More Tariff Madness: Trump Targets Steel, Aluminum

Trump administration ponders a global tariff of at least 24% in a mad effort reduce the trade deficit and save jobs.

The prospect of a global trade war is high and rising as U.S. Weighs Tariffs and Quotas on Steel, Aluminum Imports.

The Trump administration on Friday said it was weighing broad-based tariffs and quotas to curb imports of steel and aluminum to protect national security, though officials stressed no final decisions had yet been made and the ultimate policy could be considerably more limited.

The recommendations suggest the president choose among several options. One of them is a global tariff of at least 24% on all steel imports from all countries. Another is a tariff of at least 53% on steel imports from a dozen countries. Under the latter, targeted option, the tariffs of 53% would be applied on steel from Brazil, China, Costa Rica, Egypt, India, Malaysia, South Korea, Russia, South Africa, Thailand, Turkey and Vietnam.

The report from the Commerce Department also included, as an alternative, a quota on steel products from countries equal to 63% of the countries’ 2017 exports to the U.S.

In a White House meeting Tuesday with members of Congress to discuss the possible measures, Mr. Trump faced considerable resistance from fellow Republicans skeptical of the justification for new import curbs, and worried about the impact.

But in the wide-ranging, 50-minute discussion, Mr. Trump regularly refuted the skeptics, suggesting he wasn’t so worried about costs, and would prefer a fairly broad curb. “You may have a higher price… but you’re going to have jobs,” Mr. Trump said at one point. “To me, jobs are very important.”

Economic Madness

The tariffs are economic madness.

The immediate casualty of this round of proposed tariffs is the US auto industry still sitting on massive inventory despite a huge hurricane-related replacement boom.

Last month, Trump put tariffs on solar panels and washing machines. Here's the irony: The Solar Companies Behind Tariff Increases are Foreign-Owned.

New Phase in "America First"

Let's recap what I said in New Phase in "America First".

Who Wins from Cheap Solar Panels?

  1. US consumers who buy the panels, allegedly subsidized by China.
  2. US companies that install the panels.
  3. US shipping and trucking companies that deliver the product.
  4. Local fast food restaurants where the installers eat.
  5. Gasoline stations where the truckers and installers fill their tanks.
  6. Environment.

Trade War Repercussions

Tariffs may save a handful of jobs at bankrupt US companies that cannot compete globally, but it will be at the expense of all six of the above.

The same applies in a similar fashion to TVs, underwear, and washing machines.

China may retaliate by canceling orders from Boeing or reducing soybeans imports from US farmers.

It is not going to take much to prick various global economic bubbles. A trade war with China could do it.

Mathematical Madness

Not only are tariffs economical madness, mathematically they cannot reduce balance of trade issues caused by deficit spending.

Professor Steve Hanke at the John Hopkins University explained the math in Trump's Tariffs Are A Reminder He's Clueless About Trade.

​Once again, the roots of this problem date back to August 15, 1971.

That is when Nixon closed the gold window, ending foreign redemption of dollars for gold.

Mike "Mish" Shedlock

Comments
No. 1-20
Kinuachdrach
Kinuachdrach

Realist -- Since you are a realist, you are clearly aware of the dismal performance of the US Political Class, whether it is Hilary Clinton wiping her computer with a cloth or the adulterous FBI couple scheming to undermine an elected President. Given that performance, is it perhaps just on the outer fringes of the possible that maybe -- just maybe -- the same kind of people did not negotiate good deals for the US? It was many years ago that Ross Perot warned that NAFTA was a "giant sucking sound" -- and events have proven him right. One does not have to be a supporter of President Trump to have concerns about whether the swamp creatures in the State & Commerce departments are good stewards of US interests.

Realist
Realist

Kinuauchdrach; you are buying into Trump’s argument that previously signed trade agreements were bad for the US and that only he can make good trade deals. That argument is incorrect. Trade deals are only signed when all parties benefit. Otherwise they wouldn’t be signed in the first place. Watching Trump attempt to bully his trade partners with endless rants, tariffs, taxes, quotas etc. shows that he is indeed clueless on trade. He has imposed tariffs on products that will increase prices for US consumers while helping foreign owned companies. He will do far more harm to US workers than if he did nothing.

Rayner-Hilles
Rayner-Hilles

We buy their stuff, they buy our money. Who's really exploited in the end?
I guess everybody when the bubble bursts and the economy crashes.

Still, this illustrates why free trade will never work between unequal nations: because it doesn't result in trade at all; it results in a bankruptcy auction. Only it's an auction where the buyers overdo it so much that the bankruptee eventually becomes the bankrupter.

And then because he doesn't want any of his stuff back, and the money in his hand is useless monopoly money, everyone goes bankrupt as a result. Mad world.

Kinuachdrach
Kinuachdrach

It seems pretty clear that other factors are involved. One of those factors is probably excessive job-destroying regulation since the 1970s. Another factor (which seems to be one that has caught President Trump's interest) is that the US bureaucrats who negotiated all those trade deals had the same level of competence we see today in the FBI. Plus a lot of those bureaucrats were the product of anti-American indoctrination at Ivy League schools, and were happy with deals which gave blue collar American workers the short end of the stick.

Kinuachdrach
Kinuachdrach

Mish -- We get that you don't like President Trump. Now let's focus on the issue of trade imbalance. You present two unrelated possible explanations: (1) Hanke's little "equation" saying budget deficits cause trade deficits. That is clearly not consistent with reality, since many governments which run budget deficits have trade surpluses, such as Japan & Germany. (2) Today's trade deficits are caused by going off the Gold Standard almost half a century ago. This may have more merit than Hanke's little "equation", but it does not explain why government which have pure fiat currencies can run trade surpluses; again, look at Japan & Germany.