Wednesday, July 25, 2018

Trump trade wars failing economically and in execution

I want to draw your attention to a wide-ranging article from Rick Barrett in yesterday’s Milwaukee Journal-Sentinel that discussed how President Trump’s proposed and imposed tariffs may affect numerous Wisconsin businesses and consumers.

Let me back up and mention that I am far from a believer in low-tariff, unrestricted trade. The greed of corporations have led them to use “free trade” as an excuse to shed American jobs over the last 30 years, and use the threat of outsourcing to lower the wages in the jobs that did stay. This has resulted in real economic problems that exist today.

But Trump’s answer to that real problem in 2018 is to slap tariffs on imported materials that US manufacturers rely on to make their products, instead of putting them on the final products to protect and potentially increase wages and jobs for the industries that are made here.

Targeting the tariffs to final products could give American manufacturing a chance to be more competitive on price without having to sacrifice more wages and jobs to do so. But the only area that the Journal-Sentinel article indicates that it this is potentially being “done right” is through the higher tariffs on imported vehicles.
In Milwaukee, Mike Darrow, president of the Russ Darrow Group of automotive dealerships, says sales of cars and trucks could hit a wall if Trump follows through on a threat to impose a 25 percent tariff on imported vehicles and parts.

It would raise the price of a typical new car sold in the U.S. by $4,400, according to the Center for Automotive Research in Ann Arbor, Mich.

That’s an estimated $2,270 for U.S.-built vehicles, since they have foreign parts, and up to nearly $7,000 for luxury imports.

But of course, if the higher prices cut into demand too much in the US, it can drag down an economy that’s 70% based on consumer spending. Which illustrates the tightrope that Donny Two-Scoops isn’t walking very well as of now.

As the J-S article also notes, another problem with the Trump tariffs is that suppliers are greedily taking advantage of the situation, which also hurts the businesses that are supposed to be protected from foreign competitions. An executive at Sheboygan’s Vollrath Company mentions that the higher prices that are now being demanded by American companies are ironically making them look to overseas suppliers.
“These tariffs are now forcing us to aggressively look at foreign sources and potential acquisitions abroad,” said company Chief Financial Officer Steve Heun.

“We have always purchased our raw metal from U.S. suppliers, not imports. However, once the tariffs went into place, domestic suppliers immediately raised prices,” Heun said.
And you can see where this spirals if you’re trying to have Vollrath keep buying from Americans, because then you have to chase where the foreign suppliers are coming from, and putting new duties on there.

Of course, Wisconsin farm businesses are also being endangered by the fallout from Trump’s trade policies, as countermeasures by overseas trading partners are hitting state farmers especially hard. Yesterday, GOP Rep. Dave Steffen and Dem Rep. Peter Barca sent a letter to Wisconsin’s delegation in Congress asking to “work toward a remedy to this situation before businesses in our communities suffer losses or entire industries are permanently damaged.”

As part of that letter, Barca and Steffen asked Wisconsin’s Legislative Council to give a list of state products that are currently on the list for retaliatory tariffs that are being imposed on US products by Canada, Mexico, China and the EU. Here’s a look at the top items that are on that list. (the Leg Council only included categories of $5 million or above)

Top Wisconsin exports subject to new tariffs
Paper products $231.0 million (Canada)
Meats and sausages $50.7 million (Canada and Mexico)
Various cheeses $47.0 million (Mexico)
Whey and Modified Whey $47.0 million (China)
Kitchen appliances and various fans $45.6 million (Canada, Mexico)
Bread and Pastry $45.6 million (Canada)
Cranberries $42.0 million (Mexico, China and EU)

A whole lot of agriculture along with our paper industry. And both of those industries might be getting taxpayer support to avoid going under in the late 2010s.

This includes the revived possibility of a Kimberly-Clark bailout in Wisconsin to prevent over 600 jobs from being lost in the Fox Valley due to “restructuring”. And it includes our president* and his administration announcing yesterday that they plan to give $12 billion to US farmers who are facing the double-whammy of fewer customers overseas, and plunging prices at home.
[US Secretary of Agriculture Sonny] Perdue and other USDA officials say the aid will be available in three forms; direct payment to producers of soybeans, sorghum, wheat, cotton, dairy and hogs; government purchases of fruit, nuts, legumes, and some meats for distribution to food banks; and development of new export markets.

Officials say they will be using a Depression-era program, the Commodity Credit Corporation, to secure money from the U.S. Treasury and will not need to ask Congress for the funds.
It is interesting to note that ag prices have bounced back a bit after yesterday’s announcement of a farm bailout, but they’re still way below where they were before the Trump Trade Wars began.

Oddly, we were adding a sold number of jobs back in manufacturing before the Trump Trade War was put in place (with growth of just over 20,000 a month since Trump took office). Sure, the wages still suck, but the added factory jobs is arguably the one item of Trump’s “America First” talk that has actually worked out. And now that dimwit is putting it in danger due to the reckless of his trade policy.

It is the mark of a man whose “business sense” has involved throwing Daddy’s money around by trading real estate, as well as working on other grifts. What Trump has little idea about are the steps and process of production, and that’s killing the US in this trade war. It also reveals a spoiled brat who has rarely been said “no” has a hard time comprehending that maybe the US doesn’t have the upper hand here, and that foreign countries can do better-targeted countermeasures that hurt us more than it hurts them.

And sure, the stock market was happy to see Trump and the EU trade rep claim this afternoon that they wouldn't impose further trade measures and would work toward "no-tariff policies." However, you should be skeptical, because as the Guardian put it
....while their remarks represent a breakthrough after weeks of stalemate, they were short of detail and given Trump’s mercurial record, the detente could easily come undone as negotiations begin in earnest.

Experts urged caution. Bart Oosterveld, director of the global business and economics programme at the Atlantic Council thinktank in Washington, said: “The avoidance of a disaster is not a success. What I think we saw is the resumption of some basic dialogue. Individual items like soybeans and LNG [liquefied natural gas] are not massively significant. I don’t think the EU would agree to a major revision of trade terms without steel and aluminium being taken off the table first.”
Exactly. Like most things Trump, this is big talk for a one-day headline, and little (if any) good is likely to come from it in the long run.

And if the bailout of agriculture and other flailing reactions from Trump and other officials are any indication, there will be plenty of extra costs in the Trump Trade War to come, beyond the damage that is already being done.

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