The WSJ ran this headline and story a few years back:
China reports biggest-ever annual trade surplus with the US: WSJ reports that China reported its largest-ever yearly trade surplus with the US last year while its overall imbalance with the world shrank, potentially strengthening the Trump administration's case for tougher penalties and other trade actions against Beijing.
The metric is helpful for lazy politicians but is useless otherwise.
A trade surplus is a useless metric to gauge the accurate state of a nation's economy, but it is a helpful tool for pandering campaign rhetoric.
You need to remember that, at its core, China is an assembly economy.
Thus, China's economy is a prime example of the obvious statement that the whole is greater than the sum of its parts.
Most Chinese companies import components and materials worldwide and assemble them into valuable products for sale globally.
No R&D. No branding. No marketing. No finance. No software. No logistics.
Consider the iPhone. China assembles components into a finished smartphone and ships an iPhone to customers in the United States.
However, Apple in California does all the heavy lifting to make the iPhone the iPhone. Apple handles the R&D, the branding, the marketing, the financing, the software, and the logistics.
Current trade surplus formulations do not measure all the activities executed by Apple listed above.
There is more to a nation's trade and economy than whether or not a nation has a trade surplus or deficit.
There is more to the state of a nation's economy than unloading boxes of assembled products at a port.
-Marc
Sound More Interesting at Cocktails Memo | February 7
Here are 25 talking points for better conversation at cocktails from news of the past week.
1. Greece declared a state of emergency in Santorini after a 5.2-magnitude earthquake struck on Wednesday, the strongest in days of near-constant tremors.
2. France + UAE could spend "€30 to €50 billion" ($31 to 52 billion at current exchange rates) to build an AI campus.
3. Australia bans DeepSeek on government devices.
4. Norway is nearing 100% of the goal for all-electric cars.
5. JD Vance will attend the AI Action Summit in France and the Munich Security Conference next week on their first trip abroad as Vice President.
6. Donald Trump offers to build a $100m ballroom at the White House.
7. Lara Trump will host a new primetime show on Fox News called 'My View with Lara Trump.'
8. QOTW 1: @NancyMace: Let’s turn Gaza into Mar-A-Lago
9. The Palisades + Eaton fires are officially over.
10. In Naples in 1781, one in every 37 people was a monk.
11. Tesla's sales plummet across Europe: Registrations in Germany fall 59% amid a consumer backlash against Elon Musk's political activism.
12. QOTW 2: "Don't be a dick." -- Elon Musk, responding to Rep. Ro Khanna (D-CA) for saying he would subpoena Musk to testify before Congress.
13. California State University is becoming the first AI-powered university system, with ChatGPT Edu being rolled out to 460,000 students and over 63,000 staff and faculty.
14. The NHS will use artificial intelligence to screen 700,000 women for breast cancer as part of a world-leading trial this year.
15. SoftBank + OpenAI to set up AI joint venture in Japan:
16. Ford lost $5 billion on its EV business in 2024.
17. The proposed Nissan + Honda merger collapsed.
18. Billabong + Roxy + Volcom are among 120 stores closing as Liberated Brands files for Chapter 11 bankruptcy.
19. Eggs: The Waffle House has added a temporary surcharge of 50 cents per egg amid rising egg prices caused by the bird flu outbreak.
20. HOTW: The Times: Suffering from 'Zoom fatigue'? You may be sick of your own face
21. Spotify's monthly active users rose to 675 million in the fourth quarter.
22. Juliette Binoche will preside over the 2025 Cannes Film Festival jury.
23. NFL proposes an 18-game season.
24. Super Trump: Donald Trump will become the first sitting US president to attend the Super Bowl.
25. Major League Baseball fired umpire Pat Hoberg for sports gambling violations.
Enjoy the ride + plan accordingly.
-Marc
The ridiculousness of Trump's 2025 trade war
Trump's legal justification for his 2025 trade war is both unprecedented and legally tenuous.
The Wall Street Journal editorial board analysis was even more succinct than mine: "Trump's justification for this economic assault on the neighbors makes no sense."
Trump used the International Emergency Economic Powers Act (IEEPA) to execute this 2025 trade war with Canada, Mexico, and China.
President Carter signed the IEEPA into law in 1977 to grant executive authority over emergencies during peacetime. The IEEPA permits the president to deal with unusual and extraordinary threats to national security by reforming the United States' economic policies.
The IEEPA has been used, for example, to punish Iran during the hostage crisis, North Korea in an effort to slow that nation's nuclear proliferation, and Venezuela for human rights violations.
In nearly every case where the US government has used the IEEPA to hamper a nation, specific property of persons engaged in destabilizing activities and various forms of commerce involved in activities determined to be detrimental to US national security have been targeted. Never has an entire nation's exports to the US been subjected to a blanket tariff. Such a blanket tariff—a universal tax on all imports from a country—represents an unprecedented expansion of IEEPA's scope.
Repeat: no president has previously used the IEEPA to enact tariffs.
Trump is using the illegal cross-border drug trade as his excuse for this trade war. But make no mistake: He has made clear that he likes tariffs for their own sake. During his campaigning last fall in Michigan, Trump said, "Tariffs are the greatest thing ever invented." During his previous administration, he called himself "Tariff Man."
In the run-up to this 2025 trade war, Trump posted on Canada and Mexico: "We don't need the products that they have. We have all the oil you need. We have all the trees you need, meaning the lumber."
Shockingly, this statement is false. On oil alone, NBC News reports that the US imports some 4 million barrels of Canadian crude daily, 70% of which is processed by refiners in the Midwest. It also imports over 450,000 barrels of Mexican oil daily.
Less than a fortnight into this new reign as president, Trump has been on a media tear, forcing himself into all daily headlines. I have noticed that when a media outing doesn't go swimmingly for him, or the headlines are dismal, he pivots and generates chaos elsewhere to distract and create new headlines, new storylines, and new political reality theatre. Cosplay is his safe place. This pattern of manufacturing distractions has become his default tactic.
Trump's 2025 trade war exemplifies his familiar pivot-and-distract strategy. Rather than deliver a presidential address or face media questions, he announced this major economic policy as casually as sending a tweet, displaying the impulsiveness that has become his trademark.
This disgruntled and petulant attitude is a danger when it comes from 1600 Pennsylvania Avenue, not only for his fellow American citizens but for the world at large. Chaos is not a desired state for the US president.
As the Financial Times editorial board wrote: "Yet the trade war is symptomatic of a larger issue in Trump’s America. The president alone decides which issues are important, exaggerates the diagnosis, and chooses the medicine. As with his attempts to impose his own priorities by firing federal workers and freezing grants, the tools are often blunt. His trade war threatens to be disastrous, but the chaos will not end there.
Preach.
And what about Trump simply ignoring a deal he crafted and signed because he is too lazy and inept at using the tools of diplomacy and soft power of America to redesign a world that takes into account numerous stakeholders? What nation, CEO, or governor would be dumb enough ever to trust Trump again?
So dumb.
As the Wall Street Journal editorial board wrote: "None of this is supposed to happen under the US-Mexico-Canada trade agreement that Mr. Trump negotiated and signed in his first term. America's willingness to ignore its treaty obligations, even with friends, won’t make other countries eager to do deals. Maybe Mr. Trump will claim victory and pull back if he wins some token concessions. But if a North American trade war persists, it will qualify as one of the dumbest in history."
In the short term, I am confident court action will likely be taken to block these tariffs and save Trump from himself. Just like a federal district court judge rightly blocked Trump's birthright citizenship order and saved him further constitutional embarrassment - these tariffs will see a similar block.
However, the long-term damage from Trump's 2025 trade war will be deep and lasting. The consequences extend beyond mere economics: our closest allies' trust in U.S. commitments is eroding, while global markets must now contend with the possibility of radical policy shifts triggered by presidential whim rather than careful deliberation.
No president has escaped DC's gravity, and with a more interconnected global market and political system, it is hard to see how Trump's 2025 trade war can be considered anything but ridiculous.
Enjoy the ride + plan accordingly.
-Marc
Marc A. Ross | Chief Communications Strategist @ Caracal
