Tag Archives: tariffs

The President’s Stupid Trade War

Remember Trump’s declaration that “trade wars are good, and easy to win”? How about “I am a Tariff Man,” or his repeated (inaccurate) claim that foreigners pay tariffs.

Have we ever had a less-informed President? (That’s a rhetorical question. Obviously, being ignorant is one contest Trump wins in a walk.)

Let Paul Krugman explain Trump’s fallacies.

Over the course of 2018 Trump imposed tariffs on about 12 percent of total U.S. imports, and many of those tariffs have been in effect long enough that we can get a first read on their consequences.

On Saturday economists from Columbia, Princeton, and the New York Federal Reserve released a paper, “The impact of the 2018 trade war on U.S. prices and welfare,” that used detailed import data to assess the tariffs’ impact. (The paper, by the way, is a beautiful piece of work.) The conclusion: to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall.

Krugman explains the essential findings of the cited paper, with graphs–you should click through for the details–and then gives examples.

Consider the following example: pre-tariff, the U.S. imports some good from China that costs $100. Then the Trump administration imposes a 25% tariff, raising the price to consumers to $125. If we just keep importing that good from China, consumers lose $25 per unit purchased – but the government raises an extra $25 in taxes, leaving overall national income unchanged.

Suppose, however, that importers shift to a more expensive source that isn’t subject to the tariff; suppose, for example, that they can buy the good from Vietnam for $115. Then consumers only lose $15 – but there is no tariff revenue, so that $15 is a loss for the nation as a whole….

Putting it all together, the Trump tariffs have raised consumer prices, rather than depressing foreign earnings. Some revenue has been gained, but there has also been what amounts to tax avoidance as consumers turn to other, untaxed sources of what we used to import. But this tax avoidance itself comes at a cost, so the U.S. as a whole is left poorer.

Now, the numbers aren’t that big. The new paper puts the net welfare loss at $1.4 billion a month, or $17 billion a year; that’s less than 0.1 percent of U.S. GDP. But winning it isn’t.

NPR and other media outlets have reported on the far worse effects of Trump’s tariffs on farmers–especially soybean farmers.

Stubbornly low crop prices have been exacerbated by the trade war that decimated the once-lucrative Chinese market for soybeans. China used to be the biggest buyer of U.S.-grown soybeans. But this year, in retaliation for similar U.S. tariffs on Chinese imports, China imposed a 25 percent tariff on imports of U.S. soybeans, resulting in a dramatic drop in shipments.

The American Soybean Association has elaborated on the problems. According to the organization, Trump’s actions have “rocked the foundation of a decades-old trade relationship” between U.S. soybean farmers and China, which has been the largest market for American beans. It has resulted in halted sales, plummeting crop prices, and a lack of security for farmers seeking funding for the 2019 season.

The value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017. China imported 31 percent of U.S. production in 2017, equal to 60 percent of total U.S exports and nearly one in every three rows of harvested beans. Over the next 10 years, Chinese demand for soybeans is expected to account for most of the growth in global soybean trade, making it a prime market for the U.S. and other countries.

U.S. soybean growers have realized a nearly 20 percent drop in soy prices since the threat of tariffs began last summer, and the future of soy growers’ relationship with China continues to be in jeopardy. China has pursued new means to procure soybeans and other protein crops, including maximizing soybean imports from other exporting countries, particularly Brazil.

Growers have taken to Twitter and other social platforms today with the hashtag #185DaysStillNeedTrade, along with the popular #RescindtheTariffs hashtag to continue demanding that the Administration bring an end to its lingering trade war with China and help restore certainty and stability to the soy industry.

Certainty and stability aren’t Trump’s strong suits, to put it mildly. Thanks a lot, “Tariff man.”

The Trouble With Tariffs

I try to read a variety of information sources, but I will be the first to admit that–if it weren’t for my architect husband–Engineering News Record would not be among them. It is a print publication that considers itself “the construction resource,” and focuses on matters like the reason for that Italian bridge collapse and the technology of road paving. These are subjects that fascinate my husband, but usually aren’t among my preoccupations.

However, there is a real virtue to reading such publications for a policy person, because they report on the practical implications of what might otherwise be abstract and ideological policy debates. That is exactly what the most recent issue did in its discussion of Trump’s misbegotten tariffs, in an article titled “Equipment Readies for Tariff Fight.”

As the article reported, “the reality of new surcharges on all sorts of imported materials and finished goods has begun to reverberate through the global supply chain for construction equipment.” And that global supply chain is complicated–something a ham-handed and ill-considered policy can disrupt in unexpected ways and with unanticipated consequences.

The (sobering) points made by the article can be summarized by a quote from a vice-president of the Association of Equipment Manufacturers: “Everyone loses in a global trade war. Tariffs are taxes on American consumers and businesses.”

Major manufacturers have already raised their prices in anticipation of the higher up-front costs of steel and other materials. According to Senator Chuck Grassley, tariffs the administration aimed at imports of automobile components have also hit heavy-duty trucks, buses, construction equipment, agricultural equipment and industrial engines. As those prices increase, they’ll be passed along, so prices paid by consumers will rise. (There has already been a 32% rise in the cost of hot-rolled, coiled steel.)

Some 30% of of the construction equipment manufactured in the U.S. is designated for export, and the imposition of tariffs has “upended” the industry, which had been anticipating a period of strong sales. As a consequence, according to industry spokespersons, manufacturers are likely to shift production to “places like China or Brazil.”

These tariffs and retaliatory tariffs will put U.S. manufacturing at a disadvantage, because dozens of OEM’s have facilities around the world. It will tip the balance and they’ll just move out of the U.S. to make the equipment somewhere else.

The decision whether to shift the locus of manufacturing is only one of the consequences that has yet to be felt; as the article quoted one construction industry representative,

The point about tariffs is the effect doesn’t come the day after, it comes the year after. The economic impact, the loss of jobs, the loss of business in the community–that is a very long-term effect.

There is a reason that opposition to tariffs bridges ideological divides. Both conservatives and liberals recognize the negative effects of these sorts of interventions into complex and interrelated markets. Unfortunately, we have a President whose policies (if they can be dignified by the term) do not rest on any theoretical or philosophical framework. Instead, he acts out of bile and petulance, complicated by utter ignorance of the matters he is disrupting.

The Engineering News Record says these tariffs pose a significant threat to the construction equipment industry’s prosperity. But the damage isn’t limited to the construction equipment industry. Tariffs pose a significant threat to job creation, consumption and general American prosperity–a threat that could have been avoided had we elected someone competent, or even someone who had–and heeded– competent advisors.

 

 

 

Tariff Time…

Trump’s Tariffs went into effect last week, and the response from America’s trading  partners has been predictable–with one possible caveat. The targeted nations have responded by imposing their own tariffs, as expected–but they have also focused those retaliatory measures on goods produced in states that supported Trump. It’s an interesting gambit; we’ll see how it plays out.

The Republican Party used to be adamantly opposed to tariffs and trade wars, but the supine and complicit GOP Senators and Representatives currently serving have barely uttered a peep. It isn’t because they don’t know the dangers a trade war poses to the recovery we are currently enjoying–it’s because they must once again choose between the remaining shreds of their integrity and their business constituents, on the one hand, and the rabid Trump supporters who form a majority of the shrinking party’s base on the other.

As usual, Paul Krugman’s analysis of the political calculations involved is direct and on point. Krugman connects two very important dots: the longstanding Faustian bargain between big business and the GOP’s racist foot-soldiers, and the party’s war on expertise and evidence.

The imminent prospect of a trade war, it seems, concentrates the mind. Until very recently, big business and the institutions that represent its interests didn’t seem to be taking President Trump’s protectionist rhetoric very seriously. After all, corporations have invested trillions based on the belief that world markets would remain open, that U.S. industry would retain access to both foreign customers and foreign suppliers.

Trump wouldn’t put all those investments at risk, would he?

Yes, he would — and the belated recognition that his tough talk on trade was serious has spurred a flurry of action. Major corporations and trade associations are sending letters to the administration warning that its policies will cost more jobs than they create. Meanwhile, the U.S. Chamber of Commerce has begun an advertising campaign to convince voters of the benefits of free trade.

As Krugman notes, there is a heaping pile of “just deserts” here; corporate America has played cynical politics for years and is reaping what it sowed.

What do I mean by cynical politics? Partly I mean the tacit alliance between businesses and the wealthy, on one side, and racists on the other, that is the essence of the modern conservative movement.

For a long time business seemed to have this game under control: win elections with racial dog whistles, then turn to an agenda of tax cuts and deregulation. But sooner or later something like Trump was going to happen: a candidate who meant the racism seriously, with the enthusiastic support of the Republican base, and couldn’t be controlled.

The nature of that alliance became abundantly clear to anyone paying attention in 2016. But Krugman’s other important point is still insufficiently appreciated.

When organizations like the Chamber of Commerce or the Heritage Foundation declare that Trump’s tariffs are a bad idea, they are on solid intellectual ground: All, and I mean all, economic experts agree. But they don’t have any credibility, because these same conservative institutions have spent decades making war on expertise.

The most obvious case is climate change, where conservative organizations, very much including the chamber, have long acted as “merchants of doubt,” manufacturing skepticism and blocking action in the face of overwhelming scientific consensus. Not to put too fine a point on it, it’s hard to pivot from “pay no attention to those so-called experts who say the planet is warming” to “protectionism is bad — all the experts agree.”

Similarly, organizations like Heritage have long promoted supply-side economics, a.k.a., voodoo economics — the claim that tax cuts will produce huge growth and pay for themselves — even though no economic experts agree. So they’ve already accepted the principle that it’s O.K. to talk economic nonsense if it’s politically convenient. Now comes Trump with different nonsense, saying “trade wars are good, and easy to win.” How can they convince anyone that his nonsense is bad, while theirs was good.

Krugman ends his analysis by pointing to another looming threat to business (and the rest of us): authoritarianism. As he notes, it isn’t simply world trade that’s at risk, but the rule of law. “And it’s at risk in part because big businesses abandoned all principle in the pursuit of tax cuts.”

Meanwhile, the experts who are scorned by this administration are weighing in on the likely consequences of Trump’s economic ignorance:

There’s no formal definition of what constitutes a trade war, but the escalating exchange of trade barriers between the United States and its trading partners has hit a point where most economists say there will be a negative impact. Companies will scale back on investments, growth will slow, consumers will pay more for some items, and there could be more job losses. The Federal Reserve warned Thursday some companies are already scaling back or postponing plans.

We all need to hang on tight, because when you give the keys of your economic vehicle to a guy who couldn’t pass the drivers’ test, your ride is likely to be something between bumpy and disastrous.

 

 

The Favoritism Regime

As I often try to explain to students, there is an important difference between rights and privileges. The essential element of the rule of law–the characteristic that distinguishes it from the exercise of power–is that the same rules apply to everyone. If everyone doesn’t have rights, no one does. Some people may have privileges, but that isn’t the same thing.

The deal is, the person engaging in free speech who is saying something with which you disagree has the same right to voice his opinion as the person with whom you agree. If we don’t all play by the same rules, if some people have more “rights” than others, no one really has rights. They have privileges that can be withdrawn if they offend or oppose those in power.

The rule of law is fundamental to a constitutional government. It is glaringly obvious that Donald Trump does not understand either its definition or its importance. It is equally obvious that he wouldn’t respect it if he did. Like most autocrats and would-be autocrats, he is all about self-aggrandizement, the exercise of power and the ability to reward his friends and punish his enemies.

Trump’s lack of comprehension of, or respect for, the rule of law is one of the many reasons he is so unfit to hold public office.

What triggered this rant was an article about Trump’s decision to impose tariffs on steel and aluminum–a decision he has evidently been reconsidering in recent days. (When your policy pronouncements emerge from impetuous impulses rather than considered analyses, they do tend to change on a day-to-day basis…) The article described the proposed tariffs and their potential consequences, and reported on the number of  U.S. companies that were scrambling to win exemptions to them.

As of the time of the article, the Commerce Department had evidently received 8,200 exemption requests.

Let’s deconstruct this.

Assume you owned a company that relied upon imported metal to manufacture your widgets. The government moved to impose tariffs, which would increase your costs and make your widgets less competitive with the widgets manufactured in other countries. Assume further that you applied for an exemption from the new rule, based upon some tenuous argument or plea of hardship. Wouldn’t you be likely to do whatever you could to curry favor with the administration dispensing those exemptions? You’d almost certainly dig deep to make a political contribution.

“Pay to play” is, unfortunately, nothing new in American politics. Engineers and others who bid on government projects know that a history of political donations may not be enough to get them the contract, but is necessary to ensure that their bid is one that will at least be considered.

That said, unsuccessful bidders who believe that a contract has been awarded to a company that didn’t meet the statutory criteria–a donor whose bid was not “lowest and best”–can sue. And win. It happens more often than you might think.

Of course, the ability to sue and have your complaint judged fairly requires that the country’s judicial system be both impartial and competent. That’s one reason this administration’s rush to fill judicial vacancies with political cronies is so pernicious.

In places where government agencies can confer benefits at their discretion–routinely the case in autocratic regimes–and there is no legal recourse, corruption is widespread and inevitable. (See: Putin’s Russia) Quid pro quo replaces rule of law.

That’s the path America is on right now. If the GOP enablers in Congress survive the midterm elections, the prospects for turning things around will be very, very dim.

 

Trump’s Economic Ignorance

One of the reasons I was a Republican back when that party actually existed was my belief in markets. I certainly understood that there are areas of the economy where markets don’t work–health care, for example–and I also understood the need for an “umpire”–regulations to ensure that competition occurs on that all-important level playing field. But with those caveats, I was–and remain– decidedly pro-market.

So was the GOP that used to be.

Last Thursday, Trump announced that he intends to impose tariffs on imported steel and aluminum; he evidently thinks that such tariffs fulfill his half-baked “America First” approach to trade.

Speaking at the White House, the president said he had decided to levy tariffs of 25 percent on foreign-made steel and 10 percent on aluminum.

The move prompted an immediate slide in the stock market, uniform condemnation by economists (you know, the people who actually understand how these things work–or more accurately–don’t), and threats of retaliation from the EU and Canada, among others.

The Washington Post reported that Trump had ignored warnings from members of his administration:

The president went ahead with the unexpected announcement even after Gary Cohn, his top economic adviser, reportedly threatened to resign. Treasury Secretary Steven Mnuchin told Trump that the stock market gains he loves to boast about would reverse themselves. Defense Secretary James Mattis, who he’s normally inclined to defer to, warned that this would hurt U.S. relationships with allies.

Companies that use steel and aluminum, including automakers, account for vastly more jobs than producers of the metals, and they argued that as many as 200,000 jobs were lost when George W. Bush imposed steel tariffs in 2002 that were later ruled to be illegal by the World Trade Organization.

Trump’s move, under a little-used national security provision of U.S. trade law, is expected to trigger legal challenges by China, the European Union and Brazil at the World Trade Organization. It also prompted predictions that it will backfire on American farmers and other exporters.

“It’s pretty much our worst fears,” said Rufus Yerxa, president of the National Foreign Trade Council, which represents multinationals such as Microsoft and Caterpillar. “This is a pretty clear indication that the Trump administration cares more about the old economy than it does the new economy.”

This wasn’t Trump’s first effort at protectionism; the announcement follows an earlier round of tariffs on solar panels and washing machines. Economic history tells us that all of these moves will lead to higher prices for consumers.  The recent ones will raise costs for manufacturers who use steel and aluminum (automobiles and beer in cans come to mind), and they will pass those increased costs to consumers.

The tariffs will also cost American jobs; the earlier ones have already caused at least one U.S. company that imports solar panels to announce layoffs.

Trump’s anti-competitive moves aren’t the only reason columnist Catherine Rampell now dismisses the GOP’s long-professed support for markets.

Republicans say they favor free markets. They’re not like those pinko-commie Democrats, who prefer “picking winners and losers.”

Oh, come off it already.

Republicans love picking winners and losers, too. They just choose different winners and different losers than Democrats do. In the case of today’s Republican officials, the winners are mostly donors, incumbents, culture-war favorites and cheats.

Rampell points to Trump’s efforts to prop up the coal industry, and the “carve-outs” and other favorable treatment given to donors and Republican governors. And she is especially scathing in her criticism of the Georgia legislature.

Republican officials there vowed to punish Delta Air Lines, one of the state’s largest employers, for canceling discounted prices for National Rifle Association members.

Lt. Gov. Casey Cagle, who is running for governor, gave Delta an ultimatum: restore the NRA discount, or forget the $50 million sales-tax exemption on jet fuel that Republican lawmakers had been considering. In other words, restore our special discount, or we won’t give you your own special discount. Delta didn’t budge, so lawmakers axed the tax break Thursday afternoon.

It takes a funny formulation of free markets to punish a private company for not giving your favored political group a good price.

It is also a perversion of market economics–not to mention a blatant violation of the rule of law–to tip off your advisor and good friend Carl Icahn about your intentions, so that he can unload nearly $31.3 million in a steel-related stock company before the news hits.

The GOP to which I once belonged no longer exists. What goes under that name today is an unholy merger between a cult and the mafia.