Tag Archives: Tariffs

Beyond the Hysteria about Auto Tariffmageddon, by Wolf Richter

Posted on June 27, 2018 | Leave a comment

It’s not easy trying to figure out which car companies will benefit and which will be penalized by proposed tariffs. The car business is complicated. From Wolf Richter at wolfstreet.com:

After decades of relentless offshoring, the equation may change for automakers and component makers.

President Trump’s threat to impose tariffs of 20% or 25% on auto components and vehicles imported to the US is causing a bout of hysteria that is splattered all over the media.

The auto industry lobbying group, Alliance of Automobile Manufacturers, is now claiming that a 25% tariff on imported vehicles and components would cost US consumers $45 billion a year, or $5,800 per vehicle. “This would largely cancel out the benefits of the tax cuts,” it says.

I have serious doubts about those numbers, and “propaganda” comes to mind. But even it they’re correct theoretically, the calculation assumes that the industry would not react to those tariffs except by passing them on to consumers. Consumers are unlikely to go for that program, and automakers will end up restructuring their supply chains and manufacturing to bring some production back to the US, after having spent decades on offshoring production.

That’s one purpose of tariffs. Another purpose is to persuade other countries to lower their own tariffs. It has been an uneven playing field for decades, stacked against US workers.

The EU imposes a 10% tariff on all cars, SUVs, compact SUVs, vans, and pickups imported from the US. The US imposes a 2.5% tariff on imported passenger cars, SUVs, compact SUVs, and vans from the EU and a 25% tariff on imported pickups (a tiny segment of the EU market).

China imposes a 25% tariff on all imported vehicles but offered to cut this to 15% as a goodwill gesture in the trade war. To get around the Chinese tariffs and sell vehicles to the 1.3 billion Chinese consumers, all global automakers have invested billions of dollars in China, have set up large manufacturing facilities in required joint ventures with often state-controlled Chinese companies, and have submitted to the required technology transfers. GM now makes and sells more vehicles in China than it does in the US.

To continue reading: Beyond the Hysteria about Auto Tariffmageddon

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Shanghai Plunges 3.2%, below 3,000 for 1st Time in 2 Years, After Trump Threatens to Massively Escalate Trade War and China Threatens to Massively Retaliate, by Wolf Richter

Posted on June 19, 2018 | Leave a comment

Trump’s threat to levy 10% tariffs on another $200 billion of China’s exports to the US is causing financial turmoil. From Wolf Richter at wolfstreet.com:

Apparently, the trade talks have collapsed.

On May 20, Treasury Secretary Mnuchin declared that the US-China trade war was “on hold” while the trade talks were being conducted. That didn’t last long. Apparently, those talks have collapsed. And Monday evening, President Trump threatened to hit another $200 billion of imports from China with 10% tariffs.

The Shanghai Composite Index plunged 3.2% by midday in China on Tuesday, to 2,924, the lowest level since June 2016. The index is down 12% since the end of February. Hong Kong’s Hang Seng fell 2.4% by midday. Tokyo’s Nikkei fell 1.5%. US futures edged down.

It would be the second wave of tariffs, following the already decided first wave of 25% tariffs on $50 billion in goods, with $34 billion of imports to be hit on July 6, and $16 billion to be hit at a later date.

But instead of buckling under Trump’s first wave and addressing the IP-theft issues brought forth by the US, China vowed to retaliate in equal measure, which caused the infuriated White House to massively escalate the trade war with the second wave of threats.

“This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods. This is unacceptable,” Trump said.

“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States.”

“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said.

And Trump threatened a third wave of tariffs – 10% on another $200 billion of Chinese goods – if China retaliates against the second wave. But that threat also fell on deaf ears.

To continue reading: Shanghai Plunges 3.2%, below 3,000 for 1st Time in 2 Years, After Trump Threatens to Massively Escalate Trade War and China Threatens to Massively Retaliate

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China Warns US Corporations: You Are About To Become Victims Of A Trade War, by Tyler Durden

Posted on June 17, 2018 | Leave a comment

China certainly has ways of retaliating against US trade sanctions. From Tyler Durden at zerohedge.com:

Now that China has released details on its planned retaliation to President Trump’s Section 301 tariffs – a list that contains, predictably, agricultural goods like soybeans, orange juice and beef as well as energy products like crude oil (though surprisingly not yet aircraft, though sanctions could be imposed in the next round) – we get to watch as US corporations who will be negatively impacted by the tariffs ratchet up their lobbying of the Trump administration (that is, if they haven’t already given up) practically beginning the president not to let tensions escalate much further.

Of course, the Chinese aren’t stupid. They know that one way to pressure Trump into backing off would be aggressively lobby US businesses with threats – both veiled and obvious – that their businesses could come to harm, or perhaps ruin, if the conflict escalates. Already, the Wall Street Journal has published a story about China’s efforts to browbeat American businesses, recounting a meeting between a group of executives and Chinese Vice President Wang Qishan that reportedly took place in late March.

When a group of American executives and other global corporate chieftains met with Chinese Vice President Wang Qishan in late March, they received a stern message about the simmering U.S.-China trade conflict: If tensions escalate, buckle up.

“The message was pretty clear,” said a person who attended. “A lot of companies would become victims in a U.S.-China trade war.”

And some companies say they’re already experiencing problems with the customs process as US goods pile up at Chinese ports.

Already, some U.S. companies are facing increased regulatory scrutiny in China, according to Jacob Parker, vice president of China operations at the U.S.-China Business Council. For instance, he said, it takes longer for their products to clear Chinese customs; in other instances, Chinese regulators are putting advertisement slogans by U.S. firms under review. Some automobiles and farm products such as pork from the U.S. have piled up at ports.

“Maintaining a low profile in the China market and ensuring that you’re completely compliant are more important now than in the past,” Mr. Parker said.

To continue reading: China Warns US Corporations: You Are About To Become Victims Of A Trade War

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Is There Method To Donald Trump’s Supposed Madness On Trade? by Jim Jatras

Posted on June 7, 2018 | Leave a comment

Jim Jatras argues there is indeed a method to Trump’s trade madness. From Jatras at rt.com:

It would be an understatement to suggest that Trump’s decision to slap higher tariffs on practically everybody – has outraged almost everyone: most of the business community, foreign governments, media and experts from all fields.

President Donald Trump, it is said, is unleashing a global trade war, which is already beginning with promised retaliatory measures from our closest trading partners. Trump justified his action by claiming that steel and aluminum are strategic materials essential for national defense. In all likelihood national defense had little to do with his action. Rather, it is a ploy to put a “national security” halo around a measure being taken for economic reasons.

That doesn’t mean it’s the wrong move, however. It’s important to put these measures into the context of long-term US trade policy. US trade policy since World War II could almost have been designed to undermine the economic interests of American workers and American producers. Starting with Germany and Japan, our defeated enemies, we offered them the proverbial deal they can’t refuse: they get virtually tariff-free, nonreciprocal access to our huge domestic market to assist with their economies’ recovery from wartime destruction; in return, we would take their sovereignty: control of their foreign and security policies, as well as their military and intelligence establishments, plus permanent bases on their territory.

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© Leah Millis / Reuters‘Trump shot US economy in foot with steel & aluminum tariffs’ – Wall Street analyst

In effect, Germany and Japan ceded geostrategic control of their own countries and were rewarded at the expense of domestic US economic interests. This may have seemed a good deal for both sides at the time, in light of the mounting Cold War with the Soviet Union. Germany and Japan were flat on their back, we were the only major world economy not devastated by the war – in fact, our economy was booming. We could afford to be generous, especially as the arrangement strengthened our geopolitical position vis-à-vis the USSR and Soviet bloc.

Unfortunately, not only was the Germany-Japan arrangement not ended when those nations recovered by the end of the 1950s, it became the standard for our trade relation with other countries in non-communist Europe, as well as some in the Far East, notably South Korea.

To continue reading: Is There Method To Donald Trump’s Supposed Madness On Trade?

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Trump Makes Xi Happy, by Dr. D

Posted on April 4, 2018 | 1 comment

Articles bemoaning Trump’s trade moves have become a dime-a-dozen commodity. Here’s a much rarer commodity: an article praising what Trump has wrought. From Dr. D., at theautomaticearth.com:

Dr. D: Since tariffs are in the news again, let’s run down the topic , first in micro, then in macro.

 

“Trump said this week he’ll slap 25% tariffs on $50 billion to $60 billion in Chinese exports to the U.S., including aerospace, information and communication technology, and machinery. The move is aimed at countering Chinese cyber and intellectual property theft of U.S. technology . It also tries to push back against China’s demands for technology transfers from U.S. companies in return for access to China’s market.

The Chinese government, in turn, said it would hit U.S. shipments to China with $3 billion in tariffs, affecting goods such as pork, aluminum pipes, steel and wine.

“A family of four will end up paying about $500 more to buy (clothing, shoes, fashion accessories and travel goods) every year” if those products are subject to 25% tariffs, the American Apparel and Footwear Association says…

Retaliatory tariffs from China, meanwhile, could especially hurt American farmers.  China is the world’s top soybean importer, with the U.S. providing close to 60% of the commodity. And the country is the second-largest purchaser of U.S. pork. Growing talk about a trade war has worried Iowa farmers. The state is the nation’s largest corn and pork producer and second-largest soybean grower.”

Historical background, when Clinton added China to the WTO, it opened the borders and U.S. markets to Chinese goods, but likewise, China promised to treat the exports of the U.S. fairly, which are driven by movies, patents, and intellectual property rights. In theory, that’s how the deal would be equitable. However for 20 years they have not been paying billions in patents or media royalties back to the U.S.. Stealing everything, patents, intellectual rights, ignoring international law, building a mile high tariff wall, and polluting their whole nation to boot, just like we did back in the 19th century when we were a wee country.

Guess what that shows? Tariffs work. It worked for us then and it works for China now. Go to a store and look for any item that isn’t made in China. That has devastated industry, and is arguably dumping, i.e. selling at a loss to ruin your competition. How? China isn’t a “capitalist” country, really. It’s an amalgam of communism and protectionism meant to rapidly modernize China in the footsteps of Stalin or Mao’s “Great Leap Forward,” and it works. As such, factories are built of debt money printed by the Central State then protected from bankruptcy with more printing and bailing out hand-picked winners by the state — just like we do.

To continue reading: Trump Makes Xi Happy

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Tariffs Are Not the Answer, by Ron Paul

Posted on March 12, 2018 | 1 comment

Tariffs will not solve the main problems afflicting US business, the ones caused by the US government. From Ron Paul at ronpaulinstitute.org:

President Trump’s planned 25 percent tariff on steel imports and 10 percent tariff on aluminum imports may provide a temporary boost for those industries, but the tariffs will do tremendous long-term damage to the American and global economies. Tariffs raise the price of, and reduce demand for, imported goods. Tariffs ensure the preferences of politicians, instead of the preferences of consumers, to determine how resources are allocated. This reduces economic efficiency and living standards.

Some justify these economic inefficiencies as being worth it to save American jobs. This ignores how tariffs increase costs of production for industries reliant on imported materials to produce their products. These increased costs lead to job losses in those industries. For example, President Trump’s proposed steel tariff could cost nearly 40,000 jobs in the steel-dependent auto manufacturing industry. Tariffs also cause job losses in industries reliant on exports. This is especially true if — as is likely to be the case — other countries respond to President Trump’s actions by increasing tariffs on US products.

Many of President Trump’s critics do not themselves support true free trade, which is the voluntary exchange of goods and services across borders. Instead, they support the managed (by government) trade of NAFTA and the World Trade Organization (WTO). NAFTA and the WTO promote world government and crony capitalism, not free markets. Any libertarian or free-market conservative who thinks the WTO promotes economic liberty should remember that the WTO once ordered Congress to raise taxes!

Foreign manufacturers may make convenient scapegoats for the problems facing US industry. However, the truth is that most of the problems plaguing American businesses stem from the US government. American businesses are burdened by thousands of federal regulations controlling every aspect of their operations. The tax system also burdens businesses. Until last year’s tax reform bill, the US had the highest corporate tax rates in the developed world. The tax reform bill lowered corporate taxes, but the US corporate tax rate is still higher than that of many other developed countries.

The United States not only spends more on military weapons than the combined budgets of the next eight biggest spending countries, but also spends billions subsidizing the defense of developed counties like Germany, Japan, and South Korea. Bringing US troops home from these countries is an excellent place to start reducing spending on militarism.

To continue reading: Tariffs Are Not the Answer

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Doug Casey on the Coming War With China

Posted on March 9, 2018 | Leave a comment

Trade barriers often hurt the country that imposes them more than the ostensible target. They can also lead to wars: when goods don’t cross borders, armies do. From Doug Casey at caseyresearch.com:

Justin’s note: Donald Trump may have just started a war.

If you read Tuesday’s Dispatch, you know that I’m talking about a trade war. You see, Trump just slapped a 25% tax on steel imports and a 10% tax on aluminum imports.

He did this because he wants to put American businesses first. But this plan may end up doing more harm than good. And that’s because Trump’s tough stance on trade could spark a global trade war. It could even lead to a shooting war with one of the most powerful countries on the planet.

You might find that hard to believe. But Doug Casey told me why this might happen during a recent phone call…

Justin: Doug, what do you think about Trump’s approach to trade?

Doug: Well, let me start off by saying the government should have zero to do with the economy in general, and trade in particular. No subsidies, no duties, no quotas—nothing of the sort. Most people don’t understand that import duties punish the whole country to “help” some uneconomic industry or group. At the same time, it allows them to persist in the practices that make them uneconomic.

And yes, I understand the chances of the government butting out are about zero. But it’s critical to voice correct principles, even if they’re disregarded.

Of course, Trump is correct in putting America first, as opposed to subsidizing other countries. But import duties don’t put America first. They damage it. The Smoot-Hawley tariffs were what really set off the last depression, because foreigners could no longer sell to us. That destroyed their economies, resulting in business failures and high unemployment.

Duties are always a disaster. When you have a duty on things from a foreign country, you violate all kinds of economic laws. You are, in effect, putting yourself under embargo. That’s number one.

Number two, the revenue on import duties goes to a government. It feeds the beast. This revenue makes the government bigger and stronger. So, it’s bad from that point of view as well. It always impresses me as strange when people talk about “we” in reference to the State, or the government. The State is a discrete entity—like General Motors, or the Catholic Church, or the Boy Scouts. It doesn’t care about you; it cares about itself. But, unlike those other organizations, it uses guns to enforce its will. You want to deny resources to it as a moral principle.

To continue reading: Doug Casey on the Coming War With China

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Trump Trade Wars A Perfect Smokescreen For A Market Crash, by Brandon Smith

Posted on March 8, 2018 | Leave a comment

The Trump trade wars would have made a perfect smokescreen if he had announced his tariffs before the market topped out. As it was, the market dropped severely after its January 26 top, well before Trump announced his tariffs. So Trump’s trade wars will be smokescreen, but not a perfect one. If the market craters from here, the lore will always be that Trump’s tariffs caused the market to crash: Smoot-Hawley II. From Brandon Smith at alt-market.com:

First, I would like to say that the timing of Donald Trump’s announcement on expansive trade tariffs is unusual if not impeccable. I say this only IF Trump’s plan was to benefit establishment globalists by giving them perfect cover for their continued demolition of the market bubbles that they have engineered since the crash of 2008.

If this was not his plan, then I am a bit bewildered by what he hopes to accomplish. It is certainly not the end of trade deficits and the return of American industry. But let’s explore the situation for a moment…

Trump is in my view a modern day Herbert Hoover. One of Hoover’s first actions as president in response to fiscal tensions of 1929 was to support increased tax cuts, primarily for corporations (this was then followed in 1932 by extensive tax increases in the midst of the depression, so let’s see what Trump does in the next couple of years).  Then, he instituted tariffs through the Smoot-Hawley Act.  His hyperfocus on massive infrastructure spending resulted in U.S. debt expansion and did nothing to dig the U.S. out of its unemployment abyss. In fact, infrastructure projects like the Hoover Dam, which were launched in 1931, were not paid off for over 50 years. Hoover oversaw the beginning of the Great Depression and ended up as a single-term Republican president who paved the way socially for Franklin D. Roosevelt, an essential communist and perhaps the worst president in American history.

This is not to say Hoover was responsible for the Great Depression.  That distinction goes to the Federal Reserve, which had artificially lowered interest rates and then suddenly raised them going into the economic downturn causing an aggressive bubble implosion (just like the central bank is doing right now).  But Hoover did actually aid the Fed in their undermining of economic stability by pursuing policies which were poorly timed.

I’m hitting readers with all of this because I am growing rather tired of the contingent of Trump apologists in the liberty movement scrambling to defend every single Trump action no matter how illogical. These people should know better.  Sorry, but Trump is not “playing 4D chess” against the globalists.  His primary initiatives have only served so far to create a useful distraction away from the globalists.

To continue reading: Trump Trade Wars A Perfect Smokescreen For A Market Crash

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WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

Posted on March 2, 2018 | 1 comment

Trump is shooting himself in the foot on trade. From the editors of the Wall Street Journal, via zerohedge.com:

With Peter Navarro egging him on, and a handful of US steel and aluminum producer CEOs patting him on the back, President Trump’s decision to impose tariffs has prompted worldwide outrage from the establishment as a sign of impending trade wars and the end of the world as we know it.

While many are purely political kneejerk reactions – just as anything Trump does is a negative (think “crumbs”) to those on the ‘other’ side – The Editorial Board at  The Wall Street Journal,  believe that Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum.

This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms.

The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.

Mr. Trump has spent a year trying to lift the economy from its Obama doldrums, with considerable success. Annual GDP growth has averaged 3% in the past nine months if you adjust for temporary factors, and on Tuesday the ISM manufacturing index for February came in at a gaudy 60.8. American factories are humming, and consumer and business confidence are soaring.

Apparently Mr. Trump can’t stand all this winning. His tariffs will benefit a handful of companies, at least for a while, but they will harm many more. “We have with us the biggest steel companies in the United States. They used to be a lot bigger, but they’re going to be a lot bigger again,” Mr. Trump declared in a meeting Thursday at the White House with steel and aluminum executives.

No, they won’t. The immediate impact will be to make the U.S. an island of high-priced steel and aluminum. The U.S. companies will raise their prices to nearly match the tariffs while snatching some market share. The additional profits will flow to executives in higher bonuses and shareholders, at least until the higher prices hurt their steel- and aluminum-using customers. Then U.S. steel and aluminum makers will be hurt as well.

Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000. Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.

To continue reading: WSJ Editors: “This Is The Biggest Policy Blunder Of Trump’s Presidency”

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In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next, by Tyler Durden

Posted on March 2, 2018 | 1 comment

Tariffs didn’t work out too well for President Bush; they probably won’t work out too well for President Trump. From Tyler Durden at zerohedge.com:

an eerie analogue of what is about to take place, on March 5, 2002 President George W. Bush imposed tariffs as high as 30% on global steel imports.

The temporary tariffs of 8–30% were originally scheduled to remain in effect until 2005. They were imposed to give U.S. steel makers protection from what a U.S. probe determined was a detrimental surge in steel imports, as more than 30 steel makers had recently declared bankruptcy. Canada and Mexico were exempt from the tariffs because of penalties the United States would face under NAFTA. Additionally, some developing countries such as Argentina, Thailand, and Turkey were also exempt.

The response was immediate.

Domestically, some of the president’s political opponents, such as Democratic House Representative Dick Gephardt, criticized the plan for not going far enough. For some of the president’s conservative allies, imposing the tariff was a step away from Bush’s commitment to free trade. Critics also contended that the tariffs would harm consumers and U.S. businesses that relied on steel imports, and would cut more jobs than it would save in the steel industry.

The international response – like now – was more vocal.

Immediately after the announcement, the European Union announced that it would impose retaliatory tariffs on the United States, risking the start of a major trade war. To decide whether or not the steel tariffs were fair, a case was filed at the Dispute Settlement Body of the World Trade Organization (WTO). Japan, Korea, China, Taiwan, Switzerland, Brazil and others joined with similar cases.

In a decisive decision, on November 11, 2003, the WTO came out against the steel tariffs, saying that they had not been imposed during a period of import surge—steel imports had actually dropped a bit during 2001 and 2002—and that the tariffs therefore were a violation of America’s WTO tariff-rate commitments. The ruling authorized more than $2 billion in sanctions, the largest penalty ever imposed by the WTO against a member state, if the United States did not quickly remove the tariffs.

To continue reading: In 2002, President Bush Imposed 30% Steel Tariffs; This Is What Happened Next

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