Trump Tweets "Trade Wars are Good and Easy to Win"

In one Tweet, Trump proves he understands neither trade math nor trading partner psychology.

Global trade wars have begun. Here is the opening salvo.

If Trump means what he says, and it's a strong bet that he does, retaliations will reverberate.

Retaliations Announced

​As expected in this corner, tit-for-tat trade retaliations have come from around the globe.

European Commission President Jean-Claude Juncker announced Friday Europe would react to U.S. plans to put import tariffs on steel and aluminum with tariffs on Harley-Davidson motorcycles, bourbon and bluejeans.

Canada is the top foreign steel supplier to the U.S., accounting for roughly 17% of all American steel imports, followed closely by Brazil and South Korea, according to Commerce Department figures.

Canadian Foreign Minister Chrystia Freeland warned the country “will take responsive measures” against the U.S. should the Trump administration slap tariffs on the country’s steel and aluminum. She deemed the proposed tariffs “entirely inappropriate” and “unacceptable.”

Swedish appliance maker Electrolux AB said it would hold back on a planned $250 million investment it had planned to make to modernize and expand its manufacturing operation in Springfield, Tenn., following Mr. Trump’s announcement.

Jürgen Kerkhoff, president of the German Steel Federation, said he saw the risk that Mr. Trump’s tariffs could badly damage European steelmakers.

“If the EU doesn’t act, our steel industry is going to be left footing the bill for American protectionism,” Mr. Kerkhoff said. “Diverted trade flows threaten Europe with a new steel glut when as things are the EU market is far from tackling (its own) import crisis.”

Under Mr. Trump’s two predecessors, the U.S. and South Korea negotiated and completed a free-trade agreement that came into effect in 2012. Mr. Trump says it was a bad deal that widened the U.S. trade deficit, but the two sides haven’t agreed how to revise it.

Supply Chains Hit Bulldozers to Beers

Tariffs could ripple through U.S. economy From Bulldozers to Beer.

Some industries are already lining up for those exemptions. The Beer Institute, a trade group, called for “cansheet” aluminum to be excluded from any new trade barriers. “Imported aluminum used to make beer cans is not a threat to national security,” said Jim McGreevy, the group’s president.

Remy Nathan, vice president for international affairs at the Aerospace Industries Association, said higher costs and retaliatory measures could disrupt global supply chains and hit exports, denting the aerospace and defense industries’ $86 billion trade surplus last year. The group represents companies including Boeing Co. and Lockheed Martin Corp. “It’s the indirect industrial impact we are most concerned about,” said Mr. Nathan.

“It’s going to be expensive,” said Ed Bolas, chief financial officer at DyCast Specialties Corp., a maker of parts for products including cutting tools and engines. “All of it will impact the consumer.”

The Association of Equipment Manufacturers, which represents heavy machinery giants Caterpillar Inc. and Deere & Co., said new trade barriers will hurt American exports. Caterpillar executives have said tariffs could drive up prices for domestic steel and make it costlier for it to produce mining trucks, bulldozers and other equipment.

Steel is the largest input cost for big machinery producers, accounting for around 65% of raw material expenses at Caterpillar, with aluminum adding another 10%, according to JPMorgan analyst Ann Duignan. She estimates agricultural equipment makers such as Deere are even more exposed to raw material inflation, unless they can claw back costs through higher sale prices.

Farm groups feared Mr. Trump’s move would invite retaliation against U.S. crop exports, after China recently raised the prospect of tariffs on sorghum, a grain used in livestock feed.

“These [steel and aluminum] tariffs are very likely to accelerate a tit-for-tat approach on trade, putting U.S. agricultural exports in the crosshairs,” said Brian Kuehl, executive director of Farmers for Free Trade, a Montana-based group set up to defend U.S. agricultural exports. “The agriculture sector knows from experience that our ag exports are the first to be hit by retaliation,” Mr. Kuehl said.

Soaring Supply

Note that US demand has been relatively constant for years. The number of steelworkers it takes to meet most of that demand has fallen precipitously.

Steel Production vs Steel Employment

It's impossible to make a reasonable case there is a national security threat over steel. Our imports come from Canada, not China!

Steel Glut a Good Thing!

By the way, a glut of steel is a good thing. It lowers costs and makes thing more affordable.

Standards of living rise when products are more easily affordable!

Trade Wars Not Winnable

Those who say trade wars are winnable aren't thinking, they're spouting nonsense.

Since Trump has his eye on South Korea, it's likely the next big target.

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 has begun. Trump fired the opening salvo. It's economic and mathematical madness.

Mike "Mish" Shedlock

Comments (55)
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MntGoat
MntGoat

Same with the border wall in Mexico, time for the wall and deportations of illegals was 80's and 90's - now its too late

Carl_R
Carl_R

Yes, and that makes it even more complicated. There presumably wouldn't be a tariff on those cars. But, what about the parts? The steel parts would still contain European steel, most likely, and imported as parts rather than as raw steel, it would bypass the steel tariff, giving a cost advantage to those cars.

Wolfpack12
Wolfpack12

I don't care how much more I have to pay if it makes us more self-sufficient as a country.Stop your damn whining and get to work.What a bunch of defeatists.Let's find a safe space with some crayons and coloring books.

Mish
Mish

Editor

"Time for tariffs was in the 1980's-1990's. NAFTA destroyed the middle class. Its too late now."

The notion NAFTA destroyed the middle class is total bullshit and easily refuted.