Trumps Trade Wars by Walrus.

President Trump is allegedly going to impose tariffs on imported steel and aluminum next week. When the European Union questioned his wisdom in doing this, he doubled down by threatening to impose tariffs on European car imports. He is also alleged to have said "trade wars are easy to win". This is madness and ultimately bad for America. The President seems fixated on trade imbalances and sees an easy and wrong solution to the American trade deficit which last year was 566 billion dollars. His take on this is that "its not fair" that America can't export more - the cause of the deficit is those dastardly furriners  are conspiring against American industry. This is childish.

I will not go into detail about specifics of the product mismatches between America and the rest of the world that are part of the export problem, anyone who has ever been to say, London or Amsterdam would know that a Dodge Ram would be entirely out of place. My main observation, based on a lifetime of experience with manufacturers facing international competition, is that tariffs are an addictive drug for lazy and incompetent business management, featherbedding unionists and bad government. All tariffs do is put off the day when the toxic combination of bad management, lack of investment, poor work practices, rotten infrastructure, overpriced energy, excessive regulation and bad government become too much of a cost for the community to bear.

To put that another way, if you are working for a manufacturing company that is internationally competitive and well run, how would you like it if your raw materials, Steel and Aluminum, suddenly became 25% more expensive next week? ...  And all to protect some lazy SOB down the road who hasn't invested in his plant for thirty years? Then there is the question of foreign retaliation.

The correct response to a trade imbalance is to find out why your product isn't selling and fix it. For example American cars are oversized gas guzzlers in the eyes of the rest of the world, that is why they don't sell, but nobody in Detroit seems to want to make what the rest of the world wants, instead they cry to uncle Donald.

Ultimately, Trumpian tariffs will hurt the internationally competitive sectors of American industry while merely postponing the day when the uncompetitive sectors must modernize or go under...and the result is always a net loss of jobs. 

https://www.thebalance.com/u-s-trade-deficit-causes-effects-trade-partners-3306276

http://www.independent.co.uk/news/world/americas/us-politics/donald-trump-tariffs-eu-cars-import-trade-war-a8238426.html 

Comments

[wisedupearly Ceo]

The problem is that our managers have become lazy and incompetent. The free market solution is strong competition for management positions. The traditional American strength was excellence in public universities, which allowed people of any economic background to demonstrate excellence and become managers.
The elite have destroyed this competition and thus the vitality of the country.
Trump's tariffs will only hasten the destruction as they fail to address the real reason for our trade imbalance.

[Richardstevenhack]

Quite a few well-known economists over the years have denounced tariffs as bad news.

Against Trump's Tariffs
https://mises.org/wire/against-trumps-tariffs-0

The IMF and WTO agree:

Trump steel tariffs: IMF warns plan would hurt US
http://www.bbc.com/news/world-us-canada-43267520

The European Union retaliates by suggesting Harley Davidson, bourbon whiskey, and Levi’s jeans could be tariffed:

E.U. Leader Threatens to Retaliate With Tariffs on Bourbon and Bluejeans
https://www.nytimes.com/2018/03/02/business/europe-steel-tariffs-trump.html

So it seems our "business oriented" President is not only ignorant on foreign policy, immigration, and gun control ("take the guns, then do due process"), but he's also ignorant on economics.

[Brendan Doran]

Then go and live those countries and be gone from ours.

Other countries that apply Tariffs, that protect their own nations.
Countries who's elites understand they must protect their own people from foreigners or be seen as traitors and overthrown - then thrown over lampposts.

Here is the Truth of you Internationally Competitive types: you have nothing to offer the world but betrayal of your own. We've had enough.

As for Trade we must reciprocate the practices of others or be taken advantage of and seen as weak - and it was the Truth.

No longer.

Go. Be the White Dwarf in Emperor Xi's court.

[Fred]

Walrus,

"For example American cars are oversized gas guzzlers ...."

How is the Australian car industry going about that today? Oh, that's right, you don't have one! If I recall correctly you once worked for Ford. Perhaps you can tell me about the products made by Ford of Europe, Ford Brazil, Ford South Africa and I'd mention Ford Venezuala but that socialist paradise doesn't have any car industry right now either. Are those gas guzlers too? Are their designs mandated by Detroit? Hardly. Who in Detroit is crying to Uncle Donald? William Clay Ford? That's a laugh. Did he impose that 35% tariff on cars crossing the Mexican border that drove Ford nuts back in 2016?

BTW didn't Ford just get a giant tax cut? We better keep that quite, tariff policy talk is going to put them right back to, where, exactly, globally? How about currency manipulation? I recall Senator Debbie Stabenow beating that drum for a decade and not doing anything about it but talking - usually right before the election.

[steve]

I think that you are mostly correct here. As far as I can tell Canada does not subsidize its steel production, so a tariff on them is just a gift to US steelmakers while hurting US consumers. China may be a different story. They clearly subsidize their industry to the extent that non-subsidized companies will have trouble competing. However, that means that China is essentially giving us some free steel. Do we gain enough jobs in the steel sector to outweigh the loss everywhere else? Maybe, but it hasn't seemed to work very well in the past.

Steve

[Huckleberry]

This is a political move designed to move the White Midwest into the new nationalist Republican Party. Conservatism is dead. The economics are of this are a sideshow.

[steve]

" Perhaps you can tell me about the products made by Ford of Europe"

That is easy, you can look it up. Their top sellers are small, fuel efficient cars. Nearly all European countries have much higher gasoline taxes than the US, to say nothing of the streets.

https://www.fool.com/investing/2018/02/15/why-fords-europe-sales-are-lagging-rivals.aspx

Steve

[blue peacock]

Walrus

The fact is barring Hong Kong, the US is one of the most open economies in the world with the least friction to imports. China on the other hand is one of the most protectionist. The EU too is significantly more protectionist relative to the US. It is not just duties but all those other non-tariff barriers including subsidies and regulatory barriers.

China produces more steel than the rest of the world combined. Way more than they need. Their steel producers then sell their excess product below cost because they get subsidized by their government, running non-subsidized businesses in other countries out of business. This is exactly what has happened in solar panels and in many other product categories. You give the example of automobiles. What do you think is percentage of cars that are sold in China that are actually imported? What about percentage of imports of auto parts into China?

Under the ideology of free trade championed by the establishment of both parties, Wall Street and US multinationals, the US has voluntarily shipped its industrial base overseas. But the reality is that there is no free trade. China is deeply protectionist. And the EU too but to a lesser extent. Trump is spot on correct that the working class in the US have been screwed not only by our ruling elite but all those mercantilist nations who have taken advantage of the open US economy.

The real issue behind what Trump, Wilbur Ross and Lighthizer are focused on is the loophole in NAFTA, where parts are shipped in from Asia for example, assembled in Mexico and Canada, and the final product gets a Made in Canada label and comes into the US tariff free, subverting any direct trade arrangements that the US has with Asian countries. This backdoor means is what they want to eliminate and why there can't be any agreement because of the huge benefit to Mexico and Canada with this loophole. That's why if they have their druthers the US will exit NAFTA, just to end the end run.

Trump wants to re-shore the US industrial base and it seems he is willing to risk a trade war to achieve that goal. He's doing in this instance exactly what he campaigned on. His message is pretty clear if you want unfettered access to the US market, make it here. If the US consumer pays more that is a price he's willing to take to have the manufacturing base. This is a debate worth having. This is the debate that Ross Perot and Sir Jame Goldsmith began in the 80s and they've been proven right in terms of the consequences. They failed then, as Bill Clinton and both the Democrats & Republicans backed by big Wall St & US multinational money steamrolled "free trade" legislation, including granting China, Most Favored Nation status. Wall Street has made out like bandits but the working class has fallen way behind.

The interview of Sir James Goldsmith:

https://youtu.be/4PQrz8F0dBI

[Steve G]

Walrus
Google NAFTA loopholes and the
Corresponding links will explicate
What has been the globalist policies to
The detriment of US industry.

[catherine]

''Ultimately, Trumpian tariffs will hurt the internationally competitive sectors of American industry while merely postponing the day when the uncompetitive sectors must modernize or go under...and the result is always a nett loss of jobs.''

I think there is more to it than that. The core reason US lost its manufacturing base is cheaper overseas labor. That began in the 60's after GATT.

Labor cost can appear in a lot of forms....Ford for instance operates cheaper in the UK in part because of their health system....where all taxpayers pay for it thru their taxes...the employer does not have the cost of providing or administering health care insurance for employees. But in most countries it is the cheaper wages that make overseas production more profitable.

It would be more beneficial to have put tariffs on ‘finished products’….washing machines, computers, tvs , etc…..covering a much broader array of production and ramping up more types of companies and jobs. Putting 25% on steel right off the bat is too high…...US steel needs time to tool up their production to meet demand at reasonable cost for one thing….meanwhile overseas users of steel in their products that are not affected by a steel tariff will continue to export into the US.
As far as I can see this only benefits the US steel companies and their workers.

My idea years ago was to establish tariffs and or quotas based on what industries pay their labor in foreign countries vr what US employers pay and adjusted for standard cost of living in that country and if lower then a tariff would kick in. For instance GE or Ford in Mexico or wherever would then have the choice of paying higher wages to their labor–--(taking away the overseas cheap labor benefit for US companies)–-- or paying a tariff on their imports to the US.

[wisedupearly Ceo]

For blueP #7
"Trump wants to re-shore the US industrial base"
Believe that this is will be impossible to achieve with the current crop of capitalists/managers.
They believe that that any returns less that 20-30% per annum are unacceptable.
They refuse to work hard.
If they were simple workers you would fire them and hire people who were more motivated, i.e. more hungry.
Trump is push on string here.
Hillary likes the idea of paying companies/managers government supplements to work harder and keep jobs in America. Simply put, we don't have the money.
Invest in community universities and greatly increase the number and quality of potential managers. Greater supply of managers = lower salaries and far stronger competition.
Restricting competition is not the solution.

[Tel]

"My main observation, based on a lifetime of experience with manufacturers facing international competition, is that tariffs are an addictive drug for lazy and incompetent business management, featherbedding unionists and bad government. All tariffs do is put off the day when the toxic combination of bad management, lack of investment, poor work practices, rotten infrastructure, overpriced energy, excessive regulation and bad government become too much of a cost for the community to bear."

Sure, take the example of Detroit, it was destroyed by all the things you mention, and it is very unlikely to come back even under Trump's new economic plan.

That said, suppose you were a worker who started in a factory at age 18 and 25 years later the factory closes. You have worked hard, you probably joined a union because you had no choice in the matter, you did what the union asked because everyone else was doing it, you have good skills but highly specialized, and you are now 43 years old with no job and no one likely to hire you.

What are you supposed to do? Start programming apps for mobile phones? Open a coffee shop? Become a pro-surfer?

That's the thing about division of labour, it's a lifelong commitment. Some people choose well and win, other people do what looks reasonable but turns out badly and they lose. Needless to say, the losers want someone like Trump to give them a hand.

[Fred]

steve,

Really. Why didn't I think of that. Perhaps you should look through the Ford annual reports for the last decade or so and see how much money Ford made or lost in Europe and South America versus the US.

[aleksandar]

wisedupearly Ceo
US managers have becomed lazy and incompetent ? No. The core problem is that shareholders want cash, at any cost and without a clear view of how a company should be managed. Take investment ie, it diminish results and dividend.
Short term financial policy.

[rusti]

My main observation, based on a lifetime of experience with manufacturers facing international competition, is that tariffs are an addictive drug for lazy and incompetent business management, featherbedding unionists and bad government.

I think that tariffs and protectionist measures have their place in terms of strategic initiatives to start new industries. How would the South Koreans have developed monster electronics or automotive industries without them? Ha-Joon Chang's book "Bad Samaritans" provides a bunch of examples from different eras and places.

But part of having competent administrators is knowing when to cut the cord, and once an industry is competitive on the international market (American cars or steel) subsidies aren't likely to nurture it back into competitiveness, but just to reward incompetence and cronyism. I agree with Huckleberry, this is not something that is based in any sound strategy for the benefit of the US as a country.

[English Outsider]

Walrus - your point about the gross inefficiency of Western economies is well made. I do not think the remedy is to destroy them further.

[jonst]

Barely disguised ad hominem nonsense. Tariffs and such may indeed be a rather blunt tool, of limited usefulness. But it is a tool that built America, and is building up China, SK, et al. Those who oppose them--a respectable position--have a corresponding duty to share with us how they will reduce our massive trade deficit with the rest of the world. Or, in lieu of that, tell us why trade deficits--even the kind like ours--don't matter to the economic health of a nation.

[wisedupearly Ceo]

"have a corresponding duty to share with us how they will reduce our massive trade deficit with the rest of the world. "
See my #10.
We need capitalists/managers who do not come from the insular world of the Long Island rich.
People from small villages who are able to work smarter for the country.
We already have far too many globalists in power.

[Harry]

The battle over trade policy is exactly the same as the battle over the corn laws in Britain. The fight is between different interests in the US. Its a domestic fight. The interests of NYC, LA, and SF vs the others.

Im sympathetic to Trump supporters, but exactly who can you blame except yourself for opportunists like Weinstein doing precisely what opportunists always do.

Its your Republic, if you can hold on to it.

[Eric Newhill]

Walrus,
As you no doubt know, most economic policy is a matter of "squeezing the balloon". I am surprised at your one sided assessment. IMO, the tariffs cannot be viewed in isolation. Rather, they need to be considered in conjunction with the Trump tax cuts.

American produced costs more than foreign made. The tariff equalizes the cost between foreign and American produced (actually makes foreign produced cost more, making it less attractive). The tax cut allows American businesses to compete on price at levels dropping to near what the pre-tariff foreign made product costs. Thus American consumers are not harmed.

I don't know where you get off on all this poor management to be blamed for US produced higher cost. AFAIK, it is higher employee costs and thicker regulations that drive US produced prices higher. That said, US quality tends to be higher. So the price difference is not as great as some would have it. Quality has a value, of course.

[Pacifca Advocate]

Wow. You could not have failed to grasp his point more completely.

WTO and IMF are in place to erode barriers like tariffs. Any country participating in those organizations is expected to meet certain basic requirements to eliminate barriers to competitive trade.

The reason we have so many things in the US that are now made in China is not because China has tariffs in place; it's because US companies moved their manufacturing facilities over to China, so they wouldn't be forced to pay their workers so much. That, and automation (!), are the two primary villains in the erosion of the American industrial base.

wisedupearly Ceo up there has it exactly right, and so does Walrus:

A) America's heavily industrialized products are generally rejected (Harleys and Levis aside) by foreign countries because they are inferior and don't meet the needs of the consumers in the rest of the world. American washing machines are huge monstrosities, compared to the washing machines one finds in Asia. Capacity in each are about the same, but relatively little innovation has occurred in American washing machines because Americans have a lot more space than most of the rest of the world does, and they don't really care if their new machine comes with fuzzy-logic auto-adjustment. Space for the rest of the world, though--particularly in Asia--is a really important consideration. The same goes for American cars. The same goes for lots of things.

B) American management generally doesn't worry over these things, b/c the US is in itself a market of >300 million and relative to its continental neighbors (Latin America), it's the apex economy. This status has allowed the American corporations that serve the needs of Americans to be quite lazy in their outlook. Selling one million washing machines each year makes quite a lot of money, and R&D requires a significant investment--so why bother with doing it if you can just look at what Japan's doing, and copy that in the safe and secure knowledge that nobody from the US is going to be buying a Japanese washing machine?

C) The Metric System. Duh. Weapons manufacturers in the US switched over long ago. American automakers...nope. Car accessories are a huge secondary market for auto-manufacturers. If a US auto-accessory manufacturer wants to get into secondary markets, it will need to create TWO assembly lines: one for Americans in the Imperial system, and one for exports, in the metric system.

D) Apple manufactures its phones abroad, using brokers who engage in horrific abuses of their workers. Those phones could be made in the US, by American workers, who earn a living wage. You should be asking yourself why they aren't--not pretending as if it's actually the fault of Latino migrants and Chinese competition.

E) When was the last time you bought a shoe that was Made in America? Or clothes, for that matter? Do you think that's China's fault? NO! That's the business elite of the US, exporting all those jobs to foreign locales. Since NAFTA, clothing mfg has pretty much been exported, in its entirety, to Latin America and Asia. Taiwan used to be the place where lots of shoes were made; no longer, b/c a living wage here is now too expensive. Those jobs have moved to Vietnam, Indonesia, China, and the Philippines. And yes: the workers who make them barely earn enough to feed themselves and a child or two. For many, attending school is even too expensive a luxury.

Absolutely NONE of these erosions of the US industrial and mfg base has anything at all to do with tariffs. Each is the result of either actions by our managerial class and ruling elites, or the logical consequence of an American Exceptionalism that believes the world should follow the US, rather than the US work as an equal among many.

Putin reminded us all of the potentially fatal consequences of such an attitude just a couple of days ago. Implementing a bunch of tariffs are precisely the wrong response.

[Pacifca Advocate]

>>>China on the other hand is one of the most protectionist. The EU too is significantly more protectionist relative to the US. It is not just duties but all those other non-tariff barriers including subsidies and regulatory barriers.

Both have more "regulatory barriers" (the rest of the world considers these "quality of life protections") in place because they have a MUCH higher concentration of population-per-meter than does the US, and then there's also that lil' thing called "Global Warming" or "Anthropomorphic Climate Change" which stubborn lobbies in the US have worked hard to discredit and, in the process, deluded much of the population into believing that it's not really an important problem.

Regardless if one believes it's "Anthropomorphic" or not, this next few years we are all going to learn that it's a Big Fucking Deal, and the efforts to obfuscate its importance have been criminal.

So--yeah. Europe and China have "regulatory barriers." So should the US. The Gulf of Mexico is still mostly dead, now--precisely because we didn't have adequate regulatory "barriers."

[Adrestia]

IMO the main problem is globalization. Most things are made abroad and are much cheaper. People don't want (or can't) pay higher prices for locally manufactured goods.

In the past mainly (big) businesses globalized, now ordinary people are buying goods in China. For me it is much cheaper to buy in China than local (even from webshops). It is really weird that this also includes delivery costs (which I have to pay for local web-shops). Eg a 12v to 220vpure sine inverter bought from China is 33 EUR and a (better quality) locally produced one is 175 EUR. This will hurt SME and results in only big business and wage-earning consumers in the west. This is not what the people want as is reflected in electoral outcomes. There is a growing sense of unease and people want something else. What this is or if this is even possible is the question mark.

I posted about the Italian elections today before this article was published and referred to the German car manufacturers and trade war. Once a country leaves the Euro-zone (and Italy is a candidate) this will cause re-evaluation of the Euro (which now is undervakued for exporting countries such as Germany or the Netherland at the expense of the weaker economies in the south) and will make German cars much more expensive.

IMO this process is irreversible with normal means. It will take something radical such as war, cesessions or revolutions or collapse of the global logistical process (or is OBOR meant to replace the existing trade-routes?) and collapse of the political/economic equilibrium of the past 25 year. It all looks very unstable to me. The EU is very fragile, and as a relative outsider the US doesn't look that stable either. All we need is a catalyst.

[Terry]

Yes competition is a good and necessary thing but strangely those that cheerlead for a simplistic view of unbridled competition seem ignorant or lacking experience in what really happens with unrestricted competition: people cheat and take advantage. The largest power bullies and eliminates competition.

More likely the cheerleaders are benefiting from the ills that come from it and laughing on the way to the bank with gains achieved not from healthy competition but rather unfair business practices.

Examples such as those with deep resources drop prices and drive out competition creating a monopoly or the big players buying up and burying innovative smaller competitors. Unchecked competition leads to monopoly.

Sports require ongoing management to ensure fair play. Bullies on the playground are a standard feature of all playing fields. International business is no different.

As to whether we have the human capital to compete - that has been diminishing for some time. For me the root cause of that is the shift from 70% rural to 5% rural in the last 100 years. Nixon's big ag farm policies, the destruction of Wallace/FDR's farm policies (a great example of shifting from fair and managed market policies to rule by the largest power) soon followed by our small farms and small towns ensured that. Lacking the hard work, pragmatic nature, and discipline that naturally emerges from a rural environment requires strong cultural practices and traditions which we generally lack.

[Pacifca Advocate]

>>>Those who oppose them--a respectable position--have a corresponding duty to share with us how they will reduce our massive trade deficit with the rest of the world.

That's quite simple: build products that people in other parts of the world want to buy.

Japan's economy took off in the 70s precisely because it sent over lots of young men to study what American consumers wanted.

Do you think Maytag is doing that? Whirlpool?

Do you know how rarely Asians come across a product tagged with the GE logo? Pretty much only in lighbulbs--which are metric--which means....