Tariff news coverage makes me want to scream!

May 13, 2019

The simple-minded, sound-byte news coverage of the tariffs on China just makes me want to scream.  “Trump lied!  China isn’t paying for the tariffs!  American consumers are going to pay!  It’s going to cost every household $1,000 per year in higher prices!  A million jobs will be lost! China will retaliate with tariffs on American imports!  American farmers are getting killed by the loss of exports to China!”

I could go on.  The list of ways in which the sky is falling is endless as every business failure or challenge is now blamed on the tariffs on China.

The problem with the warnings that I’ve singled out above is that there is some truth to all of it – but only a half-truth.  Less than half, actually.  But the media sees an opportunity to stir up Trump hysteria, and hysteria always stirs more interest than factual, balanced reporting.  It’s the very reason that the evening news on every channel begins with a frantic proclamation of “BREAKING NEWS!!!” delivered breathlessly by a news anchor in a tone of voice that sounds like he/she just stopped in to the studio while fleeing the apocalypse to warn us all to run for our lives.  Then you find out it’s not breaking news at all, but some damn thing that happened earlier in the day – something of little significance to 99.9% of the viewing audience – that some reporter just found a new little twist on the story.  And so it is with the story about the tariffs on China.

So I’m here to lend some balance to the tariff story.  Let’s take the above claims one-by-one.

  1.   “Trump lied!  China isn’t paying for the tariffs!  Etc.”  Maybe he did mislead us a bit with this one, as it actually is the importer that will pay the tariff, not the Chinese exporter.  However, in some cases, those are one and the same, since Chinese exporters have set up importing companies in the U.S.  Regardless, China will pay in a big way and China will be hurt badly, much worse than the U.S.  Chinese companies will be pressured to cut their prices to offset the tariffs paid by the importers, and they will, in many cases perhaps offsetting the entire tariff.  They may actually sell their products below cost, wiping out all profit for the Chinese company and all revenue that the Chinese government would have collected.  Chinese exports will fall dramatically as American companies find new, cheaper sources for their products.  Unemployment and civil unrest in China will rise.  China’s ability to fund its military expansion will be badly crippled.
  2. “American consumers are going to pay … $1,000 per year in higher prices!”  Yeah.  No one has ever denied that.  But what’s missing here is the fact that someone is going to give you $2,000 per year – maybe more – to cover it.  Who’s going to do that?  Your employer.  If not your current employer, your new employer – the one who just built a factory in your town to make some product that’s now too expensive to be imported from China.  Uncle Sam will be chipping in too.  Now that he’s collecting revenue from importers – that is, from people who still insist on buying the now-expensive Chinese imports, he has room to cut your income taxes without blowing up the federal budget.  Don’t like paying the tariff on the import?  Then don’t.  Buy the cheaper American-made alternative.
  3. “A million jobs will be lost!”  This one isn’t even a half-truth.  It’s an outright lie perpetrated by globalist economists who don’t like American efforts to restore a balance of trade.  They arrive at this figure by assuming that consumers won’t be able to afford the higher prices and will stop spending, forcing retailers to lay off workers throughout the supply chain – shipyard workers, truck drivers, warehouse workers, people stocking shelves and working cash registers.  They hope it won’t dawn on you that people will immediately seek out cheaper alternatives and will quickly find them in new products provided by new companies and entrepreneurs who have seized on the opportunity.  Truth be told, if the trade deficit with China were completely eliminated, as it will be if both sides escalate their tariffs higher and higher, the U.S. would add several million manufacturing jobs to its economy, not to mention the jobs involved in building that manufacturing capacity.
  4. “China will retaliate with tariffs on American imports!”  Maybe, but not if they’re smart.  Don’t forget that the real prize here to restore a balance of trade with China.  Any combination of imports and exports that gets us to that point yields the same positive benefit for the American economy.  If China wants to choke off U.S. exports altogether, then we can achieve a balance of trade by completely choking off Chinese imports.  We’re still the big winner and China will be an even bigger loser.
  5. “American farmers are getting killed … !”  Hogwash.  While farmers’ exports to China may be taking a hit, the free-trade globalists don’t want you to know that farmers are more than making up for it by increased exports to other countries.  It’s easy to verify this for yourself.  Just look at the trade report published monthly by the Commerce Department.  Farm exports (including the much-publicized soybeans) were actually up in 2018 and year-to-date in 2019 are running ahead of 2018 exports.  I also read a story that blamed the demise of family farms on the China tariffs.  More hogwash.  Family farms have been vanishing for decades, unable to compete with the huge corporate farms that are swallowing them up.

Higher prices that are more than offset by higher wages are a good thing, not a bad thing.  That’s the very mechanism that has enabled our standard of living to advance.  We all pay higher prices for every product than we did in the past, but we have a higher standard of living because the demand for labor has driven our wages higher.  “Wages aren’t higher today,” you may say.  Yeah, and why is that?  It’s because of our huge trade imbalance, the very thing Trump is tackling with these tariffs.

If all Americans understood the truth about trade and the damage that huge trade deficits do to an economy, we’d all be cheering for Trump – Republicans and Democrats alike.  We’ve been in a trade war for decades and have been losing badly.  Finally we have someone willing to take up the fight.  That’s the truth.

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March Trade Report Shows Signs that Trump Trade Policy is Working

May 11, 2019

https://www.bea.gov/system/files/2019-05/trad0319.pdf

The above-linked March trade report is showing signs that Trump’s trade policies – particularly the tariffs on Chinese imports – may be beginning to yield positive results for the U.S. economy.

The overall trade deficit held steady at the same level as February at $49.3 billion, the lowest level since June, 2018.  More importantly, the trade deficit in manufactured goods fell $1.1 billion to $68.2 billion, also the lowest level since June, 2018.  More encouraging is the way in which it fell, with imports falling $0.9 billion while exports of manufactured products rose to their highest level since May, 2018.  Here’s a chart of the trade deficit in manufactured goods:  Manf’d Goods Balance of Trade.

In the past few months there’s been a lot of volatility in the data as U.S. businesses stocked up on Chinese imports to avoid the tariff.  Perhaps the March data reflects a slowdown in imports as businesses now find themselves overstocked, but I think that’s not likely.  I thought that when the February data was released, but it seems unlikely that such an overstocked condition could persist for three straight months.  It also wouldn’t explain why manufactured exports are at their highest level in ten months.

Most encouraging of all is that the trade deficit with China fell dramatically in March for the fifth straight month to $20.7 billion, its lowest level since March, 2014 – an unusually low deficit that year – a level more typical of the monthly deficits with China back in 2007.

Trump’s trade policies – attacking our trade deficit with tariffs – is working.  As I write this, on the very day that the tariffs on $200 billion of Chinese imports were more than doubled to 25%, the stock market has shrugged it off, recovering all of its early losses.  Investors are beginning to sense that all of “the sky is falling” warnings of dire consequences of the big, bad, scary U.S.-China trade war is a bunch of baloney.  They’re beginning to look past it, looking for companies that will benefit, and they’re finding plenty.  The fact is that China has been a huge drag on the American economy and even the global economy, and investors are beginning to see it that way. That’s China’s worst nightmare and a dream come true for Trump, now more  confident in pressing these policies even further.


Huge Opportunities in the New Post-China Environment

May 9, 2019

https://www.reuters.com/article/us-usa-trade-china-consumer-analysis/trumps-tariff-push-squeezes-businesses-and-consumers-idUSKCN1SD09Z

There’s plenty of news stories like the above-linked Reuters piece with all kinds of dire warnings about rising prices for businesses and consumers alike when tariffs rise on Chinese imports.  Not mentioned in any of them are the huge opportunities that this creates for other suppliers, including established companies and entrepreneurs right here in the U.S.  So that’s the focus of this post.

Yeah, prices for products made in China are going to rise substantially.  No surprise there, and it’s exactly what we want to happen when we slap tariffs on imports.  The purpose is not to tax consumers but to provide incentive to make products domestically.  If you’re a business owner, what do you do if your competitor suddenly finds it necessary to raise his prices?  You start licking your chops because you know that you suddenly have a big competitive advantage and that you’re going to make a killing.

What do you do if you’re an aspiring entrepreneur?  You see an opening to start a business and start supplying a product where cheap imports had previously shut you out of the market.   Let’s look at the example cited in the article – Samsonite luggage that’s currently made in China and is now subject to a 25% tariff.  Maybe you’re a company that makes thermo-formed parts for someone – perhaps interior parts for the auto industry.  Here’s an opportunity to diversify and provide thermo-formed luggage “clam shells” for Samsonite, a customer that you didn’t have a chance with previously.  Or maybe you’re a company that makes small casters for other applications, and now you have a chance to supply Samsonite with casters.  Heck, maybe you’re an even smaller company that just makes little injection-molded parts.  Now you have an opportunity to supply that caster-maker with the little polyurethane injection-molded wheels used in those casters.

Steven Smith, owner of Luggage & Leather Depot in Bethesda, Maryland, said a jump in tariffs to 25 percent “would absolutely kill our business.” He said his sales are off as much as 20 percent after he raised prices to reflect the higher costs.

The fact is that every retailer of Samsonite luggage (and other brands made in China) are faced with the same issue, and people still need to buy luggage somewhere.  Those businesses that don’t adapt and gain a competitive advantage by finding new, cheaper sources, will likely be “killed.”  The others, the ones who immediately start looking for new suppliers and different brands that won’t be subject to the tariffs on Chinese imports, will be the ones who thrive.

This same story applies to thousands of products currently sourced from China.  The opportunities created for domestic manufacturers are suddenly almost limitless.  It was easy for everyone to move their production to new suppliers in China.  It won’t be that hard to now source them from somewhere else.  Those with the drive and imagination to adapt will be big winners in this new post-China environment.


Trump Threatens China with More Tariffs

May 7, 2019

https://www.fidelity.com/news/article/top-news/201905060845RTRSNEWSCOMBINED_KCN1SC0MF-OUSBS_1

As reported in the above-linked article, Trump has suddenly taken a more harsh tone with China, apparently frustrated with the slow progress in the trade talks with China.

It’s difficult to know what’s really going on here.  Last December, at a G20 meeting in Argentina, Trump announced that he was holding off on ratcheting up tariffs on Chinese imports which had been set to go into effect on January 1st until at least March 1st, pending the outcome of a new round of trade negotiations with China.  March 1st came and went as the trade talks dragged on endlessly, as they always do, which is precisely what communist dictator Xi wanted in the first place when he worked his charm on Trump at the G20 meeting.  He couldn’t care less about an agreement – something they’d never abide by.  All he wanted was more American inaction.

It seemed to be working.  But something has happened.  Reportedly, China back-tracked on some things they had agreed to earlier in the negotiations, perhaps calculating that it would result in more time wasted renegotiating what had already been negotiated.  Again, that’s all China wants – more wasted time and more American inaction.  One can only hope that, this time, they’ve miscalculated.

“What is of vital importance is that we still hope the United States can work hard with China to meet each other half way, and strive to reach a mutually beneficial, win-win agreement on the basis of mutual respect,” Geng said.

OK, Geng, let’s meet each other half way.  We’ll buy from you as much as you buy from us.  Nothing more.  Nothing less.  A balance of trade.  That’s all the U.S. is asking for.  That’s fair.  That’s real “trade” versus the mercantile relationship that you’ve enjoyed at Americans’ expense.

That’s not really what you want though, is it?  You want the U.S. to agree to a few token concessions in exchange for maintaining the host-parasite relationship that you currently enjoy, sucking the life out of the American economy while fattening your own.

We can only hope that Trump stands tall this time and puts the new tariffs in place, ratcheting up the existing tariffs and slapping 25% tariffs on the remainder of Chinese imports.  What’s at stake here is more than low prices for American consumers.  We can work through the short-term pain of that.  It’s not an exaggeration to say that America’s very existence – and perhaps even the future of mankind – is at stake.  It’s become clear that China is using its trade-fueled wealth to build itself into the world’s preeminent power – not just economically but also militarily – bent on world domination.  What’s at stake is mankind’s future as a free people vs. living under the thumb of a totalitarian communist regime.

All of the dire warnings about a U.S. – China trade war doing irreparable damage to the global economy is a bunch of baloney.  China is actually a drag on the global economy, sapping the life out of the manufacturing sector of economies around the world to sustain a labor force bloated by gross overpopulation and to stave off the civil unrest and potential collapse of its communist regime that would likely result without it.

End the negotiations.  A balance of trade with a badly overpopulated nation like China is something that can’t be achieved through negotiations because it would never agree to give up the huge trade surplus it needs for its very existence.  On the other hand, a huge trade deficit is something the U.S. can no longer endure if it wants to assure its own continued existence.  Maintaining tariffs sufficient to assure a balance of trade is absoutely crucial.


Trump, tariffs are not “unfair.”

April 25, 2019

https://www.fidelity.com/news/article/top-news/201904230802RTRSNEWSCOMBINED_KCN1RZ144-OUSBS_1

As reported in the above-linked article, President Trump complains that EU (European Union) tariffs on Harley Davidson motorcycles are “unfair.”  I disagree.  Tariffs are neither “fair” nor “unfair.”  They’re simply a tool used by nations to manage foreign access to their economy.  Every nation should be free to use them as they see necessary for their own best interest.  In this case, the EU has decided that it doesn’t want Harley Davidson infringing on their domestic motorcycle industry.  That’s fine.  That’s their right.

We should do the same.  Is it acceptable for EU motorcycle imports to infringe on our motorcycle industry?  If we see value in having a vibrant motorcycle manufacturing industry, then the answer is no, and the U.S. should impose its own tariffs on EU motorcycle imports.  Both sides win.  The EU protects its motorcycle industry and the U.S. does likewise.  Otherwise, if we don’t really care if we have any motorcycle industry in the U.S., then there’s no need for tariffs.

It’s as simple as that.  It’s pointless to try to threaten the EU into dropping their tariffs.  They’ve already decided that they need them, in spite of the potential ramifications that they surely considered when they imposed them.  So stop putting our trade policy in the hands of our competitors and seize control of the situation by taking actions that are within our control – not theirs.

Beyond the motorcycle industry, Trump needs to consider a whole range of imports from the EU that impact our economy.  For example, is it in the best interest of our domestic auto industry and our labor force to cede a large percentage of auto sales to EU imports?  Of course not.  But that’s exactly what we’re doing.  We have an enormous trade deficit in automobiles with the EU.  It’s long past time to impose tariffs that will restore balance to trade in automobiles.  We should buy no more from them than they buy from us.  Imposing large enough tariffs on EU auto imports is the only way to make that happen.

Come on, Mr. President, it’s time to stop playing the victim, as your predecessors have done for decades, and take meaningful action to restore a balance of trade with the EU.

 


A Trump Report Card

April 23, 2019

It’s been a while since I’ve posted anything, and thought it’d be a good time to give President Trump a sort of mid-term report card, albeit a little late.  I’ll grade him in two subjects only – immigration and trade policy – since these two areas address the economic effects of population growth, both actual growth the effect of growth imported through trade with overpopulated nations, the focus of this blog.  Beyond these, little else matters.  What about environmental policy?  Without a focus on stabilizing our population (and virtually all of America’s population growth is driven by immigration), all other environmental policies are doomed to failure.  What about foreign policy?  It’s impossible to project strength in the world if you’re weak on trade.

So, with that said, let’s begin with the good news:

Immigration Policy:  A+

Trump has done a fantastic job on both illegal and legal immigration, each of which had been contributing a million people per year to America’s population growth.  Thanks both to Trump’s zero tolerance policy for illegal immigration and dramatic cuts in legal immigration, the Census Bureau reduced its estimate of the U.S. population by 1.3 million people at the end of 2018.  He spent a lot of political capital in his efforts to get funding for a border wall and, when Congress wouldn’t agree, had the guts to declare a national emergency to obtain the funds.  “What emergency?” the media cried at first, but not for long, when their own reporters in the field began reporting on the humanitarian crisis at the border that resulted from the adminstration’s efforts to enforce the law instead of turning a blind eye to illegal immigration as previous administrations have done.  Now there’s virtually no complaints about Trump’s enforcement efforts or his emergency declaration.  His policies are likely responsible for the fact that increases at the low end of the wage scale are outpacing higher income increases.  Recently, during a trip to the southern border, Trump declared that “Our nation is full.”  Truer words were never spoken.  Ultimately, this is the biggest reason that immigration needs to be reduced.  Trump has done an absolutely fantastic job of reining in out-of-control immigration.

That’s the good news.  Now for the not-so-good:

Trade Policy:  D

Such a low grade may seem surprising and harsh, especially in light of the tariffs on metals and his seemingly tough position with China, including a 25% tariff on some items and a 10% tariff on half of all Chinese imports.  However, it’s those very actions that elevate his score to a “D” from an “F”, the score I’d give to every previous president going as far back as Franklin Roosevelt.  They’ve been a nice start, but fall far short of what we were led to expect from him in the way of trade policy.  Like all previous presidents of the modern era, Trump has been sucked into endless trade negotiations, a ploy that nations with large trade surpluses have used successfully for decades to forestall meaningful action by the U.S. – namely, tariffs.  We were promised that the North American Free Trade Agreement (NAFTA) would be torn up or promptly replaced.  Trump’s administration did negotiate a new agreement, but one that reportedly does little to shrink the enormous deficit with Mexico and it may never even be enacted, if Congress has its way.

Action on China is stalled.  Tariffs on auto and parts imports now appear to be idle threats.  Beyond China, there’s been no action on reducing the trade imbalance with other nations like Germany, Japan, South Korea, Taiwan, Vietnam and a host of others.  The trade deficit in manufactured goods has continued to explode to new record levels under Trump.  Employment in manufacturing has stalled once again.  Trump sees trade as a venue for demonstrating his deal-making prowess, and he sees tariffs as leverage to use in trade negotiations.  He doesn’t understand that favorable “deals” with overpopulated nations are impossible and a waste of time, and that tariffs are the only way to restore a balance of trade with those nations.  Regarding the ongoing trade negotiations with China, he recently declared that the U.S. will win, whether a deal is reached or not.  He’s wrong.  The Chinese have already won by sucking him into time-wasting talks that, at best, will yield a deal that the Chinese will use to continue to grow their trade surplus with the U.S.  He had them on the ropes with the tariffs and then caved in, letting them off the hook.

In summary, Trump’s trade policy is stalled and our trade deficit is getting worse, not better.  This has been a major disappointment.  He’s wasted valuable time.  As I’ve said many times, a tariff program will produce some pain in the short term as prices rise and companies are slow to build manufacturing capacity in the U.S., but will ultimately yield incredible economic growth once that capacity is in place.  Had Trump been more aggressive with tariffs, the short term pain would have given way to some major economic gains by the time of the 2020 election.  Now, that’s probably not possible and, instead, his economic program is at risk of stumbling into the election.

He’s done a terrific job on immigration but all may be lost if he doesn’t get his trade policy off dead-center.


If Trump wants GM to re-open Lordstown, here’s what he needs to do.

March 19, 2019

https://www.usatoday.com/story/money/2019/03/17/president-trump-attacks-gm-uaw-over-plans-close-lordstown-plant/3195729002/

The above-linked article is just one of many stories about Trump’s anger directed toward General Motors over its decision to end production at the Lordstown, OH assembly plant.  He’s wasting his time.  GM isn’t going to operate a plant building cars that aren’t selling.  Why wasn’t the Chevy Cruze selling?  It’s not that it isn’t a really nice small car.  The problem is two-fold:  the market has shifted away from cars to SUVs and, more importantly, the market is absolutely saturated with foreign brands.

I recently heard an automotive industry analyst sum up the situation this way:  “GM has fourteen plants, but only needs twelve to meet demand.”  (I may not be remembering those numbers exactly right.)  More history was in order.  He should have said that “GM once had dozens of plants and is now down to fourteen, thanks to imports, needs to shrink further to twelve and, if nothing is done, will eventually have none.”  That’s a more thorough description of what the domestic auto industry has faced.

Trump needs to stop wasting his time chastising Mary Barra, GM’s CEO, and do the one thing that GM fears the most – impose a 25% tariff on all auto and parts imports.  Soon GM would find itself in need of restarting production at Lordstown and, beyond that, begin building many more assembly and parts plants around the U.S.

Then why does GM fear such a move, one that would likely double its sales volume in the U.S.?  Because China might retaliate by kicking U.S. automakers out of China, depriving them of access to that market.  With 1.2 billion people, four times the population of the U.S., GM and other global corporations think China is a market with the potential to be four times the size of the U.S.  It’s currently nowhere near that big and never will be, thanks to gross over-crowding in China, but GM doesn’t understand that just yet.  So they’re willing to cede a large portion of the U.S. market (and with it, U.S. manufacturing jobs) to foreign competition in order to preserve their access to the Chinese market.

Trump has been threatening to pull the trigger on auto tariffs for some time now.  What’s he waiting for?  The “Make America Great Again” initiative will remain stalled and more auto plants will close as long as he fails to act.