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.

12 Replies

mike09
mike09

So why delay the damn tariffs?

Curious-Cat
Curious-Cat

And why didn't we do this under the Presidents Bush?

Taunton
Taunton

So why is manufacturing and farming contracting right now?

Stuki
Stuki

200 billion, concentrated in a few sectors........ Most of the $20billion you are referring to, is services. And most of the remaining, is utilities and oil.

Noone needs to "take this medicine. Just let Americans off the plantation and attempt to become a free country again Then everything will work itself out just fine. That's what freedom to work things out as they best see fit, without orange haired baboons intervening, have always done for people. And will always do. Noone other than incompetent, connected leeches, benefits from cutting the baboons in on everything. Nor on anything at all, for that matter.

Webej
Webej

Nefarious trade practices?

You mean producing goods more cheaply? You mean "subsidizing" cheap goods, that is, using Chinese taxes to gift Americans and still make a profit? Nefarious trade is just BS. Half of the products are American companies using Chinese labor, so it is actually nefarious American practices.

bayleaf
bayleaf

bc Bush is/was a freaking deep state puppet

bayleaf
bayleaf

b/c ultimately we want fair trade, not trade war

bayleaf
bayleaf

Of course it's garbage. "free trade" zealots are about to have their pride hurt unless they can manufacture a recession via fear-mongering

bayleaf
bayleaf

Taking advantage of child labor, unsafe working conditions, slave wages, oppressive government rule is not nefarious?

Curious-Cat
Curious-Cat

OK, so you know how to call people names. Question: have you ever had an original thought?

Tengen
Tengen

So you're one of those Phil Gramm "mental recession" types? You don't think there are any ill effects to printing our way out of everything?

The Fed is the market. Without huge intervention, the reintroduction of price discovery would crater stocks, housing, and much more.

lpcongas
lpcongas

because business owners would have eaten those costs, no time to hedge against it with contracts already signed.

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.