The Nanny State’s Crowning Glory

trade war china and US

The chances of Australia experiencing a housing crash are very low right now.

But something important has come up. Something that, while it may not necessarily cause the next housing crash, could certainty contribute to it.

I’m talking about politics. Specifically, the potential for the Trump administration to start a trade war with China. Before we get into that though, let’s have a look in our own backyard…because it’s not pretty viewing here either. There are beer cans and rubbish strewn everywhere…

One of the defining characteristics of the post-2008 environment in Australia has been political incompetence. I guess we can at least be thankful for that. I mean, in the aftermath of the Great Depression we had the rise of fascism, Nazism and the Second World War.

Even so, our political system has stumbled from one embarrassment to another. The latest, as everyone surely knows, is the Barnaby Joyce relationship with a staffer debacle. It’s forced PM Malcolm Turnbull to ban sexual relationships between ministers and their staff.

I get that workplace relationships happen all the time. But when you’re deputy Prime Minister, where’s you’re common sense? Or common decency?

I know the Australian Nanny State now has rules and regulations for just about everything. For example, I can no longer stop the car for 30 seconds to drop my kid to school without being fined $100 for, apparently, putting other kids at risk.

But this latest ‘no sex with staffers rule’ to pretty much stop ministers from being immoral jerks is the Nanny State’s crowning glory.

It says something about the quality of individuals we have vying to run the country that it has come to this. The Canberra bubble is as inflated as a politician’s ego. These people exist in their own world, operating to standards they wouldn’t dare to let anyone else adhere to.

China warns Trump over potential trade war

Meanwhile, politicians elsewhere threaten to bring an end to the first decent bout of post-2008 coordinated global growth by starting a trade war. From the Financial Times:

China has threatened retaliation after the Trump administration received a green light to impose steep tariffs on aluminium and steel imports on national security grounds, in the latest escalation of trade tension between the world’s top two economies.

US commerce secretary Wilbur Ross on Friday recommended a possible global tariff of at least 24 per cent on imports of steel and 7.7 per cent on aluminium after investigations into trade in both metals determined that import surges seen in recent years “threaten to impair our national security”.

The recommendations actually go a bit deeper than that. The report, released by the Commerce Department on Friday, has this to say about steel:

  • A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by-product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or
  • A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

    Each of these remedies is intended to increase domestic steel production from its present 73% of capacity to approximately an 80% operating rate, the minimum rate needed for the long-term viability of the industry. Each remedy applies measures to all countries and all steel products to prevent circumvention.

The origins of trade wars are horribly complex. I have no idea what is really going on in the world of global steel production and trade.

But on the surface it looks like a classic protectionist measure to boost US steel production to make the industry more competitive, and maintain or increase employment.

The thing is, this stuff always comes at a cost. The American consumer will pay higher prices for steel in a variety of ways, and this will feed through into higher inflation. With the market already concerned about the Federal Reserve being behind the curve on interest rates, the timing isn’t great.

Then there’s the reduced steel production in other countries. That will cause them to suffer reduced income and job losses. They will retaliate, and other unrelated industries in the US will suffer in turn.

Whether we get to that point remains to be seen, but it’s definitely a risk. If the rhetoric continues and/or Trump decides to enforce the recommendations, the market won’t like it.

The thing is, there is always cheating going on in trade. And other countries target the US for two reasons. It’s a massive market, and is therefore lucrative. And also because of the unique role of the US dollar.

As the world’s reserve currency, the US dollar gives the US an unfair trade advantage. That is, it has an unending supply of the currency of international trade. It is not subject to the discipline that other countries are. It can run much larger trade and government deficits than other nations.

Put another way, it consumes much more than it produces, and no one can really do much about it. So, as the consumer of last resort, producer nations have little compunction in trying to squeeze more sales out of the US.

Aside from all that, it’s hard to see how this is all about China. As the Financial Times reports:

China was the fourth-largest supplier of aluminium to the US in 2017, accounting for less than ten per cent of imports. It was the 11th-largest steel supplier over the same period, with a roughly 2 per cent share of US imports.

That hardly sounds like a reason to start a trade war…


Greg Canavan,
Editor, Crisis & Opportunity

PS: This article was originally published in Money Morning.

Greg Canavan

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing.

He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’.

Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors.

Greg Canavan

Latest posts by Greg Canavan (see all)

Leave a Reply

1 Comment on "The Nanny State’s Crowning Glory"

newest oldest most voted
Notify of
Denis Ross
The targeted list of steel producing countries shows they are all small producers or small exporters of steel. The imposition of tariffs on imports would reduce their competitiveness and in some cases shut down their domestic steel industries leaving the open to importing steel from the USA. The importance of steel in the US economy is similar to Japan’s. Japan relies entirely on importing raw materials, converting them into manufactuyred goods and exporting the products to survive economically. The industrialisation of China is an existential threat to the Japaneseindustrial economy because both are selling in the same markets. The health… Read more »
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to