“Slow-Turkey” Trade Policy

July 8, 2019

Like the animated “slow turkey” we’ve all seen on the TV ads for a quit-smoking medication, Trump’s trade policy is also taking the “slow turkey” approach.

As announced by the Commerce Department on Wednesday, the trade deficit jumped back up in May to $55.2 billion from $51.2 billion in April, but this was still below the peak of $60.8 billion in December.  (Here’s the full release from the Commerce Department:  https://www.bea.gov/system/files/2019-07/trad0519.pdf.)

More importantly, the deficit in manufactured goods also rebounded in May to $71.1 billion, up from $67.9 billion in April.  It too, however, was below the all-time record of $76.5 billion set in December.  Here’s a chart of the deficit in manufactured goods:  Manf’d Goods Balance of Trade.

Based upon these figures, it’s difficult to see that Trump’s policy of using tariffs to bring manufacturing jobs back to the U.S. is having any effect.  Look more closely, though, and you’ll find that things are starting to happen.  The deficit with China rose again in May, but to “only” $30.2 billion, from $26.9 billion in April and $20.7 billion in March.  But this rise follows a seasonal pattern.  The fact is that the deficit with China has been down from the same month in 2018 every single month so far this year.  The year-to-date deficit with China is $137.1 billion through May, compared to $152.2 billion for the same period in 2018.  And let’s not forget that the U.S. is now collecting a lot of revenue from half of Chinese imports – approximately $5 billion in May – an annualized rate of $60 billion.  If and when Trump imposes a 25% tariff on the other half of Chinese imports, that revenue figure will double to $120 billion per year and will further cut our deficit with China.

Yes, China is retaliating with tariffs of their own, and exports to China have dropped slightly, but imports from China have fallen much more – the net result being a lower trade deficit, which is a boost to the U.S. economy.  What about the stories about how bad America’s farmers are being hurt by this trade war?  Baloney.  Look at page 19 of the report.  Exports of “foods, feeds, and beverages” year-to-date is running almost dead even with last year.  Exports of soybeans, which get so much attention, are running 7% ahead of last year.  And overall exports are up by $2 billion from last year.

Recently, Trump announced in the wake of his G20 meeting with Red China’s dictator Xi that he is holding off the implementation of the 25% tariff on the remainder of Chinese imports that he has threatened, pending a new round of trade negotiations with China.  We can see a pattern emerging in Trump’s style of trade policy.  He’s all warm and fuzzy when meeting with global leaders like Xi, then takes the tough action when the lower-level negotiations don’t measure up.  Maybe it’s a smart approach, effectively inoculating the business world against the Chicken Little, “the sky is falling” dire warnings of trade war consequences.  The unfounded fears dissipate when the trade war is rolled out slowly and nothing bad happens.  The free trade fear mongers are losing credibility.  Each new round of tariffs gets more of a ho-hum response.

Who’s been the biggest beneficiary of the tariffs on China so far?  Mexico.  While the trade deficit with others like Germany and Japan is either stagnant or declining (South Korea), the deficit with Mexico is growing rapidly as manufacturers who have been leaving China in droves (a few examples of which are reported here:  https://www.reuters.com/article/us-china-strategy-tech/hp-dell-other-tech-firms-plan-to-shift-production-out-of-china-nikkei-idUSKCN1TY14G) look for their next best (low cost) solution.  Some manufacturing is coming back to the U.S., but a lot is going to Mexico.

Under current NAFTA (North American Free Trade Agreement) rules, that may look like a smart move.  But that landscape is changing too – in “slow turkey” fashion.  A new agreement has been negotiated and is pending approval by Congress, and Trump has repeatedly threatened tariffs on Mexico imports, most recently in his effort to force Mexico to take a tougher stand against Central American immigrants.  Those companies moving to Mexico now may be throwing good money after bad and regret not facing the inevitable – that America’s tolerance of perpetual, huge trade imbalances has reached the end of the line.

This “slow turkey” approach to trade policy is frustrating for a “cold turkey” like me.  The “cold turkey” approach would already be yielding bigger benefits for American workers.  But I’ll concede that a “slow turkey” approach may be more sustainable in an environment where free trade globalists still command the attention of the media and are influential in what happens in global stock markets.  The benefits for workers may not be sustainable if investors are taking it on the chin.

It looks like the “slow turkey” approach is just beginning to show positive results.  The American economy, including the manufacturing sector, is doing well while others are faltering.  If this approach de-fangs the critics as their trade war hysteria falls flat, and the political climate becomes favorable for an 8-year “slow turkey” transformation of trade policy instead of a 4-year “cold turkey” that ultimately yields nothing more than a lame duck dead turkey, then I’m all for it.

 

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Trade Deficit “Unexpectedly”(?) Narrows

June 8, 2019

https://www.fidelity.com/news/article/top-news/201906061158RTRSNEWSCOMBINED_KCN1T71LA-OUSBS_1

As reported in the above-linked Reuters article, America’s trade deficit fell slightly to $50.8 billion in April.  More importantly, the deficit in manufactured goods fell to $68 billion, it’s lowest level since June of last year.  The decline was due to a drop of $5.9 billion in imports, partially offset by a $5.2 billion drop in exports.

The reporting in the article seems to be intentionally misleading to promote a pro-free trade, pro-globalism agenda.  First of all, the article reports that the deficit “unexpectedly narrowed.”  Why “unexpectedly?”  I, and anyone who understands how tariffs work to restore a balance of trade, have been expecting it for months.

Then there’s this:

“U.S. trade with the world is slowing dramatically and the odds are rising that the economy is going to take a big hit,” said Chris Rupkey, chief economist at MUFG in New York.

“Globalization and expanded trade between nations benefited everyone and now the reductions in trade volumes between nations are going to subtract those benefits worldwide from everyone.”

The facts are that the economy is actually doing very well, especially in the U.S.  Globalization didn’t benefit everyone.  America’s manufacturing sector was devastated, turning a nation that was an industrial powerhouse into a skid row bum, economically speaking.

And this:

The politically sensitive goods trade deficit with China surged 29.7% to $26.9 billion. The gap with Mexico fell 14.1% to $8.2 billion in April.

Well, yeah, the deficit with China rose in April from March, but March was the lowest deficit with China in five years.  The Reuters article failed to mention that the 3-month trailing average deficit with China, which factors out month-to-month volatility, fell to its lowest level since April of 2014.  The data about Mexico is also misleading.  While the gap fell with Mexico in April from March, the 3-month trailing average rose to its highest level ever as manufacturers flee China for Mexico to avoid tariffs and to reduce their high shipping costs.

The tariffs on China are working, a fact more accurately covered in this article:  https://www.reuters.com/article/us-usa-trade-mexico-manufacturers/under-tariff-threat-mexico-less-attractive-to-companies-avoiding-china-trade-war-idUSKCN1T82HB.

Take the recent experience of outsourcing firm Tecma Group, which saw a surge in interest from companies mulling a move to Mexico as Trump raised tariffs to 25% on $200 billion of Chinese goods.

Tecma, which manages some 75 factories in Mexico, had been approached “every week” by companies selling items from furniture to ink pens seeking a pathway out of China and into Mexico, according to Alan Russell, its chief executive and chairman.

…  data showing Mexico emerging as the top U.S. trading partner as China exports less to the United States, combined with anecdotal evidence, suggest a significant trend.

… “Whatever we are doing in Mexico is for our company’s long-term strategic growth … If we produce in Mexico we’ll a save a lot on freight and it will reduce the time for delivery. It’s a huge advantage,” said (Fuling Global Inc.) CFO Gilbert Lee.

… Similarly, camera maker GoPro Inc decided in early May to move most of its U.S.-bound production to Mexico from China to “insulate us against possible tariffs,” Chief Financial Officer Brian McGee told investors at the time.

… In fact, Mexico overtook both China and Canada in the first quarter of 2019 to become the U.S.’s top trading partner in goods, according to U.S. Census Bureau data.

This is proof positive that the tariffs on China are working, forcing manufacturers to flee in search of a better deal.  The fact that, for now, they’re finding a better deal in Mexico instead of returning immediately to domestic manufacturing in the U.S. isn’t all bad news.  Mexico is a nation with only one tenth of the population of China, and with a GDP (gross domestic product) per capita that’s approximately 25% higher than China’s.  That means that Mexico doesn’t have enough slack labor force to take on all of the manufacturing currently done in China.  The demand for labor will quickly drive wages that are already higher in Mexico than in China even higher, to the point where manufacturing in Mexico has no advantage over the U.S.

The data shows that the tariffs are really beginning to work.

 

 

 


American consumers, rise up against American workers!

June 5, 2019

First Trump raised tariffs on Chinese imports and, as the media proclaims, American consumers are the ones who’ll get hurt, paying higher prices for nearly everything.  Now Trump has threatened across-the-board tariffs on all Mexican imports.  Again, American consumers will pay the price, with everything from cherry tomatoes and avocados to cars and trucks rising in price.  Who’s responsible for this?  Trump!  And who’s responsible for Trump getting elected?  American workers, fed up with no raises and losing their jobs to outsourcing!  How selfish of them!

Enough is enough!  It’s time for American consumers to rise up against these greedy American workers!  Do you know one?  Boycott their products!  Demonstrate in front of their businesses!  Write your congressmen!  March on Washington!

What’s that you say?  You know an American worker?  Your spouse is one?  Your mom or dad?  You’re actually one yourself!?!?  Shame on you!  If your spouse or your parents are American workers, maybe you can sit them down and explain to them how greedy they are.  Perhaps they should quit fighting for their jobs – may even just quit altogether.  If we can import everything a little cheaper, then we’ll all be better off.  Won’t we?

Obviously, I’m being facetious.  But this is exactly what the media would have you believe.  Every single story on the subject focuses on the higher costs for American consumers.  They never, ever want you to hear that the real long-term effect of tariffs is to provide motivation for companies to manufacture products domestically, which will benefit every American worker as the demand for labor drives wages higher, benefitting every single American – even those who aren’t in the labor force, but are dependent on someone who is.  Why?  Because corporations see the developing world – places like China and Mexico and many others – as the source of future profit growth.  America is fully developed, with little potential for profit growth.  They’re bored with America.  To them, America is yesterday’s news and Americans are irrelevant to the future.  Their strategy is to milk America’s wealth to fund development in the rest of the world, and to scare the hell out of them if they even think about standing up for themselves.

Since every American is a consumer, while just under half are workers, the free-trader globalists see focusing on consumer prices as a winning strategy in their fight against tariffs.  They’re counting on the majority of Americans who are not in the labor force to forget that they are dependent on someone who is.

Ask yourself this:  which is a better situation – to be unemployed while prices are slightly lower, or to have a good-paying job while having to pay slightly higher prices?  The answer is obvious.  Without a source of income, you can afford nothing.  Many people have committed suicide after losing their jobs and all hope of a secure retirement.  None that I’m aware of have committed suicide because the price of something rose a little.

Besides, the whole notion that we are paying lower prices for these imports is a myth.  When did the price of anything actually go down when it was outsourced to China or Mexico?  When did the Consumer Price Index actually drop?  Did the price of cars drop when they moved the factory to Mexico?  Did the price of iPhones drop when they moved production to China?  Of course not.  The narrative that says prices will soar if we have to manufacture domestically is nothing more than a scare tactic.  They hope you’re not bright enough to realize that the higher wages they’d be paying American workers will offset any small price increases.

Do you really think that all of this outsourcing – all of the enormous expenditures involved in rebuilding factories and infrastructure overseas and moving their sources as far from their customer base as they possibly could – that all of it was done in the interest of saving you a few bucks?  Don’t be ridiculous.  It was all done in pursuit of those markets.  It’s not saving you a thing.  So there’s nothing to fear from moving manufacturing back to the U.S.

It’s been said that these tariffs on Mexico will jeopardize passage of the new trade deal that the Trump administration worked for over a year to get signed with Mexico.  Why would he risk that?  I believe it’s because he’s actually quite unhappy with that deal.  Those negotiations began early on in his presidency when he was heavily influenced by the team of advisers he had assembled – a team he thought represented the best people he could find – people who ultimately proved to be free trade globalists interested not in “making America great again,” but in token moves that would leave the status quo firmly entrenched while creating the appearance of doing something.

Trump hates that deal.  He’s since learned the power and effectiveness of tariffs and wishes he’d slapped them on Mexico from the beginning.  Most of the people involved in that deal have left the administration, replaced by people who actually support his trade agenda.  And he also knows that the odds of that deal being passed by a do-nothing Congress are slim to none, leaving the horrible, existing NAFTA deal in place.

Mexico might retaliate with tariffs of their own on American exports?  I hope they do.  It’d be the dumbest move they could make, only stiffening Trump’s resolve to raise our tariffs further and make them stick.

Finally, a note of thanks to investors who buy into the baloney that these tariffs are going to hurt the economy and sell their stocks in a panic.  I’m the guy who buys them at the big discount you’ve created!

 


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.


More Evidence that Tariffs are Working

March 8, 2019

https://www.reuters.com/article/us-trade-emerson/as-trade-wars-rage-emerson-plots-new-u-s-expansion-idUSKCN1QP0IQ

Here’s more evidence that the tariffs on Chinese imports are working.  As reported in the above-linked article, Emerson Electric now plans to move manufacturing back to the U.S.  It’s a complete reversal from their strategy of only ten years ago.

In 2009, the chief executive of Emerson Electric Co. bluntly told investors at a Chicago conference what many of his counterparts at other manufacturing firms would only say privately.  “I’m not going to hire anybody in the United States. I’m moving,” David Farr said as he blasted U.S. taxes and regulations and called it an easy decision to expand in India and China.

A decade later, Farr has made a stunning reversal: Emerson now plans to build at least three new U.S. plants and is already expanding existing domestic operations. Farr saw a new era of U.S. protectionism coming before Trump’s election – and started planning accordingly, he said in an interview with Reuters at the company’s sprawling headquarters near St. Louis, Missouri.

“For the first time now, I’m looking for best-cost U.S. locations” to build factories, he said.

Trump’s election, Farr said, accelerated a political shift against free trade policy that is now transforming many U.S. firms’ domestic investment strategy. Protectionist policies — especially toward China — are now a rare point on which many Democrats and Trump agree, relegating formerly bold Republican free traders to the sidelines.

The article goes on to provide some details of Emerson’s plans, particularly to spend $425 million on capital projects in the U.S., including $250 million for new manufacturing facilities.

And it’s not just Emerson:

Farr’s new take on U.S. investment reflects a broader questioning of overseas expansions, especially in China, for both political and operational reasons. A survey of top managers at 500 U.S. companies conducted in December by investment bank UBS AG found that 31 percent have moved or are moving production facilities to avoid tariffs. Fifty-eight percent said they expect tariffs to “have a positive impact on domestic investment.”

It’s not just the tariffs.  Farr seems to be disillusioned with manufacturing in China.

Forces beyond politics are pushing manufacturers like Emerson to reconsider investments in China, including rising labor and logistics costs there …

… Emerson’s renewed commitment to U.S. manufacturing is also part of a larger move by global manufacturers to produce more goods in the regions where they are consumed to save on transportation costs.

I believe there are other factors at work here too.  The domestic Chinese economy is flattening out at a far lower level than CEOs expected.  They dreamt of a nation of more than a billion people becoming western-style consumers in the mold of Americans, making China a market four times the size of America.  It hasn’t happened because gross overpopulation in China strangles their per capita consumption.  They built a lot of capacity in China to serve a market that never materialized – capacity that was then dependent on exports to make it profitable.  Along with higher wages and high shipping costs, Trump’s tariffs have eroded their profits even further.  Supplying the American market from China no longer makes sense.

This story, and the one I posted about yesterday – about BMW putting on hold its plans to export EV’s from China – are just tiny examples of the effect that tariffs have in driving manufacturing back to the U.S.  Just imagine the potential as this begins to snowball.  Imagine how many factories would have to be built and how many people would have to be hired to staff them to make all of the products you see on the shelves at the box stores today that are all sourced from China.  There would be an economic explosion in this country the likes of which haven’t been seen since the end of World War II.

The tide is turning against the failed concepts of free trade and globalization.  It’s crumbling right before our eyes.  The very fact that Reuters, a pro free trade and pro globalization publication until now, saw fit to even publish this information is evidence in itself of changing sentiment.

And kudos to Reuters for pointing out that Republicans were even more guilty than Democrats for pushing the free trade globalization agenda to the detriment of the American people, and that Trump has led the charge against it.  Nice to see that some on both sides of the aisle are getting on the bandwagon.

 


An Example of How Tariffs on China are Working

March 7, 2019

https://www.reuters.com/article/us-autoshow-geneva-bmw-trade/bmws-china-electric-car-export-plans-on-hold-amid-tariff-uncertainty-idUSKCN1QO215

The above-linked Reuters article is just one example of how the tariffs on China, and the potential for those tariffs to be raised further, is already paying dividends for the American economy.  Reuters reports that BMW has put on hold its plans to export EVs (electric vehicles) to the U.S. from China.

BMW has factories in Europe, China and the United States and plans to establish China, the world’s largest market for electric cars, as an export hub for such vehicles, given its lower labor costs and support for zero-emission cars.

But Washington and Beijing are locked in a trade dispute, with U.S. President Donald Trump threatening to increase tariffs to 25 percent from 10 percent on $200 billion of Chinese goods if the two sides can’t reach a deal.

The uncertainty is making it hard for BMW to take a decision about exports, chief executive Harald Krueger said.

Free trade globalists no doubt would cite this as an example of how the American consumer comes out the loser.  That’s nonsense.  American consumers already have two excellent choices of EVs from Tesla and Chevrolet (the Bolt), and more are on the way.  Both the Tesla and the Bolt are priced about the same, at around $35,000.  Both are struggling to be profitable, especially as government subsidies are phased out.  They need every sale in the U.S. in order to survive.  Truth be told, they actually need to sell a lot more than they’re selling now to be profitable and survive.

What would happen if a BMW EV from China were thrown into the mix?  First of all, BMW would price their EV the same as the Tesla and the Bolt in spite of it being cheaper to build in China.  Like all companies, BMW is in business to make a profit, and they’ll want as much profit as they can get.  If priced the same as the other two cars, BMW will quickly take one third of the EV market from Tesla and Chevy.  In that event, it’s likely that the Chevy Bolt would go out of production while Tesla would be bankrupted.  BMW would then have the market to itself.  Without competition, American consumers would be the losers, and approximately 50,000 Americans would be put out of work at Tesla and Chevrolet.

This is just one small example.  If Trump follows through with raising the tariffs on Chinese imports, and especially if he follows through with plans to put 25% tariffs on all auto imports, domestic auto production will explode along with employment and wages in the auto and parts industries.  American consumers of everything will be the winners when they go shopping with more money in their pockets.


Auto Tariffs? Bring ’em on!

February 21, 2019

https://www.reuters.com/article/us-usa-trade-autos/automakers-brace-for-u-s-government-report-on-import-tariffs-idUSKCN1Q503G

A Commerce Department report that likely labels auto imports a national security threat which, under Section 232 of the World Trade Organization, would clear the way for Trump to impose tariffs, is now in Trump’s hands.  It could happen at any time now.  It’s impossible to overstate the consequences of such a move.  Without question, it would be the biggest shake-up in global trade since the signing of the Global Agreement on Tariffs and Trade in 1947.

Let’s begin with some perspective.  In 2018, 17.3 million cars and pickup trucks were sold in the U.S.  Of these, only about half of these vehicles were produced domestically.  The rest are imports.  Through November, the annualized value of imported cars in 2018 was approximately $180 billion.  The annualized value of auto parts was approximately $165 billion.  Together, that’s $345 billion worth of imported cars and trucks.  Roughly half of the cost to produce autos and parts is labor – about $172 billion.  If we assume that the average annual wage paid to auto workers is about $50,000, then that’s a total of about 3.5 million jobs that are lost to imports.

With that background, let’s take a look at the above-linked Reuters article about the possibility of Trump imposing a 25% tariffs on imported autos and parts.

The report’s recommendations may bring the global auto industry a step closer to its worst trade nightmare – U.S. tariffs on millions of imported cars and parts of up to 25 percent that many in the industry fear would add thousands of dollars to the cost of vehicles and potentially cost hundreds of thousands of jobs throughout the U.S. economy.

While it may be a “nightmare” for the “global auto industry,” it would be a dream come true for domestic U.S. manufacturers.  A 25% tariff would indeed drive up the cost of imports by thousands of dollars, and could even increase the cost of domestic autos some, depending on the amount of imported parts used in their manufacture.  The net result?  It’s not hard to imagine.  If you were in the market for a new vehicle that currently costs $30,000, which would you buy?  An import that now costs $37,500 or a domestic that now costs maybe $31,000.  It’s a no-brainer, one that would be repeated millions of times per year by new car buyers.  The result is that domestic auto manufacturing would soon double in volume while imports would slow to a trickle.  It’s as simple as that.

So how can one claim that  “hundreds of thousands of jobs” would be lost throughout the U.S. economy?  It’s easy to make that claim as long as you’re talking only about jobs lost and don’t include job gains elsewhere.  Sure, there’d be lots of jobs lost (and a couple hundred thousand is feasible) in the distribution, sales and servicing of imported autos.  But the loss of those jobs would be offset ten-fold or more by gains in the manufacturing, distribution, sales and servicing of domestic autos, not to mention the jobs involved in building the required manufacturing facilities, including buildings and machinery.

And what about this?

Senator Rob Portman, an Ohio Republican, recently introduced legislation that would shift responsibility for Section 232 investigations from Commerce to the U.S. Defense Department. The law containing the provision was passed in 1962 to keep U.S. industries healthy to meet Cold War defense needs.

“There is no way that minivans from Canada are a national security threat,” Portman told reporters.

Portman is wrong on two levels.  First of all, every imported car and truck weakens our manufacturing sector.  That could be critical in a time of war.  Just as important as our victories in the battlefield that ultimately forced the surrender of Germany and Japan in World War II was America’s industrial might that supplied them with weapons and materials.  No other nation on earth could even come close to matching America’s industrial power.  By the end of World War II, America’s shipyards were building complete destroyers, from the keel up, in two days, and Ford’s Willow Run factory in Michigan cranked out B-24 bombers at the rate of one per hour around the clock, or 650 bombers per month.  That didn’t happen by magic.  It took a veritable army of men and women experienced in manufacturing.

Existential wars – wars fought for survival against an enemy bent on conquering you – like our war against the Axis powers in World War II, are wars of attrition.  Who wins and who loses is often determined by who runs out of something first.  It doesn’t have to be ammunition or tanks or ships.  It can be something as simple as boots.  Every nut and bolt counts.  The lack of even one component can grind a war machine to a halt.  Supply chains that depend on overseas suppliers can be quickly and easily disrupted.  In other words, it’s critical to our survival that we maintain a robust manufacturing base, one that can be quickly converted to a wartime footing to supply everything imaginable that we might need.  Anything that degrades that capability is a national security threat.

Secondly, our national debt – now over $22 trillion – has grown to the point at which it threatens the viability of our economy.  Our national debt is directly tied to our trade deficit.  Every dollar drained from our economy by purchases of imports must somehow be put back to work in the economy, and the only mechanism available to do that is through federal deficit spending, financed by the sale of debt to those countries awash in our trade dollars.  Our debt is now growing by nearly a trillion dollars per year, and the $345 billion trade deficit in autos and parts is a major contributor.  The trade deficit is, without question, a national security threat and every imported minivan that Senator Portman references is part of the problem.

Tariffs are the only mechanism at our disposal for restoring a balance of trade – something we haven’t had since 1975 – and applying tariffs on the import of autos and parts is critical if we are to have any hope of achieving that balance.  Tariffs can’t simply be used as leverage to force other nations into trade concessions because they’ll never willingly give up their trade surpluses, regardless of their promises, as we’ve seen time and again for many decades.  We need tariffs now and they need to be permanent.