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Good riddance, Gary Cohn.
The former Goldman Sachs Group Inc. (NYSE: GS) president and chief operating officer, who became Donald Trump's director of the National Economic Council, exited his position last week over a row about the tariffs he doesn't want the president to impose.
He's gone because he's wrong.
Steel and aluminum tariffs proposed by the president are long overdue; they're good for America and good for the stock market.
The reality of free trade agreements is that they aren't always what they promise to be, and big businesses frequently use them against American workers.
Donald Trump's tariff saber-rattling won't ignite trade wars. Here's how we'll really see America become great again (and drive the stock market a lot higher)…
It's a Matter of Principle
There's nothing wrong with trade agreements, in principle. The diplomatic ideals behind them are fine; it's the execution that causes trouble.
For this week's news, there are three trade agreements you need to know about.
The North America Free Trade Agreement (NAFTA), signed in 1994 by the United States, Canada, and Mexico, eliminated tariffs between the countries and tripled annual trade to $1.4 trillion in 2017. This agreement was signed just a year before the World Trade Organization (WTO) came to be.
The WTO has regulated international trade since it was signed into effect in 1995 by 123 countries as a replacement for the 1948 General Agreement on Tariffs and Trade (GATT). Its principles of trade include transparency and safety values, binding and enforceable commitments, non-discrimination, and reciprocity from all parties. It has its own courts that hear and settle international trade disputes.
Even the recently proposed Trans-Pacific Partnership (TPP) – which enhances trade between member nations and serves as a bulwark against China – makes sense in principle. And it's going ahead without the United States, since President Trump signed an executive order to withdraw from the pact on Jan. 23, 2017.
But principles change.
The United States is no longer the only mega-economic power in the world, as it was when GATT was signed.
Since the WTO and NAFTA were signed, the European Union, China, India, and South Korea (as well as other countries and trade blocs) have been competing aggressively with the U.S. and each other in international trade.
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The fallout from NAFTA, or the "giant sucking sound" presidential candidate Ross Perot once warned we'd hear as U.S. jobs were hoovered up by Mexican manufacturing, came to pass.
When China joined the WTO in 2001, the United States experienced a tremendous amount of job losses. This cheap labor attracted capital, and it exponentially boosted Chinese manufacturing of everything that could be exported into the U.S. and other WTO partners.
The problem with so-called free trade agreements is many of our trading partners' raw and manufactured goods are state-subsidized, making them cheaper on the open market.
China, for example, subsidizes steel manufacturing because it creates jobs and is in the country's national security interest to supply its own steel needs. The resulting overcapacity from massive subsidies is dumped around the world, including in the United States.
The European Union does the same. So does South Korea. Even the U.S. subsidizes favored industries. In our case, it's agriculture.
The common denominator is that subsidized industries are all big businesses. They're all international exporters.
Here's What Can Really Make America Great Again
The big U.S.-domiciled multinational businesses, the bread-and-butter clients of giant banks (like Goldman Sachs), are guilty of offshoring jobs and hollowing out U.S. manufacturing because the free trade agreements they lobby for allow them to.
Gary Cohn is a big business, big bank, big free trade advocate because that's been his bread and butter.
Even as a presidential candidate, Trump was always against TPP, openly threatened NAFTA, and even proposed exiting the WTO. Gary Cohn knew that when he agreed to be the president's top economic advisor.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.