War With the World: Trump Puts Tariffs on India, Considers Australia

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Add India to the list of countries the US is n a trade war with. For now, Australia barely avoided Trump's wrath.

“I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets,” Mr. Trump said on Friday.

Tariffs start June 5 as Trump Pressures India Over Open Markets.

Mr. Trump on Friday said India would be removed from the U.S.’s privileged-trading program called the Generalized System of Preferences on Wednesday. Under the decadeslong program meant for some developing economies, the U.S. had allowed India to avoid tariffs on certain exports to the U.S. in the interest of promoting tighter trade ties and development.

India, the U.S.’s ninth-largest trading partner, is a top beneficiary of the GSP program. Mr. Trump’s move will add tariffs of as much as 7% on Indian exports of goods like chemicals, auto parts and tableware to the U.S., which in 2018 accounted for more than 11%, or $6.3 billion, of India’s total exports of goods valued at $54.4 billion, according to the Congressional Research Service, a research agency for the U.S. Congress.

Spotlight Australia

Please consider Trump Administration Considered Tariffs on Australia.

Some of President Trump’s top trade advisers had urged the tariffs as a response to a surge of Australian aluminum flowing onto the American market over the past year. But officials at the Defense and State Departments told Mr. Trump the move would alienate a top ally and could come at significant cost to the United States.

The administration ultimately agreed not to take any action, at least temporarily.

The measure would open yet another front in a global trade war that has pitted the United States against allies like Canada, Mexico, Europe and Japan, and deepened divisions with countries like China. It would also be the end of a reprieve for the only country to be fully exempted from the start from steel and aluminum tariffs that Mr. Trump imposed last year.

The tariffs on Australia would have hit imports of aluminum, although measures that would have applied to other products had been discussed as well. Shipments of Australian aluminum to the United States have surged since last year, when Australia became one of the few countries not to face metal tariffs.

Unfair Competition

Trump wants to protect US steel and aluminum manufacturers from "unfair competition".

How come the rest of the world, including Canada and Australia can produce steel and aluminum cheaper than the US?

Even if there was a nefarious answer to that question (there isn't), the fact remains that far more US industries benefit from cheaper metals than are harmed by them.

Logically, no matter the reason, the US should welcome cheap steel and aluminum.

Chain Reaction

Trump put tariffs on steel and aluminum from Mexico, Canada, and China, so importers turned to Australia.

Aluminum imports from Australia rose by 45 percent from 2017 to 2018. They are up even more, by 350 percent, for the first three months of 2019, compared with the same period in 2018.

The same thing is happening across the board.

Tariffs on China drove imports from Vietnam, India, and other places.

For now, Australia is still a small supplier. Yet Trump is hopping mad.

Understanding Trade

I saw an interesting Tweet yesterday in which someone claimed "trade is a zero sum game".

That is seriously wrong. Unfortunately, that is how Trump views things. Trump believes there is a winner and loser to every deal. The fact is both sides have to believe they gain, or there is no deal.

Here's a simple example I gave someone other night in a discussion at karaoke.

Imagine an island with 8 people. Four are net makers and four are fishermen. The net makers make and mend nets, and perhaps gather coconuts in their spare time.

The net makers trade nets and coconuts for fish.

In the absence of trading nets for fish, the net makers would have to learn how to fish. The fisherman would have to learn now to make nets and plant and gather coconuts.

It's much easier to become skilled at one or two things than dozens of things. In essence, this is what trade is all about: Everyone wins.

Better Deal

By insisting on getting a better deal than the other side, Trump risks a slowdown in trade.

Trump thinks this will bring jobs back to the US.

It won't.

Steel and aluminum are particularly misguided tariffs because very few are employed in industries that produce steel. By a factor of 10 or more there are more US manufacturers who use steel and aluminum.

The US has some legitimate gripes, but tariffs never have, nor ever will, produce the results Trump hoes for.

Not Easy to Win

Instead of trade wars being easy to win, we see Trump is in a trade war with the world, with precisely zero victories.

Meanwhile, China Puts U.S. Soybean Buying on Hold as Tariff War Escalates.

No one wins trade wars. Upping the ante just makes for bigger losses all around.

Mike "Mish" Shedlock

Comments (58)
No. 1-20
Stuki
Stuki

"I have determined...."

Progressivism in a nutshell: Some privileged idiot running around "determining" things, and who then posses the asymmetric firepower to force his childish "determinings" down others' throats.

ksdude
ksdude

No problem, esp if they get Trump impeached. Then we can go straight to a Bernie Sanders, etc. LOL im ready to move.

lol
lol

Everytime I go to the store (any store)prices are higher ,prices are literally rising daily.One two punch of soaring inflation/shrinkflation/Chinese crapifacation and now tariffs on all that shoddy overpriced Chinese /Mexican junk!

RonJ
RonJ

Ii think that what is being missed is that we are at an inflection point. In 1980 the inflation rate reached an inflection point.

Some 50,000 American factories have closed. Push eventually comes to shove.

Zero Hedge Headline: "We're In A New Game": Wall Street Luminaries Warn Trade War Could Drag On For Decades

Harbour
Harbour

The problem with free trade is that our standard of living is destroyed as countries with a lower standard of living take all the jobs BECAUSE we are off the gold standard. There is no balancing mechanism for the trade imbalances created. Obviously it’s beneficial for manufacturers is poor countries to move the plants to those countries but the loss of jobs here undermines the market for those goods. Decades later the US has minimal manufacturing, service jobs don’t pay the same AND inflation (theft) has destroyed the standard of living. Now Trump thinks he can solves but he’s pushing on a string and going against the realty of what was created over decades. I don’t fault him for trying but the only real solution is a major correction, a lot of pain, a purge of the elite political class and a return to real money.

HubbaBuba2
HubbaBuba2

You asked how Canada can produce aluminum cheaper than the US. It's b/e they're blessed with plenty of very cheap hydropower and aluminum takes a lot of it to produce (from bauxite).

Webej
Webej

The only reason others can produce anything more cheaply than Americans (who have the largest market scale!) is that they are cheating by taking dollars out of America's piggy back and are using American money to subsidize production. And they ship it to America with cheap oil subsidized by America's military keeping (dis)order. And they leverage our internet!

It is unimaginable that there are net-makers better than Americans. Just look at the average educational performance and how hard we work.

arvi
arvi

I hope the world gets of the Dollar standard, end the dollar's oil monopoly and let Americans earn their wealth like the rest of us. A proper dumping of US dollars will teach these idiots we don't need their useless paper currency.

Hobble Dee Hoy
Hobble Dee Hoy

This is not simply about leveling the trade deficit with China, it is now an existential struggle between two fundamentally different systems. It is unavoidable. Chinese telecom companies cannot be allowed to build and operate the free world's IT infrastructure. Our position would be more favorable if we had gotten the wake up call 10 years ago. Better late than never.

JonSellers
JonSellers

I take issue with Mish's example. I think a better example is the fisherman begin teaching their children how to fish, make nets, and gather coconuts, while still trading fish to the other net and coconut gatherers. Because the fisherman create an oversupply of fish, the net makers don't teach their children anything but net making and coconut gathering. The fishermen's children eventually get good enough at net making and coconut gathering. But being children, their father's pay them children's wages. Now the net makers are scrambling to cut their standard of living to that of children to be competitive.

Now the children of the fishermen may not be quite as good at net making and coconut gathering as the originals, but their father's are willing to make up the difference to ensure their futures. In the meantime, the children of the net makers and coconut gatherers have no skills and are forced to become baristas and Uber drivers.

Oh and Australians and Canadians can't make aluminum any cheaper than American companies. Alcoa places it's plants along the subsidized TVA production systems for cheap energy. But the purpose of the tariffs is to allow American aluminum manufacturers to jack up the price of their product. Getting global prices from Canadian and Aussie producers is unfair because American shareholder's don't get as much value.

KidHorn
KidHorn

I think a lot of this is due to Trump figuring out he can apply tariffs and the democrats are powerless to prevent it. This is similar to a teenager who's not allowed to do anything suddenly finding themselves on a college campus with no parental control. They get drunk until they throw up and pierce their tongues.

Casual_Observer
Casual_Observer

I believe all of this is a predicate to rebuild America from the inside out. A country that relies on too many imports is a country that cannot survive.

Realist
Realist

I can’t help but be amazed that Trump, and so many of his supporters believe that the US can bring back well paid, relatively low skilled, manufacturing jobs that existed 50 years ago. That simply isn’t possible in todays world.

The reason those jobs existed at all many decades ago is because three conditions existed that are no longer true:

First; little or no competition – example – auto production – the big 3 had the us auto market basically to themselves; as a result they could charge what they wanted, keep profit margins high, and give their workers high wages

Second; strong unions – the UAW would pick one automaker and strike till they got what they wanted; that automaker wasn’t worried about giving in because it knew their competitors would give the same as them

Three; much less automation – each decade, automation reduces the need for workers, particularly unskilled workers; farms used to employ 90% of the workforce and now its only 1%; factories used to employ 40% and now it’s less than 10% and dropping fast.

Even if Trump closed the borders and eliminated all foreign competition, he would then need to bring back strong unions, plus he would have to force factories to not use the latest in automation. In this way he could try to duplicate the conditions that existed 50+ years ago. And America would not be able to export anything they produced because the rest of the world would be producing it for 80% less.

It’s all a nostalgic fantasy. You can’t go back. Yet Trump and his idiot followers think it’s possible.

Mike Deadmonton
Mike Deadmonton

Feed a man a fish, he eats for a day. Teach a man to fish, he eats for a lifetime. Feed the man to the fishes and he ain't your problem anymore. Now, who is Trump feeding to the fishes?

Menaquinone
Menaquinone

Comparative advantage of trade is impossible without a gold standard to balance trade. President Trump has the wisdom to balance trade.

we_will_be_Ok
we_will_be_Ok

"The young Republican Party, which had soared to influence in wartime, was closely associated with aggressive tariff policy."

“We imagine the Gilded Age and that era to be this period of untrammeled free capitalism,” says University of Georgia historian Stephen Mihm, “but in fact tariffs remained completely central to American economic policy.”

Read more: https://www.smithsonianmag.com/smithsonian-institution/history-american-shifting-position-tariffs-180968775/#WktmwgLUCjQlVXLb.99 Give the gift of Smithsonian magazine for only $12! http://bit.ly/1cGUiGv Follow us: @SmithsonianMag on Twitter

Mish
Mish

Editor

"Trump's hypothesis, i.e., that removal of wage arbitrage will spur re-industrialization, is worth testing."

It's pure idiocy. What you and Trump propose is for the US to be the highest cost producer. It cannot possibly work

Maximus_Minimus
Maximus_Minimus

Hand up, who cannot see a 10^3 dimensional chess here, or is there another explanation?

John212
John212

Mish the reason the us won't say anything about aus is we have a huge deficit to us. I dont think australia has much to lose at all, if anything the us has gained alot more from australia with trade so won't see him complain their.