No Signs Trade War Has Hurt US Economy

Simone Gao: On Dec. 5, the Dow fell nearly 800 points. The Washington Post suggested it dropped because of the contradicting reports from China and the U.S. So my question is this: If there were discrepancies in the description between the two sides, are the American people really inclined to believe the Chinese side? Otherwise, why did the stock market fall?

Greg Autry: So the Chinese have a much better perception management campaign, the Communist Party has the best global propaganda system in the world. And they’re very good at making their message be felt. And, frankly, most American multinational corporations are more aligned with the Chinese interests. That’s where most of their jobs are and their products are produced. And most American investment bankers and finance folks that get quoted in the media or make donations to D.C. think tanks that produce the dominant paradigm that ends up in the financial media, these folks are all aligned with the Chinese side, and they take their messaging right from the Communist Party, and they repeat it. And that’s easy to do, and the American public is used to that and comfortable with that, in fact. But don’t assume that because you see that Dow fall significantly or the bond market adjust that that’s the American public. Most of the American public are not active traders of equities. And the ones that are, as individuals, that’s a very small amount of the market. When the market moves, it’s because investment bankers and financial professionals who are aligned with the Chinese side of things are unhappy. And so I think they’ve realized that this isn’t going to happen. And so they’ve pulled back a bit, and that shouldn’t be a surprise.

Simone Gao: Talking about the U.S. economy, a number of investors, including Goldman Sachs, predicted a U.S. recession next year. What do you think?

Greg Autry: Well, first of all, we’ve got to realize we’ve had a ten-year growth spurt, so having a recession next year would not be a surprise. There are certainly a number of indicators that many of the markets, including the real estate and equity markets, are, as we say, long in the tooth, meaning that they’ve grown for so long that a correction is to be expected. So I don’t know that that won’t happen. The yield curve and other indicators suggest that it’s entirely possible. I would hope the Federal Reserve would stop raising interest rates at this point because that has helped move us to that position. But we’re in a really strong position and, if we underwent any normal recession, it wouldn’t be a significant problem. The problem with Goldman Sachs and most of the investment banks that control a lot of the financial media opinions, their interest is only in what happens next quarter and returning short-term profits because the analysts and traders at those companies retire early, and the CEOs did help back the multinational corporations. They’re only, on average, a CEO for five years. So they want short-term results. They don’t care about the long-term interests of the United States, the long-term interests of workers, our national security, or any of those other things. And Donald Trump understands that, and I don’t think he’s going to take their opinions any more seriously than any of the other stakeholders he represents.

Simone Gao: That said, do you think a prolonged trade war with China will really hurt the U.S. economy? Or has it already hurt the U.S. economy?

Greg Autry: So far there’s no sign that it’s hurt the U.S. economy. And one of the important things is, of course, the people who make money off of the China trade have been trying to scare American consumers into believing that the prices of their goods would increase substantially, and that just isn’t true. It’s important to understand that any time a tax, a tariff, or additional cost comes into the supply chain for a product, that that cost is not just deposited on the consumers. Businesses can’t just raise the price by 25 percent and make consumers pay more. They have to deal with the reality of the economic demand curve that exists: What are consumers willing to pay and able to pay for certain goods. And the consumers will pay a small portion of it, but most of it ends up reducing the margins of the producers and the distributors in the chain. And we’ve already seen that the U.S. retailers aren’t willing to take that cost, and they’ve pushed it right back on the Chinese producers. So not only are Chinese producers seeing less demand, but they’re also getting a lot less margin for their products. So, so far, it hasn’t hurt the U.S. economy. That said, trade is a great, valuable thing, and we’d love to have more of it, I’m sure. But if trade means you get to sell 100 million or even a billion dollars worth of soybeans, but you have to look the other way while China steals 400 million dollars worth of high technology every year, that is not realistic, and we’ve got to get over this kind of anecdotal “look at that, look at this particular loss” in one market and realize that the overall scope of things has been very, very bad for the last 20 years. And with the current deficit that we run with China, if we just cut off trade with China and didn’t buy or sell them anything, American GDP would go up by about two-and-a-half percent, all other things being equal. And that’s pretty incredible. So we need to be realistic about what the overall effect is and not focus on the trees. The forest is more important.