Can you imagine if Barack Obama had delivered the Korean peace talks that Donald Trump just did? The world would be swamped with a flood of praise from around the globe.
But Trump only gets derision. For his methods and his results.
I don’t mind which position you take on Trump. I think he’s a blundering buffoon and a dodgy businessman whose style of politicking is incredibly effective.
Either way, seeing through the world’s hatred for Trump gives investors opportunities where others are blinded. You can make Trump pay.
Property prices near the North Korean border have doubled in one South Korean town. Are South Korean stocks next?
If Trump is successful in his pitch to Kim Jong-un, the economic transformation of North Korea is a fascinating prospect. The country is incredibly wealthy… in terms of natural resources. Just the sort of rare metals that companies like Samsung and LG need to cut productions costs. The hermit kingdom is also horrifically underdeveloped. The construction boom that’s at stake would flood South Korean companies with money and profitable projects.
Trump explained all this in his own style. He reportedly told Kim that North Korea could have the world’s best hotels…
Trade war tactics
It’s not just Korea that Trump is being lambasted on. His trade war delivers plenty of opportunities for investors too. And his success so far is undeniable to anyone not blinded by hate.
Already, Japan and South Korea have renegotiated their trade deals with the US. If Trump succeeds again with Europe and China, the future of US agriculture and manufacturing are looking promising.
The Balance summarised the biggest trade deficits the US has. You’ll notice, the list of countries is the same as those Trump is targeting:
China – $636 billion traded with a $375 billion deficit.
Canada – $582 billion traded with an $18 billion deficit.
Mexico – $557 billion traded with a $71 billion deficit.
Japan – $204 billion traded with a $69 billion deficit.
Germany – $171 billion traded with a $65 billion deficit.
The key is China, with its huge consumer electronics, clothing and machinery exports.
Actually reversing the US’s epic trade deficits would transform the economy. Reason magazine’s blog pointed out how:
Eliminating tariffs, quotas, and subsidies would hugely benefit consumers not only in the U.S. but around the world. For example, a 2010 study by European economists estimating the effect of totally eliminating all trade barriers between the United States and the European Union found that that would boost incomes in the E.U. by as much as $86 billion and incomes in the U.S. by as much $82 billion annually.
But can you see past Trump’s infuriating and pathetic facade to notice his tactics are working incredibly well?
Boris Johnson can. “I am increasingly admiring of Donald Trump. I have become more and more convinced that there is method in his madness,” said our foreign minister in secret.
“Imagine Trump doing Brexit,” Johnson continued. “He’d go in bloody hard… There’d be all sorts of breakdowns, all sorts of chaos. Everyone would think he’d gone mad. But actually, you might get somewhere. It’s a very, very good thought.”
It is a good thought, one I had in March in Capital & Conflict. In an article titled “Trump schools May in trade agreements”, I pointed out how it would go down:
We should’ve hired Donald Trump to negotiate Brexit. His advice would’ve been clear.
Trigger Article 50 and tell Europe we’re leaving. And then threaten it with a whole new set of trade barriers under World Trade Organisation (WTO) rules.
Its cars will be taxed, its cheese banned under new pasteurisation laws and its champagne outlawed for its high CO2 content. If any European government wants to access London’s financial markets, it’ll face a surcharge. And the Royal Navy will be inspecting any fishing vessels in British waters, ready to apply customs duties for imported fish.
The result of such an announcement would’ve been an excellent free-trade agreement with the EU.
This is the negotiation style Trump pursues. It’s similar to the one you use to buy a house or used car.
First, you make a stupidly low bid. The whole point is to get negotiations off on the right foot. You want to ensure your seller is unsettled and begin the bidding on a level that favours you. The eventual compromise will be far more in your favour that way. If you make an honest offer, you’ll get ripped off.
Trump probably would’ve added a politically incorrect comment about the recent scandal that the Germans were testing their incorrectly measured diesel gasses on humans.
What about the chaos that Johnson says would result from Trump leading Brexit negotiations? Well, we’ve just seen where that chaos lead to for Korea. Hurling insults and threatening annihilation delivered a historic peace summit. And in trade negotiations with Japan and South Korea, threatening trade restrictions led to new deals that are more favourable to the US.
China and the EU are proving a tougher nut to crack.
Beware of Trump’s false aims, not claims
At the G7 meeting in Canada, Trump unexpectedly exposed his true position on trade – one that I’ve been claiming he holds for months. Here’s what he said:
“Ultimately that’s what you want, you want tariff free, no barriers, and you want no subsides because you have some countries subsidizing industries and that’s not fair. So you go tariff free, you go barrier free, you go subsidy free, that’s the way you learned at the Wharton School of Finance.”
I cannot imagine what Trump was doing at Wharton. But he is in favour of free trade. Probably just because this would benefit the US and its huge trade deficit.
He certainly disagrees about how to get there though. In the past, the US has tried to lead by example in an imperfect way. Its trade restrictions and subsidies are lower than others’ in most cases according to the WTO.
Trump’s point is that the easiest way to get to free trade is different. He wants to give countries with restrictive trade policies a taste of their own medicine. The US will no longer be “the piggy bank that everybody is robbing,” he said in a tweet.
This is not the same as being against free trade. Trump’s tariffs are about making other nations offer to back down on their trade barriers and subsidies in exchange for Trump promising the same. For this to work, he had to put them up in the first place.
This tweet from Trump made things particularly clear:
Why should I, as President of the United States, allow countries to continue to make Massive Trade Surpluses, as they have for decades … (while) the U.S. pays close to the entire cost of NATO-protecting many of these same countries that rip us off on Trade?
But will Trump’s methods continue to work?
The most amusing part of Trump’s tactics is what they do to his opposition.
Not the principled opposition that has a belief and holds to it regardless who supports it. I mean the sort of opposition that is first and foremost anti-Trump, no matter his position. He could pull off a historic meeting with North Korea’s Kim and they’d still criticise him.
The trouble with doing so is that Trump pursues the opposite policy to his goal at first. He pushes someone who he wants to pull in any given direction. If he wants peace in Korea, he insults Kim. If he wants free trade, he raises tariffs.
We’ve looked into why this works before. It’s basic human psychology. You take advantage of predictable human behaviour.
For today, notice where this tactic leaves Trump haters. They lambast him for being anti-trade and inciting violence in Korea. Then, when he delivers peace and freer trade, this leaves his detractors completely stranded. They are either hypocrites or Trump supporters. They’d much rather be hypocrites, which explains Trump’s impressive popularity ratings – higher than Obama’s according to a Rasmussen poll.
Trump is not sowing discord. He is sowing discredit among his detractors. That is the key to his ongoing political success.
Having campaigned for restrictive trade practices for years, Trump’s critics on the left are now arguing in favour of free trade. Imagine their total confusion to realise that this is Trump’s goal.
By the way, if you haven’t had the chance to check out our new Gold Podcast, you can do so here. You’ll discover from our own Boaz Shoshan and renowned gold bug John Butler why the precious metal is due for a comeback.
Until next time,
Capital & Conflict
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