Trump’s tariffs

March 4th, 2018 at 6:29 pm

To an extent, I join with the conventional wisdom that Trump’s tariffs on steel and aluminum will do more harm than good, but if that’s where your analysis stops, you’re not going nearly far enough: At WaPo, with more coming tomorrow or Tues (with Dean Baker; and here it is).

Probably the most salient concern here is retaliation–ie, trade partners blocking our exports–though could be mitigating factors there as well. With 12% of GDP in exports, we’re less exposed to countervailing tariffs than other advanced economies. Also, to the extent that retaliation generates a GDP drag from larger trade deficits (think about that, Trump), the Fed could raise less quickly–or pause in their “normalization” campaign.

Also, here’s an interesting wrinkle. As I note below, most of our trade partners have good reason to object to the administration’s rationale (national security risk generated by diminished capacity in sensitive industries). But since, unlike team Trump, they’re likely to be more rules oriented, they might decide to take their case to the WTO, which takes at least six months to deal with such cases.

But while the Chinese dump steel below cost on global markets, most others (Canada, Brazil) do not do so, and we buy a lot more from them than we do from China. And there is no scenario I can think of wherein Canadian exports invokes “national security” risk, which was Trump’s rationale for this.

So do not confuse my attempt to see some nuance here with support for Trump’s actions.

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12 comments in reply to "Trump’s tariffs"

  1. Fedup says:

    Some of us are happy about these tariffs, but it has nothing to do with the direct effects of this alone, but simply that it starts a long overdue conversation about trade.

    Everyone knows that the press, congress, economists, and the multinationals love existing policy, and that most of them couldn’t care less about trade imbalances. If this is the only avenue our democracy has to change trade policy, then we’re all for it.

    Economists are going to have to accept some inefficiency, and so what? The country isn’t here to make economists happy, and most economists have no idea what makes people happy.

    • Stanwood says:

      “most economists have no idea what makes people happy”

      This is an important incite. And one I don’t think they teach economists at school.
      [My comment should not be interpretted as support for the tariffs.]

      Looking forward to Mr. Bernstein’s analysis.

      • Fedup says:

        I’m pretty sure they don’t teach this to economists at school, nor do I think they should try to do so. Economist should stick to the numbers. It is government’s job in general to balance the economics with other concerns, and so it should be up to a president and the congress to listen to concerns other than those of economists. They should simply be a cog in the machine rather than the entire machine.

        This simply means that the role of economists needs to be diminished from it’s current state.

    • John Dees says:

      Dude, just stop excessive consumption. Tariffs are a shitty way of doing that, especially Tariffs designed to hurt your allies and help China. Nobody gets that part and especially how Trumpco is connected to China.

      Jared, your also missing on the financial bads of this, trade also increases liquidity in the US. Without it, debt will contract and we were likely headed there by 2019-20 anyway in many markets like auto and consumer credit.

      The Fed’s rate hike stuff means little. They are irrelevant. All cycles end.

  2. Jill SH says:

    So one proposal to fix 3 problems: infrastructure degradation, stagnant wages and salaries, and those people and industries suffering due to trade imbalance.

    A massive, long-range infrastructure commitment on the part of the federal govt to support building/rebuliding highways and bridges, interstate train service and hi-speed rail, city mass transit systems, and ports and airports, over minimum 10 years and even better 20, with requirement that majority of manufactured metal components be US-made. Federal matching funds would incentivize state and local commitments to similar.

    Hopefully this would offer enough incentive for the US steel and metal manufacturers to invest in new plants and technologies, and create lots of new jobs in those plants. More home grown manufacturing will mitigate the trade imbalance question. Additionally the construction jobs themselves will put overall pressure on wages, and workers in otherwise stranded industries, like coal, may find new work in new fields.

    Do you think that might work? Just need to change Congress, and the White House, and…

  3. John Dees says:

    China will keep on dumping, tariffs or no tariffs. This is a act against Canada, which is what the Oligarchs want to create friction between neighbors. It will force companies to stop investment cycles or fill their quota of Chinese steel which they currently do not.

  4. John says:

    As far as I know, you’re the only economist who even thinks this is a problem (maybe Joe Stiglitz). For most of them it’s “trade good, protectionism bad”. If you press them, they’ll say something about supply chains, job training or one of my favorite pieces of economic babble: creative destruction.

    I’m not an economist but I have thought about this. So here are a few thoughts. Trump frames the trade issue incorrectly. He thinks that foreign countries have stolen all those jobs. But it seems to me that they were given away by American employers for the sake of cheap labor. Until year 2000, it was a realtively minor problem. Then the Chinese entered world trade and a flood of imports came ashore. So what about a 5% tarrif directed at China. It’s too much but coupled with a promise for more to come it could start an onshoring trend.

    • Fedup says:

      It is true that American companies gave away our jobs to Mexico and China and India and other nations, but it is also true that our government gave the green light to those companies to do so through trade policy.

      Trump’s mentality is pretty primitive in that he really does blame other countries for our errors, but how well would it go over politically, with the deplorable state of our press and other media, for a candidate to denounce US corporations? Both parties have tiptoed around the issue over and over, and every time siding with corporations.

      Anybody that writes about ‘trade wars’ because of a single tariff is an alarmist demagogue. Most of our economists are pretty stupid, self-centered, uncreative and have helped destroy democracy.

      Let’s review: Trump has forced NK into talks with SK, which is something no other president has done. He has begun a long overdue global discussion over unfair trade practices, which no previous president had the guts to do.

      Overall, if it weren’t for our horrible, horrible press and media business models, Trump would be considered a pretty good president for the people, but with huge flaws like every other president.

      The good guy approach of our previous president pretty much failed miserably. It was time for a different approach. This is how our system works. If it doesn’t adequately address people’s concerns with a certain method, people get angry and elect somebody who uses a different method. Because the president is not a king in our system, if Ds don’t like what he’s doing they need to form better solutions, which is something they don’t seem capable of at this time.

  5. Tom in MN says:

    No one is going to make any long term investments based on a policy that will certainly get reversed, just like the current relaxation of environmental regulations.

    On the other hand if Trump wants to tank the economy before the midterms, I see no reason to object.

  6. Fedup says:

    RE: “And there is no scenario I can think of wherein Canadian exports invokes ‘national security’ risk”

    This is fine, but it isn’t in your job description to make this determination. There are a lot of factors that can determine what is and is not a national security risk, including civil unrest and favoring the concerns of foreign nations over that of its own people.

    It isn’t for us to say. It doesn’t matter how much a person hates this president. It doesn’t change the job description.

    • Fedup says:

      Even if this is just a negotiating tactic, it is totally valid to call it a national security issue if the goal is to fix something else that is more immediately threatening or involves other nations. It just isn’t for us to say.

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