Thursday, March 01, 2018

One Two trump Four Let's Have Ourselves a Trade War

I wrote what felt like ages ago a What If scenario of what trump's first year of a presidency would look like. Actually it was in February 2016. What happened was two months later the Boston Globe went and did their own predictions, and I kinda felt like bragging that I had gotten there first.

But the Globe beat me at considering one disaster that I had overlooked: the likelihood that trump would start some kind of trade war - especially with China - as part of trump's nationalist-populist agenda to take America back to an age of protectionism and high tariffs.

Well, it didn't happen in trump's first year - although there were moments he threatened to roll something out - but hey, now that trump is at a stage where his entire administration is falling apart, why not go the extra mile and wreck the economy by boosting tariffs on steel and aluminum?

Via CNBC:

President Donald Trump's plan to slap tariffs on foreign aluminum and steel could help U.S. producers, but it could also fuel inflation, slow the economy and trigger other retaliatory actions against U.S. industries, analysts said.
These fears weighed on stocks, and the market sold off sharply after initially flip-flopping amid confusion over whether there would be an announcement or not. But stocks sold off sharply when Trump surprised the markets and announced a 25 percent tariff on steel and a 10 percent tariff on aluminum.
"One of the largest fears we have is we've got tariffs. We could have trade wars, and it could blow up NAFTA negotiations, and nobody wins a trade war," said Art Hogan, chief market strategist at B. Riley FBR.
The Dow closed down 420 points to 24,608, and the S&P 500 slid 1.3 percent to 2,677. The move was viewed as one of the most protectionist actions from the Trump administration, and it is one of his policies that has most worried markets, even as stocks have rallied on tax reform and his other pro-growth policies.
"Tariffs would probably have the unfortunate effect of both slowing growth and accelerating inflation, and that's not a good thing," said Ward McCarthy, chief financial economist at Jefferies. "For this economy, this is the worst possible time to be doing that."

The effects of what trump proposes won't just have a negative effect on the stock market.

I could link you to other economic pundits - say Anne Lowry at the Atlantic or David Lynch at the Washington Post - but let me have a go at it. Me, a barely-competent person at finances who got a C in Economics 1101 back at Gainesville (GO GATORS) in 1990 or so.

How trump's tariffs proposal are gonna suck:


  • The tariffs are like a tax on the items in question, meaning the costs on these items will go up. While the steel mills may see more profits out of it, all of the other industries that build using steel will have to pay more and will pass those costs onto the consumers, namely us. I'm seeing reports of how this will affect the automakers, especially the ones here in the U.S. I just spotted a report from Coors about how this will affect their beer canning. These tariffs do not happen in a vacuum: Every other industry that relies on cheap materials for cheap products will have to make those products more expensive to us consumers. And those industries will see their profits decline, leading to lost jobs and a downward cycle.
  • The tariffs will spark a trade war, and not just against countries who compete against us but also our allies. Other countries will not like having access to a solid market like ours curtailed with a tax on steel as steep as a 25 percent increase. The early observations was that trump wants this trade war as a way of attacking China, but on steel I'm finding out the nation getting hit hardest is going to be CANADA: Canada ships us about 11 percent of imported steel while China ships less than Germany (3 percent). Canada just happens to be one of our biggest trading partners, and also our sole neighboring nation to the North. PISSING THEM OFF IS NOT A GOOD IDEA, EH?
  • Tariffs make economies worse, not better. And this one I learned from watching Ben Stein in that Ferris Bueller movie:




While Smoot-Hawley wasn't the prime cause of the Great Depression, it did make things worse.

Just on those three points alone that I can think up off the top of my head - coming from a C-grade economics student - I've made salient arguments why tariffs need to be treated with more subtlety and finesse (say, very minimal increases on a tariff while pursuing connected policies that would alleviate any negative responses). Instead, here comes the ole Shitgibbon with a sledgehammer looking to start a fight with some of the largest economic powerhouses on the planet.

This is a fight that by all accounts a lot of trump's own people were counseling against. I can't link to anything yet, but I thought I saw something online from experts noting that these particular tariffs will wreck whatever economic gains were to be coming out of Congress' massive tax-cut boondoggle.

Here it comes, America, the train wreck Boston Globe and a lot of other experts warned you was coming if trump got into the White House on his protectionist, isolationist platform.

62 million of you voted for this. And now you're going to find out that economics is a lot harder than simple "buy low sell high." And that the guy you backed isn't a financial genius, just the grandest biggest con artist of all time.

Gods help us.

1 comment:

dinthebeast said...

I think I read Krugman calling steel production "capital intensive", that is, not much labor goes into it. Ironworkers? Steel fabricators? All of the other labor-intensive trades connected with steel? They're all consumers of, not producers of steel, and therefore will be harmed, not helped by a tariff on steel imports.
And let's not forget the reason we don't produce aluminum or steel much in the US any more in the first place: they're dirty industries and we have pollution standards that have brought us back from the unbreathable air and undrinkable water we were dealing with in the late sixties and early seventies.
Perhaps it's not the best policy for our trading partners to have them all doing the dirtiest jobs in the supply chain in their countries and paying lower wages for the privilege, but that's what we're doing, and have been for a while.
All in all, just another reason why trying to drag us back to 1952 is a bad idea, even if those doing the dragging tend to misremember it as better than it was, they aren't considering all of the awful stuff that would come with it if it were to return.

-Doug in Oakland