Major Supply Chain Disruptions Coming: Thank Trump

-edited

Trump Says "Tariffs Absolutely Worth It" as Administration Escalates Trade War

Absolutely Worth It

In yet another escalation of the trade was Trump Administration Goes Ahead With New Tariffs on Chinese Products.

Tariffs on clothing and other imports from China went into effect on Sunday, escalating the trade war in a move expected to squarely hit consumers.

The U.S. tariffs of 15% on tools, apparel items, some footwear and many electronics will be charged on imports valued at $111 billion last year, according to an analysis by The Wall Street Journal. Additional tariffs of 15% on $156 billion of smartphones, laptops, toys, videogames and other products have been postponed until Dec. 15, after the period when goods are typically imported for the holiday season.

Mr. Trump cited the views of economist Peter Morici, who was interviewed Sunday on Fox News and said the tariffs would average Americans “not as much as the critics say” due to shifts in exchange rates and supply chains.

Business groups and others criticized the tariffs as harmful for American companies and consumers.

AFL-CIO President Richard Trumka credited Mr. Trump for “taking on China” but said, “unfortunately, he’s done it the wrong way.”

“To take on China, there has to be a multilateral approach. One country can’t take on China to try to dry up its overcapacity because they just send it through to you in other ways,” Mr. Trumka said an interview on Fox News.

Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce, said that the president was using the wrong tactic to take on unfair Chinese trade practices. “The tariffs—import taxes by any other name—are or will cost every American household between $600 and $1,000 by the end of the year.”

Targeting China

Supply Chain Disruptions

No matter how preposterous one's view on trade may be, there is always someone who will support it, and then some.

Peter Morici says the tariffs would average Americans “not as much as the critics say” due to shifts in exchange rates and supply chains.

Let's analyze that in pieces.

  1. Shifts in exchange rates
  2. Supply chains

1A: If the shift in exchange rates mitigated the the problem, then the tariffs did not work. We would still import from China. And If the consumer costs are negligible, then why postpone until December tariffs on toys, electronics, etc?

2A: Supply chains moves are very disruptive to US businesses. It is not exactly easy to pack up and go somewhere else. But if exchange rates mitigated the problem the businesses would not chose to relocate.

The irony of the supply chain theory is that businesses do move, at an operational cost, but to other low-cost nations like Vietnam, Singapore, and Taiwan.

Manufacturing did not return to the US which was Trump's goal.

All Trump did was disrupt supply chains at a cost to both US consumers and US businesses.

Please note that December 15 date in the above chart.

There is only one logical conclusion: Major supply chain disruptions will start soon, if they haven't already.

What About Farmers?

Lost in all the above analysis is the major impact Trump's tariffs have had on agriculture exports.

So even if US consumers did not pay the tariffs (they did), US farmers felt the impact of trade war retaliations.

Self-Inflicted Wounds

Please note that Amid Trump Tariffs, Farm Bankruptcies And Suicides Rise

The American Farm Bureau Federation, also known as the Farm Bureau, published a report in July that dove into farm loan delinquencies and bankruptcies based on Federal Deposit Insurance Corporation and U.S. court data.

The information showed that, “the delinquency rates for commercial agricultural loans in both the real estate and non-real estate lending sectors are at a six-year high and … were above the historical average of 2.1%.”

Wisconsin, Kansas and Minnesota led the nation in Chapter 12 filings; bankruptcy filings in Kansas and Minnesota increased so significantly in the past year that they reached the highest levels of the past decade

While Trump’s decision to impose tariffs on China and its subsequent retaliation is not the only reason for the stress farmers are under, it is a self-inflicted wound.

In another report from Newton, his analysis shows that while farm income in 2019 should increase by 10% from 2018, that would put it in the bottom 25% of the past 90 inflation-adjusted years. His analysis also includes direct payments from the Trump Administration’s Market Facilitation Program, and while it is not on the chart, 2018’s was even lower than 2019’s projected result.

A Newsweek article in May detailed a Fox News interview with Patty Edelburg, vice president of the Washington-based National Farmers Union, which represents about 200,000 U.S. farms. In the interview she said, "It has been insane. We've had a lot of farmers—a lot more bankruptcies going on, a lot more farmer suicides. These things are highlighting many of the news stories in our local news."

Soybean Prices

Anti-Suicide Corn Maze

Trump's Ludicrous Position

Trump's notion that Trade Wars are Good and Easy to Win is truly ludicrous.

Each escalation made matters worse.

Please recall that Trump made that Tweet on March 18, 2018. That's 1.5 years ago.

Mike "Mish" Shedlock

Comments (47)
hmk
hmk

This is garbage propaganda. The tariff bs is way overblown by all the media including Mish. The Chinese tariffs account for about $200 billion in extra costs in a $20 trillion economy, BFD. Its better to take this medicine now or should we wait until are totally f'd over by China. The Chinese govt is maleovelent who in their right minds would let them continue to engage in nefarious trade practices with us in order to facilitate our demise. What free trade text book is that in??? Its also irrelevant if the jobs don't come back as Trump promised. You had to know this was pure political BS in order to gain votes. Like Mexico paying for the wall. There are labor shortages to begin with who the hell will fill those jobs. The free market if allowed to function will reshore those jobs possibly with robotics/automation and eliminate the need for low skilled low pay labor. Geez its getting nauseating listening to the chicken littles screaming the world is coming to an end because we are standing up to China.

Realist
Realist

What is Trump’s goal in putting tariffs on Chinese imports?

Is it to fill the US coffers with tariffs paid by China? He does like to talk about the tens of billions being collected.

Well that’s not how tariffs work. When a tariff is paid to the US govt. it is paid by the company that imports the product. This increases costs for US companies which either absorb the tariff, or pass it onto the US consumer. Either way, it is a tax on a US business or US consumer.

Is it to reduce the US trade deficit?

Well tariffs won’t do that because the production will simply be moved to other low cost countries like Vietnam. The deficit remains, just with countries other than China. So US business and consumers are paying taxes to change which country the US has a deficit with.

Is it to create jobs in the US?

Well tariffs won’t bring many jobs home. Trump is already claiming that many companies are moving production out of China to other countries. So perhaps Trumps goal is to tax US companies and consumers to create jobs in these other countries.

Is it to prevent China getting technology transfers?

Many companies want to do business with China. Some of them willingly sign technology transfer agreements as a trade-off to get access to the Chinese market. It is difficult to see how Trumps tariffs will change the behaviour of independent companies who see this as an acceptable practice. So again, US consumers and businesses are paying taxes to try to change how some companies operate.

Is it to return the US to the glory days of the 1950s when US manufacturing was the envy of the world and poorly educated/ low skilled men could get a good paying manufacturing job that was protected by a union?

Well those days are gone. Manufacturing jobs have been automated to the point where (like farming), you don’t need many workers to produce a lot. This automation means that businesses will decide to open new manufacturing facilities closer to where the product is sold, in order to reduce shipping costs. This will bring a tiny number of manufacturing jobs back to the US. But manufacturing is a sector that is going to contribute a smaller and smaller percentage of the overall job market. Tariffs will not change this long term trend in the decline of manufacturing jobs.

I completely agree with Mish that Trump is screwing with supply chains that have taken decades to build. All this is doing is creating additional costs for everyone. It certainly won’t achieve anything positive for the US.

AshH
AshH

On the plus side, maybe it won't be so hard for the Fed to meet it's 2% inflation target over the next 12 months...?

thimk
thimk

@hmk I am also a free trade advocate. but lately have been viewing Bannon's and K Bass's content . The world has become complacent with a regime that offers cheap goods/infrastructure at all costs. I feel the tariffs are somewhat justified else we will be assimilated by the Chinese borg . Trumps is using tools that are blunt but in the absence of anything else that is available perhaps needed . thumbs up for your commentary @hmk . there is always another side to a coin.

FelixMish
FelixMish

"Manufacturing did not return to the US which was Trump's goal."

Bringing back "manufacturing jobs" is like bringing back subsistence farming jobs.

There's a word-thinker problem here. In common usage, "manufacturing" does not seem to encompass "building things". How, exactly, are Amazon, Microsoft, Google, et al not "manufacturers"? These companies certainly build things. Things far larger, more complex, and more valuable than anything Ford or GE built in the 50's.

So the word, "manufacturing", seems to encompass only activities that existed in times remembered by the old. Guess what? Jobs have changed. If you don't include modern jobs when you talk of "jobs", then you'll always be confused and confounded.

Webej
Webej

Trump said something important: He wants to order American companies back to America. This means there is a s t e p f o r w a r d in his understanding of the problem. It is not the Chinese, but the behavior of American corporations that are the problem. They have off-shored the equipment and the labor, making huge profits (CEO's of corporations that were off-shoring were getting 3× the pay increases as comparable executives). If the policy is to stop this, the government has to enact measures which will change the incentives for those companies. Even then, it would take a long time to redevelop the hollowed out manufacturing base.

For those who think agriculture and manufacture are only small components of GDP, try to think of some historical examples of countries that because wealthy without a strong agricultural and manufacturing base.

Matt3
Matt3

Thank you Donald Trump! China is a horrible place for US consumers to be supporting. They are the number 1 polluter of the Ocean and the air. They are number 1 in the important rare earth minerals because they don't follow any environmental rules and don't mind killing a few workers. The people in China are basically oppressed slaves and US companies are exploiting this to use slave labor. As you buy the cheap Chinese goods, just never take the time to see how they were produced. Stay ignorant Supporting the slave state, will eventually lead to our own enslavement. As Elon Musk said, "China is the future".

2banana
2banana

Oh my...

"More Americans are now employed in well-paying manufacturing positions than before the Great Recession. The miracle hasn’t slowed. The latest jobs report continues to show robust manufacturing growth, with manufacturing job creation beating economists’ expectations, adding the most jobs since January."

bentmore
bentmore

China is run under a communist government why trade with them ? So American business can have slave labor wages ?

RonJ
RonJ

What bursts the bubble? Creating it. Thank globalism.

Realist
Realist

I am sure that there are a lot of intelligent Americans. Sadly, the comments on this blog show a lack of understanding from many who post here.

Here’s a gem from 2 banana.

“Generally speaking. Manufacturing jobs, in America, are fairly well paying with benefits and overtime. That a bloke with only a high school education can qualify to fill. Much, much better than any obama coffee slinger job.”

This was true 50 years ago when US companies had very little foreign competition, very little automation, and very strong unions. I’m afraid the world has passed you by 2banana. The number of jobs that you describe, are disappearing quickly.

The charity I am involved with has been re-training those “blokes” you mention with the skills needed for today’s jobs for the last three decades. Most of these people were blindsided by the fact they lost their well paying job and many thought that they were entitled to a low skilled, high paid job. In today’s world you need to constantly upgrade your knowledge and expand your skill set if you want to stay employed.

I’m afraid you need to look at the reality of today’s world. Living in the past just makes you look stupid.

dltravers
dltravers

One thing that is overlooked is that millions of acres were left unplanted this year due to an extremely cold and wet winter in the Midwest. What was planted is doing poorly in some cases. This one was really bad followed by two other bad but less sever winters.

I have had to re-educate myself many times in my career. I have seen many jobs and careers go down the rat hole with wages and benefits driven down by undocumented immigrants and changing technologies and conditions.

One thing I focused on was getting into a craft where English skills, reading, writing, and communication is prized along with the ability to solve problems technologically. I have never looked back.

Breaking things up with China will require some pain. When the Soviet Union fell and the massive military base economies closed in the US no one wined about it. We all sucked it up knowing a better future of peace MAY be possible.

Trump Derangement Syndrome is a real mental illness in this country. Other presidents talked and acted almost just as stupid at times but the press let it pass. He would do better to keep his tongue on a leash and his fingers off the send button at more times than not.

Country Bob
Country Bob

Realist wrote "The charity I am involved with has been re-training..."

My state has been over-run by non-profit organizations. The people working in these so called charities make more than many people in the private sector. The charities do not pay a penny in taxes, while they push for more taxes to be paid by others.

In the nearest large city to me, the largest land owner is a college. They pay no taxes. Mom and pop stores are closing, and they aren't blaming the Chinese or supply chains or Putin or any of the excuses I hear about in the news.

Property taxes keep going up, while the largest property owner (the college) keeps buying more land for itself, which then becomes tax exempt, so the rising cost of running the city gets divided across fewer and fewer mom and pop stores.

The college continues to churn out graduates who get minimum wage jobs. Many struggle under student loans because college tuition skyrocketed. If colleges were doing their job, folks like Realist (at a so called charity) wouldn't be dodging taxes to do the work the colleges were supposed to do.

Non-profits were a great idea when they first started. But the system has been abused.

Boot6761
Boot6761

Soybean prices were 50% lower in 2006...

This is such a two sided argument and the Big Corporations will win...The technology companies manufacturing in China should be highlighted as they are a major beneficiary of the cheap labor. There are many examples of companies that have had to provide Intellectual Property to the Chinese in order to manufacture over there...can this be considered a cost of doing business?

American workers were victims of Big Corporations looking to earn a profit....by reducing their costs of production...why is no one bitching about all of the technology companies using India or the Philippines for Customer Service?

If you want to try and be a part of this then do not buy products made in China...

Herkie
Herkie

Trump Says "Tariffs Absolutely Worth It"

Screw this guy, he does not have to try to make ends meet on a disabled vets pension, with zero, one, two percent COLA adjustments while rent has risen 90% in the last 5 years, insurance up hundreds of percent.

I am buying NOTHING not strictly needed to stay alive or keep the car running. I can put off buying nearly everything for at least a couple years. I hope others do the same, send the economy into such a tailspin they might actually sit up and take notice of how mad people are. Unfortunately, a deep recession will also likely get Trump dumped, and right now there is not one democrat running I would vote for, possible exception of Mayor Pete, but, no matter how indignant the left gets or how unfair it is, the nation just is not electing a gay man to the Oval Office.

We are going to be in recession soon anyway, (I say we already are and years from now August 2019 will be pinpointed as the start of it). Not buying because of tariffs will just make it that much worse.

And it is not even just the tariffs on goods imported, it is all the components that will damage corporate profits so they will have to raise prices on everything no matter if any of it or how much of it is imported. So, next year when almost everything is 15-20% more than today I just can't wait to see how they justify giving people on a fixed income a lousy 2% COLA increase and the only thing I am sure of is that it will not be more than 2%.

Hot Finger
Hot Finger

Trump's populist goal of returning manufacturing jobs to the US is obviously rhetorical. Some may return, but not most.

I think most people understand that the types of economic activity the trade war tactics are attempting to push out of China don't involve the kinds of jobs likely to be done economically by US workers. But that not really the point. We cannot continue to do business with China as long as they continue to steal the IP of US companies.

Let the manufacturing jobs and supply chains flow to Vietnam, Singapore, et al., so long as it isn't China. China does not innovate, they replicate, and produce cheap goods at slave labor wage rates. That is not what I would consider any sort competitive advantage in comparison to other SE Asian producers.