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#10 (11/26/2018): Deficit Schmeficit, Says Italy

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#10 (11/26/2018): Deficit Schmeficit, Says Italy

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https://www.bbc.com/news/world-europe-46343033

Italy has issued a new budget that doesn’t conform to the demarcated ratios of deficit and debt to GDP required of European Union (EU) members. In its attempt to end poverty and at the risk of financial instability, Italy may face billions of fines from the EU commission for its fiscal decisions.

This relates directly to our discussion of transnational governance and intergovernmental organizations, and their ability to enforce the conformity of its members. The EU has extensive enforcement mechanisms at its disposal to ensure compliance including fines, sanctions and expulsion from trade zone membership.

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Italy's government says it will stick to its high-spending budget plans, setting up a potential stand-off with the European Union over its deficit.

PM Giuseppe Conte, who held talks with deputies Matteo Salvini and Luigi Di Maio on Monday, said the objectives for 2019 had already been fixed.

However, Mr Di Maio hinted earlier that the government might be willing to cut the deficit target a little.

The European Commission has threatened fines unless Italy revises its plans.

The Italian government has vowed to "end poverty", trebling the previous government's planned budget deficit.

Italian media were on Monday morning reporting that the deficit could be slashed from a planned 2.4% to 2.2% of GDP - but government sources quoted by Reuters suggested the deficit could be reduced to as low as 2%.

Deputy Prime Minister Luigi Di Maio suggested the government might be willing to reduce the deficit target to end the stand-off with the EU saying: "If, during the negotiating process, the deficit has to be reduced a bit, that's not a big deal."

But in a joint statement later on Monday, the three men appeared to take a tougher line, saying: "The objectives that have already been fixed are confirmed."

Italy's draft budget contains expensive measures for introducing a guaranteed basic monthly income of about €780 (£700) for poor families, and scrapping extensions to the retirement age.

Monday's statements followed a weekend meeting in Brussels between Mr Conte and European Commission President Jean-Claude Juncker.

Italy's populists agree new budget

Italy defies EU demand to cut budget

EU rejects debt-hit Italy's budget

It was not clear how any reduction in spending would be financed if key election promises made by the ruling populist League and Five Star parties remained untouched. Nor was it certain that the changes would be enough to satisfy the European Commission.

'Sleepwalking into instability'

The Commission announced last Wednesday that Italy was "sleepwalking into instability" and that opening a case under the eurozone's "excessive deficit procedure" was now on the cards.

Fines under that procedure could start at 0.2% of Italy's entire GDP - which would measure in the billions of euros.

The reason for Europe's concern is that while Italy is the third-largest economy in the eurozone, with a GDP of more than two trillion euro, it also has a large amount of debt.

Eurozone rules say that countries should both keep their deficit to less than 3% of GDP - which Italy's plans do - but also keep national debt to 60% of GDP or less.

Many countries exceed that debt limit without any action being taken. But at almost 132% of GDP, Italy has the second highest rate in the bloc.

When Brussels received Italy's draft budget, it said the country's refusal to deal with its debt and essentially triple the planned deficit was unacceptable.

Italy, meanwhile, maintained that investment was needed to kick-start the sluggish Italian economy and reduce the suffering of its citizens.

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Italy's government says it will stick to its high-spending budget plans, setting up a potential stand-off with the European Union over its deficit. PM Giuseppe Conte, who held talks with deputies Matteo Salvini and Luigi Di Maio on Monday, said the objectives for 2019 had already been fixed.

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#9 (11/12/2018): Remittances as Investment, No Longer a Simple Stop-Gap

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#9 (11/12/2018): Remittances as Investment, No Longer a Simple Stop-Gap

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https://www.economist.com/finance-and-economics/2018/11/08/investment-platforms-vie-to-capture-a-share-of-global-remittances

Through the use of crowdfunding platforms and new regulations to prevent money laundering, remittances now have a new form of transfer that is changing how they’re invested. Formerly primarily used for food and housing, they’re now being used to invest in farms and small businesses, particularly in Africa, to better facilitate development.

This relates to our discussion on remittances as a replacement to international aid funds, especially as they’re now better situated to facilitate production, rather than just sustenance. It also relates to international governance as countries must ensure crowdfunded remittances aren’t used as money laundering fronts or to aid terrorism to avoid the ire of core countries.

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I N 2016 AYO ADEWUNMI, a Nigerian-born agricultural trader living in London, bought a five-hectare farm in his homeland. It has produced little since. "I am not in the country, so I have to rely on third parties. It's just not good enough," he says.
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Mr Adewunmi has since discovered another, potentially more satisfactory way to make such investments: through FarmCrowdy, a crowdfunding platform that lends to Nigerian farms and provides technical assistance to their owners. The two-year-old startup, which is considering expanding into Ghana, places high hopes in the African diaspora as a source of funds.

The case for such platforms goes beyond agriculture. Global remittances are expected to soar from $468bn in 2010 to $667bn in 2019. They are among the top two foreign-currency sources in several countries, including Kenya and the Philippines. Yet hardly any of the money is invested.

In part, this is because recipients use three-quarters of the money for basics such as food and housing. But it is also because emigrants who want to invest back home have few options. New investment channels could attract lots of extra cash-about $73bn a year in Commonwealth countries alone, according to research by the 53-country grouping.

Crowdfunding platforms would enable investors to put modest sums directly into smaller businesses in developing countries, which are often cash-starved. Yet of the emerging world's 85 debt- and equity-crowdfunding ventures, only a handful raise money abroad. Several platforms set up in rich countries over the past decade to invest in developing countries, including Emerging Crowd, Homestrings and Enable Impact, quickly folded.

A big problem is that few developing countries have rules about crowdfunding. Many have allowed activity so far chiefly because the industry is so small, says Anton Root of Allied Crowds, a consultancy. Cross-border transfers using such platforms easily fall foul of rich countries' rules intended to stop money-laundering and the financing of terrorism.

Some developing countries have realised that they need to act. Thailand, Malaysia, Singapore and Indonesia have all recently passed regulations on equity crowdfunding or peer-to-peer lending. But from a cross-border perspective, Africa seems most inventive, owing to active entrepreneurs and Western help.

Last month the British government approved a grant of £230,000 ($300,000) to the African Crowdfunding Association to help it craft model accreditation and investor-protection rules. Elizabeth Howard of LelapaFund, a platform focused on east Africa, is part of an effort to see such rules adopted across the continent. That would help reassure sending countries that transfers do not end up in the wrong hands, she says. She hopes to enlist the support of the Central Bank of West African States, which oversees eight Francophone countries, at a gathering of crowdfunders and regulators sponsored by the French government in Dakar, in Senegal, this month.

Thameur Hemdane of Afrikwity, a platform targeting Francophone Africa, says the industry will also study whether prospective laws could be expanded to the Central African Economic and Monetary Community, a grouping of six countries. Harmonised rules will not guarantee crowdfunders' success, but would be a useful step towards raising the amount of diaspora capital that is put to productive use.

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Investment platforms vie to capture a share of global remittances

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IN 2016 AYO ADEWUNMI, a Nigerian-born agricultural trader living in London, bought a five-hectare farm in his homeland. It has produced little since. "I am not in the country, so I have to rely on third parties. It's just not good enough," he says.

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#8 (11/06/2018): Demagogue to Demagogue-Sanctions is the Word of the Day

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#8 (11/06/2018): Demagogue to Demagogue-Sanctions is the Word of the Day

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https://www.bbc.com/news/world-middle-east-46059036

Unilateral sanctions imposed on Iran by President Trump have little support abroad, however the threat of secondary sanctions have caused many businesses around the world to toe the line due to their reliance on the US banking system. The EU is putting measures in place to get around the sanctions, but they may not be very effective. The result will likely be that Iran turns to China and Russia to keep its economy afloat.

The main tie-in to class is trade and the consequences of the decisions by core nations influencing the economies of other nations without the need to use military might, but through economic means alone.

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New tough sanctions targeting Iran's oil sector, imposed by the United States, come into force on Monday.

The Iranian president, Hassan Rouhani, has responded robustly.

"There is no doubt that the United States will not achieve success with this new plot against Iran as they are retreating step by step."

Iran is heavily dependent on its exports of oil, and renewed sanctions, if effective, would hit the economy hard.

The EU has proposed supporting companies trading with Iran despite these new sanctions.

But will these companies risk being hit by secondary sanctions which would limit their own ability to trade with the US?

Why is America imposing sanctions?

Angered at what he describes as a terrible deal, President Donald Trump earlier this year pulled the US out of a multilateral agreement reached with Iran in 2015, under which strict controls were placed on Iran's nuclear programme in return for the lifting of a wide range of sanctions.

As a result, sanctions lifted by the US and others in 2016 are now being unilaterally re-imposed by the United States.

Iran nuclear deal - Key details

The impact of Iran sanctions

But other countries, including those of the European Union, believe Iran is holding to its part of the bargain on the nuclear deal and have made clear their intention not to follow America's lead.

Such is the dominance of the US in global trade, that even the announcement of the renewed sanctions has been enough to trigger a wave of international companies pulling their investments out of Iran, and its crude oil exports have been falling.

How will US sanctions work?

The latest US measures exclude any company that trades with Iran from doing business in the United States.

In addition, under far-reaching secondary sanctions, any US company faces punishment if it does business with a company that does business with Iran.

Sanctions on the banking sector will also be introduced on Monday. In August measures were imposed on a number of industries including trade in gold, precious metals and the automotive sector.

The US has made it clear it wants eventually to cut off Iran's oil trade entirely, but has allowed eight countries to maintain imports as a temporary concession to give them time to reduce imports. US allies such as Italy, India, Japan and South Korea are among the eight, the Associated Press reports.

Getting around sanctions

In order to allow companies to trade with Iran and not face stiff US penalties, the EU plans to implement a payment mechanism - a Special Purpose Vehicle (SPV) - that will enable these companies to avoid the US financial system.

Like a bank, the SPV, would handle transactions between Iran and companies trading with it, avoiding direct payments into and out of Iran.

So when Iran exports oil to a country in the EU, the company from the receiving country would pay into the SPV.

Iran can then use the payment as credit to buy goods from other countries in the EU through the SPV.

The EU has also updated a statute - called a blocking statue - that allows EU firms to recover damages from US sanctions.

So will they hold?

Even with the EU plan in place, the costs of doing any Iran-related business could still be too high for many companies.

For example, even if the shipping operator were to purchase oil through the SPV mechanism, the company insuring the cargo may still face the threat of secondary sanctions and the potential loss of all its business in the United States.

Iran's economy isn't directly reliant on the US financial system, says Richard Nephew, a sanctions expert and senior researcher at Columbia University.

"But the issue is that most of Iran's biggest trading partners do and that affects their readiness to put at risk their access to the United States to do business with Iran."

He says small or medium-sized companies are more likely than large companies to use the SPV.

Another problem is that the product used in the SPV to trade with Iran may also violate secondary sanctions, says Leigh Hansson, head of international trade and national security at Reed Smith. "The transaction itself will be problematic."

Temporary compromise?

The US had insisted on cutting exports to zero but that seems unlikely as it would increase the price of oil, says Scott Lucas, a professor of international politics at Birmingham University.

In addition to the countries allowed to continue buying Iranian oil, the backing of China, Iran's largest trading partner, may also prove critical.

The last time international sanctions were imposed on its oil industry between 2010 and 2016, Iran's exports fell by almost a half.

There's no doubt exports will be affected this time around too, but it's also clear that Iran and its remaining business partners will be working hard to maintain trading links.

"Don't be disillusioned about how painful this will be," says Ellie Geranmayeh, senior policy fellow at the European Council on Foreign Relations. But "Iran has weathered multiple rounds of sanctions before."

Iranians will be forced into finding creative ways to sell oil, relying on their years of experience of life under previous sanctions.

And to fill the gap left by lost European investment, Iran will be looking east to forge new links with Russia and China.
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The US is set to impose a new round of sanctions on Iran's oil and banking sectors.

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#7 (10/22/2018): The Three Amigos Ride Again

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#7 (10/22/2018): The Three Amigos Ride Again

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https://www.bbc.com/news/world-us-canada-45674261

The US, Mexico, and Canada have agreed on the content of, but not ratified, the new NAFTA accord. It will have sweeping effects on the auto manufacturing and dairy industries, steel and aluminum suppliers, and tech and pharmaceutical companies.

Tying this to class is the discussion on international trade, regional alliances, and the ability of wealthier nations to dictate trade terms. It also has bearing on our Case Study exercise in terms of comprise and the fact that no single participant should be entirely satisfied with the outcome.

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After a few hectic final weeks and a last-minute, late-night scramble, the United States, Canada and Mexico have come to an agreement in principle on a revised North American Free Trade Agreement - a resolution 14 months in the making.

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#6 (10/19/2018): Universal Civil Rights or Cheap Oil- We Can't Have Both

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#6 (10/19/2018): Universal Civil Rights or Cheap Oil- We Can't Have Both

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https://www.bbc.com/news/business-45863548

Amid suspicions of Saudi involvement in the slaying of journalist Jamal Khashoggi, the US has threatened sanctions, despite their potential to cause massive increases in oil prices. Any sanctions that impact the Saudi’s position in the global market will have widespread ramifications in the global trade structure.

This relates to the topic of global trade and the interrelatedness of national markets. Especially Porter’s article regarding Trump’s tendency to diverge from the “Postwar order”. By unilaterally changing terms of trade with a country who is central to the global market, he could potentially upset the entire balance and wreak havoc on economies worldwide.

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The disappearance of the Saudi Arabian journalist Jamal Khashoggi has raised the possibility of sanctions.

US President Donald Trump threatened "severe punishment" if Saudi Arabia is found responsible.

There has been widespread speculation about what has happened to Mr Khashoggi. Turkish officials believe he may have been murdered when he visited the Saudi consulate in Istanbul. Saudi Arabia denies the allegation and says it would respond to any sanctions.

So what's at stake?

Total goods exports from the UK to Saudi Arabia in 2017 were worth about £4.2 billion, an increase of 120% compared with ten years earlier. Goods imports from Saudi Arabia were worth £2.4 billion (also more than double the figure for ten years earlier). So the UK had a surplus of £1.8 billion in goods trade.

The top UK export categories were various types of machinery, aircraft, arms and vehicles, including £280 million of cars.

Oil accounted for more than half of the imports from Saudi Arabia, including crude and refined products. Other goods included machinery and electrical equipment, and photographic, cinematographic and medical equipment.

Although the UK produces crude oil from the North Sea and to a limited extent on land as well, it's more than a decade since the UK was self-sufficient. Saudi Arabia accounted for about 3% of British oil imports last year.

The UK's dependence on Saudi Arabia for oil is significant, but it's worth remembering that any sanctions action which disrupted Saudi Arabia's place in the global market would lead to all oil - wherever it is from - becoming more expensive, probably by a large amount.

UK exports of services to Saudi Arabia in 2017 were £2 billion. Imports of services were worth about a quarter of that amount. The UK had a surplus of about £1.5 billion in services.

Travel services were the biggest category of trade in both directions. For UK exports, financial services came in second.

Did Apple Watch record Khashoggi killing?

What we know about Saudi journalist's disappearance

The journalist who vanished into a consulate

Why Khashoggi case alarms Saudi activists

The arms trade

There has been public debate about the supply of weapons to Saudi Arabia, particularly in light of the Saudi involvement in the conflict in Yemen.

Research by the Stockholm International Peace Research Institute, a think tank which monitors the global weapons industry, puts Britain in second place as a supplier of "major arms" to Saudi Arabia, behind the United States and ahead of France.

Saudi Arabia's total imports of major arms more than tripled in the period to 2012-2017 compared with the previous five years.

Global trade

Saudi Arabia's biggest single supplier of imports is China, followed closely by the United States. The UK comes in ninth. The main types of goods include machinery, vehicles and medicines.

Its exports are dominated by oil and gas, including the products of its refineries (such as diesel, petrol, jet fuel and raw materials for the petrochemical industry).

Two-thirds of crude oil exports went to Asia in 2016. Out of the refined products, 45% of exports went to Asia, with 40% going to Europe. Saudi Arabia is the second largest foreign supplier to the United States of oil, after Canada.

The overall trade balance varies widely due to the dominance of oil in Saudi exports. This year the IMF projects a surplus in what is called the current account (which is trade in goods and services and some financial transactions) of $65 billion or 8.4% of annual economic activity or GDP. The equivalent figures for 2015 (when the oil price was falling) were a deficit of $56.7 billion or 8.7% of GDP.
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Arms sales aren't UK's biggest export to Saudi, so what is?

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The disappearance of the Saudi Arabian journalist Jamal Khashoggi has raised the possibility of sanctions. US President Donald Trump threatened "severe punishment" if Saudi Arabia is found responsible. There has been widespread speculation about what has happened to Mr Khashoggi. Turkish officials believe he may have been murdered when he visited the Saudi consulate in Istanbul.

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https://ci-primo.hosted.exlibrisgroup.com/primo-explore/openurl?genre=article&atitle=Africa%E2%80%99s%20most%20attractive%20economy%20in%20great%20shape.&title=Foreign%20Policy&issn=00157228&isbn=&volume=&issue=229&date=20180701&aulast=&spage=66&pages=66-66&sid=EBSCO:Academic%20Search%20Premier:130884595&vid=01CALS_UCI&institution=01CALS_UCI&url_ctx_val=&url_ctx_fmt=null&isSerivcesPage=true&lang=en_US

This article discusses Morocco’s economy and lauds its success. It’s currently the top destination for FDI inflows in Africa and its economy continues to grow, making it a prime emerging market for foreign investment.

This is relevant to our discussion of Foreign Direct Investment that we know can be beneficial for growth in the short-term, yet detrimental to economic growth in the long-run. Also, a majority of inflows to Morocco come from the US which is in line with overall trends of outflows and inflows across the globe which was discussed in class.

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#4 (10/12/2018): Marx, Keynes, and Modern Capitalism- Can Profitability and Equality Co-Exist?

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#4 (10/12/2018): Marx, Keynes, and Modern Capitalism- Can Profitability and Equality Co-Exist?

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https://www.foreignaffairs.com/articles/world/2018-06-14/marxist-world

Varghese discusses Marx’s critique of Capitalism and how it’s led to concentrated wealth, driven down real wages, and dislocated workers through automation. This was brought about by capital winning over labor in politics, despite labor’s proven ability to rein in the intemperance of capital. Capitalism can be great for everyone with a little political oversight.

It’s relevant because it discusses the effects of Keynesian v. Hayekian thinking on the structure of Capitalist economies. Demand-side practices, strong labor unions, and liberal monetary policies temporarily resulted in economic equality, efficiency, and near full employment, yet Hayekian thinking has resulted in increased profitability and massive economic inequality.

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After nearly every economic downturn, voices appear suggesting that Marx was right to predict that the system would eventually destroy itself. Today, however, the problem is not a sudden crisis of capitalism but its normal workings, which in recent decades have revived pathologies that the developed world seemed to have left behind.

Since 1967, median household income in the United States, adjusted for inflation, has stagnated for the bottom 60 percent of the population, even as wealth and income for the richest Americans have soared. Changes in Europe, although less stark, point in the same direction. Corporate profits are at their highest levels since the 1960s, yet corporations are increasingly choosing to save those profits rather than invest them, further hurting productivity and wages. And recently, these changes have been accompanied by a hollowing out of democracy and its replacement with technocratic rule by globalized elites.

Mainstream theorists tend to see these developments as a puzzling departure from the promises of capitalism, but they would not have surprised Marx. He predicted that capitalism's internal logic would over time lead to rising inequality, chronic unemployment and underemployment, stagnant wages, the dominance of large, powerful firms, and the creation of an entrenched elite whose power would act as a barrier to social progress. Eventually, the combined weight of these problems would spark a general crisis, ending in revolution.

Marx believed the revolution would come in the most advanced capitalist economies. Instead, it came in less developed ones, such as Russia and China, where communism ushered in authoritarian government and economic stagnation. During the middle of the twentieth century, meanwhile, the rich countries of Western Europe and the United States learned to manage, for a time, the instability and inequality that had characterized capitalism in Marx's day. Together, these trends discredited Marx's ideas in the eyes of many.

Yet despite the disasters of the Soviet Union and the countries that followed its model, Marx's theory remains one of the most perceptive critiques

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After nearly every economic downturn, voices appear suggesting that Marx was right to predict that the system would eventually destroy itself. Today, however, the problem is not a sudden crisis of capitalism but its normal workings, which in recent decades have revived pathologies that the developed world seemed to have left behind.

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#3 (10/01/2018): Liberalism and Global Interdependence- Bretton Woods Lives On

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#3 (10/01/2018): Liberalism and Global Interdependence- Bretton Woods Lives On

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https://www.foreignaffairs.com/articles/world/2018-06-14/liberal-world

Despite the recent rise in pro-nationalist sentiments, the liberal ideologies enshrined in the institutions created by the Bretton Woods Conference continue to guide the world toward the best solutions for economic, environmental, and security concerns, even those the institutions and ideologies themselves created. Liberal ideals are enduring due to the growing interdependence of the world’s nations and the entrenchment of international institutions.

It’s relevant in multiple respects, including discussion of the institutions created by the Bretton Woods Conference that are guided by values of liberalism and the need for international regulatory bodies regarding shared economic and social relationships.

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Decades after they were supposedly banished from the West, the dark forces of world politics- illiberalism, autocracy, nationalism, protectionism, spheres of influence, territorial revisionism-have reasserted themselves. China and Russia have dashed all hopes that they would quickly transition to democracy and support the liberal world order. To the contrary, they have strengthened their authoritarian systems at home and flouted norms abroad. Even more stunning, with the United Kingdom having voted for Brexit and the United States having elected Donald Trump as president, the leading patrons of the liberal world order have chosen to undermine their own system. Across the world, a new nationalist mindset has emerged, one that views international institutions and globalization as threats to national sovereignty and identity rather than opportunities.

The recent rise of illiberal forces and leaders is certainly worrisome. Yet it is too soon to write the obituary of liberalism as a theory of international relations, liberal democracy as a system of government, or the liberal order as the overarching framework for global politics. The liberal vision of nation-states cooperating to achieve security and prosperity remains as vital today as at any time in the modern age. In the long course of history, liberal democracy has hit been hard times before, only to rebound and gain ground. It has done so thanks to the appeal of its basic values and its unique capacities to effectively grapple with the problems of modernity and globalization.

For the first time in history, global institutions are now necessary to realize basic human interests; intense forms of interdependence that were once present only on a smaller scale are now present on a global scale.

The order will endure, too. Even though the United States' relative power is waning, the international system that the country has sustained for seven decades is remarkably durable. As long as interdependence-economic, security-related, and environmental-continues to grow, peoples and governments everywhere will be compelled to work together to solve problems or suffer grievous harm.

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Decades after they were supposedly banished from the West, the dark forces of world politics- illiberalism, autocracy, nationalism, protectionism, spheres of influence, territorial revisionism-have reasserted themselves. China and Russia have dashed all hopes that they would quickly transition to democracy and support the liberal world order.

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#2 (09/28/2018): Human Capital- A New Way of Looking at Development 

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#2 (09/28/2018): Human Capital- A New Way of Looking at Development 

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https://www.foreignaffairs.com/articles/2018-06-14/human-capital-gap

The World Bank has created a Human Capital Index, helping countries calculate where to invest. Realizing the benefits of investment in healthcare and education on future economic productivity, the WB is giving countries a new tool to make the economic value of human capital investments as visible as traditional ones.

It’s relevant because of its discussion of a reversal of the thinking behind SAPs as the best ways to increase development in LDCs. Now the WB encourages state-sponsored welfare policies as a tool for economic growth. This agrees with the Post-Washington Consensus and the understanding that investment in human capital is economically beneficial.

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Governments in pursuit of economic growth love to invest in physical capital-new roads, beautiful bridges, gleaming airports, and other infrastructure. But they are typically far less interested in investing in human capital, which is the sum total of a population's health, skills, knowledge, experience, and habits.

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#1 (09/23/2018): Tariffs on Chinese Goods- A Non-Neoliberal Trump Action Plan

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#1 (09/23/2018): Tariffs on Chinese Goods- A Non-Neoliberal Trump Action Plan

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https://www.economist.com/leaders/2018/09/22/americas-tariffs-on-china-are-likely-to-last-for-some-time

This article outlines the three goals Trump plans to achieve with tariffs on Chinese goods. First, curb China’s mercantilism with its massive domestic oriented subsidies and one-sided intellectual property regulations. Second, eliminate the trade deficit. Finally, reverse the decline of the US manufacturing industry. However, experts doubt the feasibility of Trump’s plan.

This article’s relevance lies in its themes of Neoliberalism and the rules of free trade, including limited government interference and letting the market regulate itself. Tariffs, elimination of the trade deficit, and revitalization of a dying industry are all examples of government interference and not Neoliberal policies.

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IN HIS trade war with China, President Donald Trump appears to have the upper hand. The new tariffs his administration unveiled this week, which will raise the share of Chinese imports subject to levies to at least 44%, are unlikely to dampen America's sizzling economy, or to boost inflation by much. Though some firms will be disrupted, most Americans will not notice the damage (see article). China, however, is under pressure. Its growth seems to be slowing and its stockmarket is down almost a quarter from its peak in January. China's government has announced retaliatory tariffs against American goods, but it is fast running out of imports to tax.

During conflict, an imbalance in strength should lead to a swift resolution. Here the side with the advantage may prolong the war. That is because America has several goals, some of them unachievable.
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Unjust war

The official justification for the tariffs is rooted in anger about Chinese mercantilism-anger which is shared across the rich world. China gives vast and opaque subsidies to its state-owned firms. It requires exporters to hand over intellectual property as a condition of access to its market. The world's consumers benefit from the artificially cheap imports that result. But trade of this sort is unsustainable, politically and economically. America is right to demand that China play fair.

That is not the limit of Mr Trump's ambition, however. He also wants to eliminate America's trade deficit with China, which he mistakenly sees as a transfer of wealth. He has broadcast his desire to force manufacturing supply chains back to America. And his administration has identified China as a strategic competitor. Some of the president's advisers seem to relish the chance to do it economic harm.

The White House may argue that China's abuse of the rules, the trade deficit and the decline of American industry are one and the same. They are not. Even without subsidies, China, like most other emerging markets, would enjoy a substantial cost advantage over America. The trade deficit, meanwhile, is tied to the difference between domestic saving and investment. Tariffs might cut the bilateral deficit with China, but America would find it nearly impossible to shrink its overall deficit without engineering a domestic recession.

The goal of rolling back decades of American deindustrialisation is a pipe-dream. Should America succeed in forcing supply chains back onshore, it will find that many fewer jobs are attached, because of rapid automation and productivity growth. American manufacturing's share of GDP has fallen only by a fifth since 2000, while its share of employment is down by a third. Besides, the lowest-skilled jobs would not go to America, but to low-wage Asian countries, like Vietnam.

There is a faint hope that Mr Trump's advisers and allies will play good cop to his bad cop, using tariffs as a bargaining chip in rewriting global trading rules to constrain China's mercantilism-a legitimate goal. More probably, the bad cop-who is, after all, in charge-will refuse to be stood down, because of his obsession with trade deficits and jobs and because Chinese leaders seem unwilling or unable to contemplate reforms that would strengthen moderate voices in Team Trump.

The prospects for any truce with China look grim. Recent history suggests that trade disputes are hard to settle. Tariffs imposed on Chinese tyres in 2009 under President Barack Obama, a free-trader, lasted three years. Mr Trump's recent trade agreement with Mexico does not include an end to levies on its steel and aluminium. America's latest escalation against China is no more likely to be speedily reversed.

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America's tariffs on China are likely to last for some time

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IN HIS trade war with China, President Donald Trump appears to have the upper hand. The new tariffs his administration unveiled this week, which will raise the share of Chinese imports subject to levies to at least 44%, are unlikely to dampen America's sizzling economy, or to boost inflation by much.