Foolishness of Trump's Steel Tariffs in One Image

Trump hopes tariffs will bring back steel manufacturing jobs. It won't happen.

Trump wants to save steel-related jobs.

However, the jobs are gone and will never return. NAFTA has nothing to do with it.

The US is producing 7.7% more steel than in March of 1990 with over 48,000 fewer workers.

I created that Chart in Fred by totalling steel workers in Indiana, Ohio, Texas, and Pennsylvania. Those are the only states tracked now. If there were more states tracked in 1990, the decline in workers is even greater. There is production in other states but it is minimal.

Don't blame NAFTA. Steel employment went on a deep dive nearly four years earlier.

The fact of the matter is US plants are aging dinosaurs compared to China's. China invested in modernized plants, the US didn't.

Before anyone bitches about subsidies, please take a look at US subsidies in the aerospace sector from absurd defense spending contracts.

Consider Sugar and Corn

The US cannot compete with sugar production from countries like Brazil where cane grows better, so we have sugar tariffs. As a direct result of sugar tariffs, US candy production went overseas.

US crop subsidies support excess corn production which we dump on the rest of the world. Still, we have tariffs on ethanol from Brazil because it is cheaper to make ethanol from sugar cane than corn.

The US and EU are the worst offenders when it comes to agriculture. Global trade talks break down every year over US and EU agricultural policies.

Blatant Hypocrisy

It's easy to criticize China over steel because no one hears third world complaints against the US on agricultural policy.

Economic Madness

The bottom line is simple: If its good for the consumer, it's good policy.

Instead, Trump is promoting trade wars that mathematically cannot be won.

For a mathematical explanation of trade deficits, please see Trump's Tariffs Show He's "Clueless About Trade".

Trump's trade policies are set to exacerbate the next global recession, but economic illiterates are egging him on.

A global trade war looms.
It's economic and mathematical madness.

Mike "Mish" Shedlock

Comments (58)
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formula57
formula57

And the foolishness is too encapsulated in one tweet - "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!"

KnotchoLibre
KnotchoLibre

Seems trivial but isn't the following likely to happen now? Here are my thoughts:

HIgh steel tariffs will push total product manufacture overseas rather than pull partial product (steel panels only) back to the US. Labor isn't exactly expensive everywhere else.

Following this -- the tax break incentives for overseas cash will dissipate against this pressure and we will end up right where we were a year ago but with really expensive products and slightly fewer jobs in industry.

Realist
Realist

As Trump isolates the US with protectionism, the US economy will take a hit. The global economy will suffer as well. However, the fact that the rest of the world continues to negotiate trade agreements is a positive for the countries participating. I believe the TPP will be signed this month by the remaining countries after Trump pulled out. At least they will be able to maintain good trade relationships.

ReadyKilowatt
ReadyKilowatt

I grew up in a steel town. There were thousands of workers needed to run blast furnaces, coke ovens, and rolling mills. A few years before the plant shut down they installed an electric furnace, which uses mostly recycled steel and a fraction of the labor. A few years ago the show "How It's Made" visited a steel plant. There were two people running an entire electric furnace. There aren't going to be any jobs. There might be some profits though.

Robin Banks
Robin Banks

Time for foreign countries to hit back and tax the likes of Google, Amazon, Apple et al on turnover and not profits. This might make them stop off shoring their profits.

jiminy
jiminy

How soon will large steel consumers build overseas to avoid overpriced US steel?

KidHorn
KidHorn

The irony is this will make it more expensive to produce cars in the US. Which will make us less competitive. Trump is a moron. I voted for him. Mainly because I thought Hillary would be an out of control neocon. But now I have doubts if I voted for the right candidate.

Sechel
Sechel

It was obvious to me. That Hillary would be better for the economy than Trump. TPP was the tool to buttress China, only Trump killed TPP, so now he's using a blunt axe, tariffs. If we formed a trading block with Asian countries outside of China we would have been far more effective at any trade war with China. Trump simply has no understanding of the economy. No surprise to me. He claims he's a businessman but his background is marketing and promotion.

whirlaway
whirlaway

"Don't blame NAFTA. Steel employment went on a deep dive nearly four years earlier."

NAFTA was yet another nail in the coffin. There were other aspects of Reaganomics and Thatcherism that had been screwing the Americans over since 1980.

It doesn't matter whether NAFTA can be blamed for this particular mess or not. NAFTA and a whole bunch of other things (deregulation, tax loopholes etc.) are to be blamed for the whole mess.

whirlaway
whirlaway

"A global trade war looms. It's economic and mathematical madness."

It is ALREADY an economic nightmare for the vast majority of Americans. So, if the so-called trade war affects the cushy little world of the elites, they don't give a crap! And they shouldn't.

Bam_Man
Bam_Man

"If it's good for the consumer, it's good policy."

Bam_Man
Bam_Man

Too bad consumers have ZERO representation in government - especially at the Federal level.

Bam_Man
Bam_Man

The motto actually is, "If it's good for the banks and the corporations profitability, it's good policy."

whirlaway
whirlaway

"If it's good for the consumer, it's good policy." is really a meaningless statement if it doesn't take the full context into account. If in Scenario A, an item costs the consumer $100 and in Scenario B, the same item costs $50, is A automatically better than B for the consumer? What if in Scenario A, the consumer had a job and in B, he was unemployed and dirt poor? Is still A better than B?

whirlaway
whirlaway

Make that: "Is B still better than A?"

Sechel
Sechel

@whirlaway ,when the united states granted relief to the u.s. auto industry in the early 80's with quotas it was strictly understood they needed to take the time to get their act together. so why isn't trump telling the u.s. steel and aluminum manufacturers the same thing. If they're not going to take the time to invest in more efficient plants they have no right asking for relief

Sechel
Sechel

@whirlaway your scenario a and scenario b is an ad for a planned economy

Kinuachdrach
Kinuachdrach

Be careful with statistics! Once upon a time, everyone who worked in a factory was an employee. But over the decades since the 1970s, the cleaners & the canteen workers & the back office staff & even some of the technical staff were transferred to contractors. So, low & behold! The number of "workers" in some of those statistics went down.

Kinuachdrach
Kinuachdrach

We need analysis -- not knee-jerk Anthropogenic Global Warming-type alarmism in support of a "Free Trade" chimera which does not exist in the real world.

Cocoa
Cocoa

Part of why China has all the steel is because we exported POLLUTION to them. Clean air and Water laws have the US pretty cleaned up. Those industries make a colossal mess and do we really need acid rain ,smog back here?

Stuki
Stuki

“The bottom line is simple: If its good for the consumer, it's good policy.”

+a lot.

Just remember to include consumers/buyers of so called “assets” in that calculation, as well. Lots of “investment types,” even those who ought to know better, tend to mess that one up.

whirlaway
whirlaway

They rarely are consumers of those assets. They are speculators. Different thing altogether. And even if one considers only investors, most people are out of the picture anyway, as everyday life is a struggle and they are trying to make ends meet.

El_Tedo
El_Tedo

Consumers & producers have been the ONLY ones represented with our passive trade policies. Trump is taking a more balanced approach in considering workers as well.

IICS
IICS

If we don't need steel factories, then why would China or any other nation retaliate from this change in trade policy? The U.S. is shooting itself in the foot according to free trade economists. Other countries should laugh at America's stupidity and do nothing, let their factories move to the USA which will make their economies stronger, and they can import cheap US steal.

SMF
SMF

All I know is this, and this is not from reading or from anyone telling me this, this is from personal experience. The cost of American products overseas is often 2X the price of what we pay here. Levi Jeans are almost a luxury item. When family comes to the US, they can almost pay for the cost of their tickets just by purchasing anything here rather than at home. Once I saved $100 by buying a TV here, paying $80 for airplane freight, and sending it back home. I don't know if tariffs are the answer, but I do know that the markup of many products (including the iPad I sold for $400 when I may have sold it for $200 here) is insane. Consumers overseas would be better served by lower prices.

pi314
pi314

Are you aware of any major Internet company doing well in China? FB, Google, Ebay, Amazon,... Instead, the Chinese blocked every one of them and copied them.

pi314
pi314

What is the point of the chart? If you substitute auto/farm workers for steel workers, you get very similar chart. I.e. fewer auto/farm workers and more auto/crop productions over time.

QTPie
QTPie

The point is that our genius president is blaming foreign competition for the loss of steel jobs. Mish’s point is that the loss of steel job is instead much more likely due to advancements in steel manufacturing which facilitate producing more steel than before with a lot less workers needed.

Escierto
Escierto

I am loving this. I hope he announces more trade barriers and tariffs and sinks the entire economy! Come on, Trump, you can do it!

pi314
pi314

@QTPie - yes, but we could have much more steel production here if the playing field is level. I am sure global steel production is significantly higher now than a few decades ago but it is not the case for US steel.

Carl_R
Carl_R

Thanks for the chart, Mish, This does show that the steel industry, while not as efficient as elsewhere in the world, is vastly more efficient than it was in 1990. Of course, protected by trade barriers, they have little incentive to modernize further.
I love this quote "As a direct result of sugar tariffs, US candy production went overseas. " This is a point I made in your prior post on the tariff. As a direct result of this tariff, US Manufacturing jobs will be forced overseas. Any product made from steel can now be made for 30% less overseas. The only way to stop this is to add tariffs on all products that contain any steel. Trade barriers lead to more barriers.
Regarding the US Agricultural surpluses, they are easy enough to understand. Farmers think that things like subsidies and price supports are designed to help them. Ha! The real purpose it to encourage over-production. Why? Lot's of things rile up voters, but nothing will get them nearly as riled up as a food shortage. Both Republics and Democrats would be very, very unhappy if that were to happen.

klausmkl
klausmkl

Most opinions here are based off Mish's chart. He blows the trumpet and you sing. Why not try and figure out how to bank some coin. Mish needs click bait. Who cares, market is rallying.

AWC
AWC

Surely, a reality TV star and surrounding bureaucrats know more about market pricing than all the worlds market participants in all the world's markets? Like water, ultimately, unfettered markets seek their own level playing field, unless tilted by outside forces.

tedr01
tedr01

Automation costs jobs. Just a fact of life. Those workers that are affected must adapt to this reality and move on to something else. Smart people adapt to change and survive.

Stuki
Stuki

@whirlaway
They are consumers of the future earnings streams of those assets. And just as lower prices are good for “consumer goods,” so are lower prices for future “consumer goods” purchased on layaway. In general, the less you must pay for a given future earnings stream, the wealthier you are. The less everyone must pay for a given future set of earnings streams, the wealthier everyone, hence society, is.

If the total current price of all assets is bid up due to improved prospects of increased future earnings streams, that is a good thing. But pumping up, via inflation and/or regulation, the current cost of unchanged earnings streams, is no more beneficial than doing so for so called consumer goods.

IICS
IICS

Automation costs jobs, but it still doesn't answer the question: is it better to have the robot steel factory in the USA or in China? Do you want the robot and AI software jobs in the USA or China? If we have 100% employment and major wage pressure then you can make a great case for free trade. When there's still mass unemployment (out of the labor force), budget deficits and trade deficits, it's a harder sell for shipping the tax base and emerging industries overseas.

QTPie
QTPie

Again, that wasn’t Mish’s point. His point was that the president is tying the decline in the steel industry (not its potential growth) with foreign competition. Mish shows that we are producing the same amount or more of steel as before, but with a lot less workers. Therefore, the president’s argument does not hold water.

IICS
IICS

Electricity is roughly 1/3 of the cost of aluminum. If US smelters are consuming 10x the electricity to make similar quality aluminum, they would all be bankrupt, it wouldn't even be close because China also subsidizes electricity.

pi314
pi314

@QTPie - no, we have lost significant (worldwide) market share even if we maintain the same level of production. Had we maintained or increased market share, we would have many more steel workers today. If you take a holistic view, other countries impose far more trade barriers against the US than the other way round. I have already mentioned Chinese barriers on US Internet businesses (e.g. Google/FB.)

Maximus_Minimus
Maximus_Minimus

That is probably bloombergism. Aluminum production is an electrolytic process, and at face value, producing 1 unit consumes the same amount of electricity anywhere in the world. The examples mentioned might be somewhat due to lower viscosity of the electrolyte at higher current flow (just guessing), and external factors.

No. 51-58
QTPie
QTPie

What you say may or may not be true. I don’t know without seeing the actual the numbers since while other countries have increased their production, at the same time their domestic consumption of steel has been rising much more than ours and at least part of their production increase has been to satisfy increasing domestic demand (and as such you’d expect a natural decline in our world market share as the denominator including the whole world has been growing). The pertinent point though is that I still think that you are making a different argument than the president’s. If he says that our steel industry has been “decimated” then one would recon that there’s has been a significant decrease in our domestic steel production - which is definitely not the case.

pi314
pi314

@QTPie - If Google was restricted to operate only in the US due to trade barrier, even if it

pi314
pi314

'

pi314
pi314

even if it 'maintain' its market presence, it is losing out and eventually will become irrelevant.