national security matter.

A trade war between US and China -which directly involves and affects EU and the rest of the world economy- has as much an impact -or perhaps even more- than a World War. If taken to the last consequences, it is a World War.

President Trump is betting the house in which 340+ million Americans live. Regardless of the fact that most of them didn't give him the popular vote, much less a mandate for a wide-range protectionist policy, they should be consulted through Congress as the US Constitution specifies.

This -not impeachment nor "Russian collusion" charges- is a constitutional crisis.

Protectionism goes against the very foundations of a country that was born out of a protest against tariffs, on the very year that Adam Smith published The Wealth of Nations and on the very principles of free trade and free markets that Smith proposed in 1776.

In a turn that reflects a significant change in the historical positions of the Republican Party,  a RINO president is embracing a long-held Democratic and Trade Union position, one that Bernie Sanders and the farthest Left of US's political spectrum would (and will) enthusiastically endorsed.

Precedent is a poor consolation, but it happened before: the Smoot-Hawley Act of 1930 -which arguably sank US back into the Great Depression- was launched by two Republican senators. 

So President Trump is not without party precedents nor company on this gamble.

Chances are that this will be -as Trump's sales argument goes- a tactical movement that will bring China into the fold of law-abiding nations and serious trade agreements and negotiations. History tells otherwise, both about China's WTO track record and the impacts (short and long-term) of tariffs. The graph below shows how low-tariffs after 1950 ushered a long, uninterrupted era of almost 90 years of US growth:

The current situation is no other thing -as Peter Navarro and Robert Lighthizer (the contemporary equivalents of Republican Senator Reed Smoot and Republican Representative Willis C. Hawley) disingenuously pretend- than the first salvo of a long and protracted protectionist era, which will exacerbate nationalist parties and rise social and ethnic tensions, not to mention plunge good part of the world -Europe, Asia, Latin America- into recession.

Note as an important point that Reed Smooth and Willis C. Hawley were elected members of US Congress, and Mr. Navarro and Mr. Lighhizer are not.

US Congress (COTUS) has abdicated its constitutional responsibilities.

"America First" is not a strategy, but a slogan. It's not even a new slogan. It used to be written in union's symbols. Of course, it doesn't take a rocket scientist to figure out that "China first", "Europe First" and "(whomever else) First" will follow. 

In a zero-sum game there is a winner and many losers. Over time, as in the classical Prisoner's Dilemma, there is a net loss for everyone, since the only "winning" strategy is  not to "win" deals but to accept moderate losses and win by growing the shared market. 

That is the only way to break away from "zero-sum" growth strategies and turn toward non-zero-sum , or "win-win" strategies that actually have grown the global economy during the past 30 years of globalization.

This is not an argument, but a proven truth that every student of 101 economics know.

But, as George Orwell famously said: "truth is the first victim of war".

I set this article for the record, hoping with Churchill, that "Americans will do the right thing after they have tried everything else."

EU Parliament elections: Populism Turns to the Right

The coming EU Parliament elections will check the strength and sustainability of the populist wave that has taken over UK and Italy, most of Eastern Europe and some smaller countries like Austria.

After an initial wave with Brexit and the triumph of Five Stars in Italy, the populist trend seems to have peaked. Part of this has to do with the poor government performance of the first wave in Spain and Greece -where the far left  Podemos lost votes and Syriza ended implementing an impopular but necessary stabilization program with the IMF-. 

Other, without doubt, with the chaotic and protracted drama around Brexit, which pitted Scotland, Ireland and London against the economically declining regions of England. The Brexiteers didn't have a clear plan nor credible leadership to form a government, and turned to a Remainer PM like Theresa May to implement a deal with EU. The result has been a long stalemate and cold feet for business that have been hemorrhaging out of UK for two years already.

According to a comprehensive Financial Times poll in all EU countries, UK and Italy will increase the seats for EU populists, but far short from a working majority able to elect a populist for the position of EU PM. (click to enlarge) 

While Spain turned to the moderate social-democratic center-left with PSOE, France  -which still has a dominant centrist in power- seems to be wobbling under the street riots promoted by the Yellow Vests anti-European populists.

A closer look by Politico polls show that the moderate center-Right and the center-Left will still hold majorities in the 2019-2024 EU Parliament, with the Liberal centrists as "king-makers" but also needing populist votes to form government.

The growth chart seems to show populists plateauing and moderates bouncing back, most likely as results of Brexit/UKIP, Podemos' and Syriza's fizzling after government and opposition fiascos.

Pro-EU forces hold a healthy 467 majority seats almost doubling Euro-skeptics.

All this said, the situation for the coming five years (2019-2024) is fluid, highly dependent on the economy, mostly at the mercy of the US-China trade brinkmanship.

Last but not least significant, US anti-EU nationalist Steve Bannon is working overtime propping up Trumpian-esque forces in UK (Brexit-UKIP) Italy (Salvini), France (Gillettes Jaunes),  Spain (Vox), Hungary (Orban) and even Brazil (Bolsonaro).

Those who underestimate Bannon's impact and power do so at their own peril. Trump might be less ideological and more pragmatic, but Bannon is a man on a mission, and that mission can generate a Second Coming for right-wing populism in EU. Is good to remind those who look down on this phenomenon that the  First Coming brought Hitler, Mussolini, Franco and WWII during the 1922-1932 decade, right (pun intended) for the hundred anniversary of the crowning of European fascism that preceded World War II.

The Long View: European history tends to repeat itself. During the 20th century two world wars erupted for the same reasons -nationalism, populism, economic depression, anti-immigration and the perennial antisemitism (particularly in Eastern Europe)-