Japan Then, China Now

Ironically, Trump has summoned the same Robert Lighthizer, veteran of the Japan trade battles of the 1980s, to lead the charge against China. Unfortunately, Lighthizer seems as clueless about the macro argument today as he was back then. 

In both episodes, the US was in denial, bordering on delusion. Basking in the warm glow of untested supply-side economics – especially the theory that tax cuts would be self-financing – the Reagan administration failed to appreciate the links between mounting budget and trade deficits. Today, the seductive power of low interest rates, coupled with the latest strain of voodoo economics – Modern Monetary Theory – is equally alluring for the Trump administration and a bipartisan consensus of China bashers in the US Congress.