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Published: Sun, 22 Apr 2018 00:00:00 -0400

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Republicans Could Face Political Consequences Over Trump's Tariffs

Fri, 20 Apr 2018 10:10:00 -0400

Tariffs have economic consequences, both intended and unintended. They also have political consequences, as Republicans will likely learn in the months ahead. At the intersection of the economic and political fallout from a potential trade war with China lies the soybean. America is the world's top producer of the crop, and China is the world's largest consumer. China bought more than $14 billion of American-grown soy last year, accounting for 61 percent of total U.S. soybean exports and more than 30 percent of overall U.S. soybean production. In response to President Donald Trump's decision to impose tariffs on more than 1,300 Chinese-made goods last month, China has threatened a 25 percent tariff on soybeans and other American agricultural products. If soybeans were commonly grown in Brooklyn or San Francisco, Republicans probably wouldn't have to worry about upsetting the people who produce them. But as the GOP tries to keep control of Congress this year, the fact that Iowa, Minnesota, Missouri, and North Dakota are some of the nation's top soybean-producing states is creating some headaches for the party of Trump. Key congressional races across the Midwest could tip the scales in the House, and Republicans are eyeing Democrat-held Senate seats in Missouri and North Dakota to pad a slim 51–49 majority in the upper chamber. With that in mind, The New York Times has dispatched a reporter to soybean country—specifically to Cass County, North Dakota, the nation's top soybean-producing county—to see what farmers think about Trump's trade skirmishes with China. "If he doesn't understand what he's doing to the nation by doing what he's doing, he's going to be a one-term president, plain and simple," Robert Runck, a fourth-generation farmer, informs the paper. Runck tells the Times that tariffs would "cost Kevin Cramer some votes" too. Cramer is the Republican congressman who currently represents all of North Dakota, and he's hoping to unseat Sen. Heidi Heitkamp (D–N.D.) in November. An analysis from the Brookings Institution shows that Trump's tariffs figure to do the most damage to the economies of red states including Iowa, Missouri, Ohio, and Pennsylvania. (Missouri, remember, is hosting a key Senate race this year.) When it comes to Chinese tariffs on American agricultural products, Brookings found that much of the pain is again concentrated in the Midwest. Trump's tariffs are his way of fulfilling a campaign-trail promise to revive American steel plants. But the protectionist policies that might help boost steel mills come at the expense of a much larger group within the president's political coalition. For every steel-producing job in the country, there are about 46 steel-consuming jobs—many of which are now on shakier ground because of the higher costs created by tariffs. And on the agriculture front, the president "has little to no understanding of the farm coalition," Republican strategist Karl Rove tells the Times. Trump is New Yorker who ran hotels and casinos, then became a TV star. Nothing about that résumé suggests that he would have a detailed understanding of the concerns of a North Dakota farmer—no, Trump Steaks do not count—or an Ohio machine shop worker. But Trump supporters have never seemed to care that the president isn't like them. Indeed, Trump's unwillingness to make phony attempts at courting rural voters is one of the things that made him stand out during the campaign. But it's one thing to support a candidate who is nothing like you. It's another to keep supporting him, and his party, when he is actively making your job more difficult or your lifestyle more costly. Trump won the American heartland in part by promising to end a regulatory war on agricultural and industrial jobs, and he has been following through on that promise. But he now risks replacing one set of oppressive economic policies with another, putting farmers and manufacturers on the front lines of a trade war. The fact that he's not directly responsible for Chinese tariffs on soybeans might not save Trump, or the res[...]

Americans Have a Dangerous Deficit in Trade Understanding

Sun, 15 Apr 2018 08:00:00 -0400

I was chatting with my tobacconist the other day—I have no rabbi, no priest, no minister, no imam, no chiropractor, and no lawyer, but I do have a tobacconist—when it struck me that my trade deficit with him is astronomical. How could I have let this happen? For the nearly 20 years I have been patronizing his venerable establishment—nay, institution— it is I who has pushed money (make that plastic) across the counter. But not once has he pushed even a red cent to me. Come to think of it, this is also the case with Kroger, Walmart, McDonald's, and a variety of gas stations. See the pattern? The money moves in one direction only. What the hell is going on?! I realize that each time I gave those merchants my hard-earned dollars, I received things—but they were mere goods. Money is where the action is, right? Everybody knows that in any trade, it's the money side that wins. I think Donald Trump said something along those lines, and he wouldn't lie. He has a very fine brain—just ask him—so he couldn't be mistaken. Yet I have this nagging feeling my torment is misplaced. After all, no one forced me into those stores. Each time, I had an internal reason; in the case of the tobacco shop, it was my habit hobby. I wanted the pipe tobacco, groceries, double-cheeseburgers (keto style: no bun, no fries), and gasoline. Still, while I buy from those merchants week after week, none of them has ever bought a damn thing from me. Not once have they paid me to write or an edit an article for them. Not one time! But this thought keeps nagging at me: does it matter? Let's approach this from another direction. Whenever I buy from them, I transfer money to which I hold proper title. It wasn't a gift, so that means I'd previously provided services to somebody. The tobacconist doesn't buy my services, but someone else does. Meanwhile, the tobacconist spends the money I give him to buy other people's products and services. This suggests that when we abandon barter, what looks like two-sided exchange is really triangular, even though one of the parties is absent. In fact, the emergence of triangular exchange marks the move from barter to money. ("Hey, I know what I'll do. Even though I don't want this rice being offered for my products, I'll accept it in exchange because I know I can trade it to someone else for what I do want.") Maybe it doesn't matter, then, that those to whom I sell are not the same as those from whom I buy. I shouldn't care about any bilateral "deficit." What matters is just that I don't chronically spend more money than I bring in by borrowing excessively. But as is now evident, my "trade deficit" has essentially nothing to do with any budget deficit I might run up. I also don't see the point in "adding up" different people's trade situations in an attempt to a get "better" view of things. Let's say my next-door neighbor, Jones, happens to be a wholesaler who deals in pipes and tobacco, and during the year he happens to sell as much in dollar terms to my tobacconist as I buy from him. Do we learn anything important when we see that Richman-Jones has a perfect balance of trade with the shop? I think not. What if that's the case with my whole block, neighborhood, town, county, or state? Same answer. Who cares? Okay, then maybe this would be a problem: rather than buying things from anybody, the tobacconist invests the money he receives from me. If he invests well, that money will make him money because those who borrow it will be able to produce more, better, or cheaper goods for the (world) community. Nope, I see no problem there. If I'm right about all this, then Adam Smith was being anything but hyperbolic when he wrote in The Wealth of Nations that "nothing can be more absurd than the whole doctrine of the balance of trade." "Yes, yes," a Trumpster will say. "That's all well and good. But what if the person on the money side of my transaction is—gasp!—not an American?" There's a definitive two-word answer to that question: so what? This piece was originally published by The Liber[...]

How Congress Could Stop Trump's Trade War, and Why It Might Not

Fri, 06 Apr 2018 16:40:00 -0400

Senate Majority Leader Mitch McConnell reportedly told Kentucky farmers and business leaders this week that President Donald Trump's trade policies could create a "slippery slope" that "can't be good for our country." "I'm not a fan of tariffs, and I am nervous about what appears to be a growing trend in the administration to levy tariffs," McConnell said Tuesday, according to the Louisville Courier-Journal. Tariffs on steel and aluminum issued last month by President Donald Trump will do significant damage to a wide range of American industries, from farming to housing to manufacturing, that will have to pay higher prices for those materials. Trump followed those tariffs by calling this week for a 25 percent import tax on some 1,300 Chinese-made goods. If approved by the U.S. Office of the Trade Representative, those tariffs will force American businesses and consumers to pay higher prices for almost everything, including necessities like food and clothing. Reciprocal tariffs imposed by China will hurt American farms and businesses a second time, and Trump has already threatened an additional $100 billion in tariffs as a tit-for-tat to China's response. No wonder, then, that McConnell says he is "nervous about getting into trade wars and I hope this doesn't go too far." If only he were in a position to do something about it, right? He could, of course, and there's several ways Congress could push back against the White House's protectionist trade policies—but there may not be consensus on what to do, and Republican leaders so far seem unwilling to cross Trump, even as he pursues a course that's unclear in its aims and risks doing serious damage to the economy. Article 1 of the U.S. Constitution gives Congress the explicit power "to lay and collect taxes, duties," and the like. Although the legislative branch has delegated much of its authority over trade and tariffs to the executive branch in the past century, it could take steps in the next few months to restore those original powers and check Trump's dangerous protectionist impulses. It will have at least one major opportunity to do so, thanks to a June 30 deadline for the reauthorization of one such provision delegating trade power to the White House. Timing is a factor for other reasons too. Republican lawmakers that could face Trump-backed primary opponents are unlikely to want to break openly with the White House on trade. As spring turns to summer and primary season passes, that's less of a concern. "Congress will have leverage, but it seems like they've been unwilling to use it," says Dan Ikenson, director of trade policy studies at the libertarian Cato Institute. "It has more leverage today than it had a month ago, and that leverage gets stronger as the general election approaches." The first round of tariffs—the ones issued in early March and applying to imported steel and aluminum from a variety of orgins—were imposed under Section 232 of the Trade Expansion Act of 1962, which gives the president more or less carte blanche to impose tariffs on national security grounds. Officially, the Trump administration says that American weapons of war depend on steel and aluminum supplies, so domestic producers must be protected from international supplies that could be cut-off in the event of a conflict. That's a weak rationale for a whole slew of reasons, but it exists, and under Section 232, that's enough. Congress could threaten to revoke Section 232 or modify it through new legislation. There is precedent for this—Congress overturned Jimmy Carter's national security restrictions on oil imports in 1980—but it would veto-proof majority and is therefore unlikely to happen. The newer tariffs, issued by Trump last week and applying to a wide range of Chinese-made products, are a far easier target for Congress if lawmakers want to get serious about preventing a trade war. The second round of tariffs were issued under Section 302 of the Trade Act of 1974, which allows the White House to initiate an investiga[...]

Are We Already in a Trade War With China?, Venezuelans Blame Maduro for Food and Medicine Shortages, Russia Wants to Ban Encryption App: Reason Roundup

Fri, 06 Apr 2018 09:30:00 -0400

We're probably in a trade war with China. "We are not in a trade war with China," President Trump tweeted on Friday morning. Most signs say otherwise, or at least show that we're well on our way there. For instance, China just filed a complaint with the World Trade Organization (WTO) over the billions in new tariffs that Trump is proposing. The WTO complaint gives the U.S. and China 60 days to resolve things, after which China may request that a WTO panel adjudicate. It's also not reassuring that Trump's assertion that we're not in a trade war with China was followed up by this reasoning: "We already lost that war many years ago, leaving us "a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion." (All random capitalization the president's.) "We cannot let this continue!" It sure sounds like Trump is hoping for another crack at trade shenanigans with China, only with the U.S. "winning" this time. But nobody wins in a trade war (as we've been saying). To quote a recent Sheldon Richman column, "You cannot advocate trade restrictions without also advocating state-bestowed privilege." Trump has been crowing that even with his aluminum tariffs, "prices are DOWN 4%" and "lots of money coming into U.S. coffers and Jobs, Jobs, Jobs!" Here's Washington Post Fact Checker Glenn Kessler on that claim: Someone exempted most of the big aluminum countries from the tariffs, so the impact was muted. Who was that? — Glenn Kessler (@GlennKesslerWP) April 6, 2018 But alas, even one-time free market cheerleaders like Economic Council Director Larry Kudlow are defending Trump's tariffs, saying this isn't "about trade wars" but "holding to the laws and customs of free trade." Free Markets Through Regulation, or something. That seems to be the party line from the pro-Trump crowd: We're not restricting trade and raising taxes, we're securing the marketplace. Which sounds an awful lot like the liberal and Democratic justifications for messing with market forces that we've heard so many times before, with a dash of national-greatness conservatism and fear of wily foreigners mixed in. "This is exactly what the free traders who formerly worked in the White House feared, Trump in a macho pissing match against Chinese President Xi," writes Jonathan Swan at Axios. Trump has a blunt understanding of leverage and believes the worst thing he can show is weakness. He also believes, as he tweeted, that the U.S. already is so far down on the scorecard with China that he's got nothing to lose. In any event, our counterparts across the sea seem to be, uh, keeping calm. From Reuters: A trade war triggered by U.S. tariffs would cause a global recession—and the mere fear of one is already hurting the economy, European Central Bank board member Benoit Coeure said on Friday. FREE MINDS Russia wants to ban a popular encrypted messaging app. Russia is moving to block the encrypted messaging app Telegram after it refused to turn over keys to state authorities that would allow them to decrypt any and all user messages. Telegram—massively popular in some parts of the world, including Russia, many of the former Soviet Union states, and the Middle East—just hit 200 million monthly users. A lawsuit filed on Friday in Moscow now seeks to block access to Telegram throughout Russia. Iranian leaders have also been proposing a similar ban. FREE MARKETS Venezuelans blame Maduro for deepening humanitarian crisis. A new poll of Venezuelans shows the effects of the ever-growing crisis there for ordinary people: 90 percent say the country's food supply is bad 95 percent of whom say the country's medicine supply is bad 88 percent say life is worse than a year ago 81 percent say the country is currently going through a "humanitarian crisis" A majority—54 percent—blame President Nicolas Maduro and his policies. Nearly half said is leadership is "very bad" and 24 percent said that it was "bad," while just 0.4 percent said[...]

10 Ways Trump's New Tariffs Will Piss You Off

Thu, 05 Apr 2018 07:00:00 -0400

President Donald Trump nudged the United States and China closer to a full-fledged trade war this week by outlining a new set of tariffs aimed at more than 1,300 specific Chinese imports. In response to the announcement of additional tariffs on Chinese goods—Trump imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports last month—China on Wednesday announced a new round of tariffs on American-made goods, including soy beans, chemicals, and technology. Tariffs are import taxes, and like all taxes they end up being paid by consumers after being passed down the supply chain. While Trump's tariffs might restrict the number of Chinese goods that flow into the United States, the main consequence of the White House's new tariff announcement is that Americans will pay higher prices for everything from biscuits to televisions. China's retaliatory tariffs might temporarily lower domestic prices for American-made goods, but will ultimately hurt American businesses that won't be able to sell their products in China, one of the world's fastest growing markets. In a 58-page filing, the Office of the United States Trade Representative argues that the new tariffs are necessary to counteract China's unfair use and theft of American intellectual property and technology. The tariffs will not take affect immediately, but will be subject to a public hearing on May 15 with a final decision on the tariffs expected by mid-summer. Each product subject to a new tariff is listed by its eight-digit code under the Harmonized Tariff Schedule of the United States (HTSUS). I read through the entire document so you don't have to—but it's embeded at the bottom of this post in case you have nothing better to do. Food Trump's tariffs come down particularly hard on anyone who has to eat. Tariffs will be applied to "Cooking stoves, ranges & ovens, other than microwave, for making hot drinks or for cooking or heating food." Microwaves don't escape either, as they are listed under a different HTSUS code. More specific tariffs will hit equipment used to make chocolate, sugar, and "macaroni, spaghetti or similar products," along with machinery used in the production of poultry, meat, nuts, fruit, and eggs. And in case anything managed to slip through the cracks, there's another tariff on "machinery for the industrial preparation or manufacture of food or drink." And also "bakery ovens, including biscuit ovens," which seems like a weird thing to have to specify. Alcohol Trump's earlier tariff on aluminum would make beer cans more expensive, and his tariff on steel threatens not only to make kegs of beer more costly but also to drive the only remaining American keg-making company out of business. Now, Trump is aiming to drive up the cost of making the stuff that goes in those cans and kegs. "Brewery machinery" will be subject to tariffs, but so will "presses, crushers, and similar machinery used in the manufacture of wine, cider," and even non-alcoholic beverages like juices. Clothes Pretty much every aspect of the manufacture of cloth and clothing will be subject to new import taxes. Sewing machines, spindles, looms, weaving machines, and various other textile-making equipment are subject to tariffs. Even sewing needles, knitting needles, and embroidery needles make the list. "Machinery for making felt hats," is included, as is "machinery for making or repairing footwear." Lighting, Heating, and Home Entertainment You like using things like lights, televisions, and the internet, right? Unfortunately, the electricity used to power those things has to come from somewhere, and many of Trump's tariffs will end up being passed along to consumers in the form of higher energy bills. Electric generating equipment, including transformers, converters, and wind-powered turbines will be subject to tariffs. Fuses, switches, breakers, are included in the tariffs, along with lithium, nickle, and zinc batteries. Many of the devices [...]

Trump's Trade Policy Could Leave the Economy in Tatters

Thu, 05 Apr 2018 00:01:00 -0400

President Donald Trump claimed in a tweet that "trade wars are good, and easy to win." Unfortunately, the Chinese government's swift response to his administration's decision to impose tariffs on 1,300 Chinese goods with its own set of tariffs on U.S. goods sent to China tells us that his claim may be put to the test sooner than we think. The reality, I'm afraid, is that trade wars are always costly, and the pain is magnified when trade wars are waged against authoritarian regimes, such as the one in China. Tariffs imposed by any government are, first and foremost, penalties on its own citizens who buy imports (or import-competing domestic goods, whose producers can then freely raise their prices to just under the new price levels set by the import tax). President Trump's tariffs are therefore penalties imposed on Americans. Yes, some Chinese companies will suffer from the imposition of these import taxes. But make no mistake; this policy set by Uncle Sam will force Americans to pay higher prices for goods they choose to buy, and it will also cost American jobs. Likewise, the Chinese tariffs announced on dozens of categories of American goods (such as pork, fruits, soybeans, nuts, and sparkling wine) are penalties imposed on the Chinese people buying U.S. goods, even though the retaliatory taxes are exclusively advertised as a way to hurt American firms. The bottom line is that this tariff fight between China and the United States is the trade version of arm-wrestling, wherein each country demonstrates how much it's willing to abuse its own citizens. Yet in this high-stakes game, the Chinese government probably has the upper hand. China will be less likely to flinch than the Trump administration, largely because its officials bear no political costs for the tariffs and the costs they impose on the Chinese people. In fact, I'm sure the Republican legislators who will face American voters in November already understand how much heat they may get thanks to the reckless actions of this administration—actions that are being made worse by the ricocheting effects of Chinese retaliation. Interestingly, when Beijing made its first announcement Monday, the stock exchange in China went up—signaling that at least for now, investors aren't worried about tariffs affecting the Chinese economy that much. The same can't be said of the Dow Jones industrial average, which went down, eliciting headlines like this one from Bloomberg: "Stocks' Second-Quarter Start Is the Worst Since the Great Depression." The president, who spent much of last year touting the stock market uptrend, has decided to remain very silent about its recent fall, along with investors' anxiety over this newfound uncertainty. After all, no one knows how this will end. So far, the Chinese have been firm but moderate, targeting retaliation toward a small portion of U.S. goods exported to China. But they're sending a clear message that they won't hesitate to take further and more punishing action—against U.S. farmers in particular—if the president sets in stone the triggers to impose Section 301 tariffs as he has repeatedly said he wants to do. It's true that having a trade bully in the White House who doesn't seem to care about (or understand) the dire price paid by the American people for his tactics has prompted some needed dialogue between the U.S. and China. However, can we trust this administration to close a deal fast enough to avoid the serious economic consequences of the current trade dispute? Considering its size and its impressive and growing economy, China isn't so easy to push around as other countries. Negotiations require a good-faith effort and some discipline. It means that Trump may get only a small fraction of what he wants from the country, in spite of his aggressive tactics. Even if trade negotiators will be the ones leading the process, this president's tendency to fly off the handle on Twitter without caring[...]

Trump, the Anti-Business President

Thu, 05 Apr 2018 00:01:00 -0400

White House economist Peter Navarro, whose boss claimed credit when the stock market was rising, now thinks it should be ignored. After Monday's plunge, he said, "The market is reacting in a way which does not comport with the ... unbelievable strength in President Trump's economy." Rest easy, Navarro advised. "The economy is as strong as an ox." He should hope so, because its burdens are growing. Donald Trump's trade salvos against China moved Beijing to slap new tariffs on U.S. products. He has threatened to end NAFTA, which would wreck the supply chains of U.S. manufacturers and deprive farmers of vital markets. He's itching for a full-scale trade war, and he's likely to get it. The tycoon who raised high hopes in the corporate sector has revealed a powerful anti-business streak. Get on his bad side and you may kiss your profits goodbye. He's a perpetual danger to every company in America. Trump's Justice Department filed an antitrust suit to stop a merger of AT&T and Time Warner—owner of CNN, a Trump punching bag—surprising experts, most of whom see no threat to competition in the deal. He urges higher postal rates for Amazon because it has the same owner as The Washington Post, whose coverage often infuriates him. The administration's effort to block travel from several predominantly Muslim countries brought a lawsuit from some 160 tech firms warning it would impose "substantial harm on U.S. companies, their employees, and the entire economy." His crackdown on undocumented immigrants disrupts agriculture because, as the American Farm Bureau Federation notes, "50-70 percent of farm laborers in the country today are unauthorized." Trump threatened retribution against Ford and General Motors to discourage production in Mexico. When Merck CEO Kenneth Frazier resigned from Trump's manufacturing council to protest his comments on Charlottesville, the president took to Twitter to demand that he "LOWER RIPOFF DRUG PRICES!" Republicans regularly depicted Barack Obama as a socialist. In 2010, the head of the Business Roundtable, an organization of corporate CEOs, accused him of "doing long-term damage to growth" by creating "an increasingly hostile environment for investment and job creation." Hostile? Obama never denounced an American company with anything close to the menace Trump routinely exhibits. Business somehow prospered during his presidency. Corporate profits grew by 57 percent, and the Standard & Poor's 500 stock index rose by 166 percent. Obama drew criticism for imposing more regulations on business, boosting the top income tax rate, overhauling health insurance, and running big budget deficits. These changes raised doubts about the future that weighed on the economy. Economists Steven Davis (University of Chicago), Scott Baker (Northwestern), and Nicholas Bloom (Stanford) attributed weak growth and job creation to "extreme uncertainty" that Obama helped to create through "harmful rhetorical attacks on business and 'millionaires,' failure to tackle entitlement reforms and fiscal imbalances, and political brinkmanship." Hmm. Does that sound like anyone else? Trump has also attacked businesses, failed to curb entitlements, and, through tax cuts and spending bills, created ever-growing fiscal imbalances. According to the index these economists devised, economic policy uncertainty was greater in Trump's first 13 months than in the same period under Obama—and bigger than the average for all of Obama's tenure. And things are only getting worse. Obama took the view that the private economy needed extensive regulation to avert assorted perceived harms, which didn't make him popular among capitalists. But he didn't make a habit of bullying corporations to make particular business decisions or demonizing executives who disagreed with him. Trump's idea of a good economy is one in which every company does his bidding—because they are all afraid not to. His[...]

'Free-Market' Conservatives Welcome Their New Protectionist Overlord

Wed, 04 Apr 2018 16:40:00 -0400

Today, the Republican president of the United States made the kind of economically illiterate argument that Republicans have been mocking for longer than I've been alive: When you're already $500 Billion DOWN, you can't lose! — Donald J. Trump (@realDonaldTrump) April 4, 2018 Trump was referring here to his mutually threatened trade war with China, which minutes before this tweet he had insisted "We are not in," because "that war was lost many years ago by the foolish, or incompetent, people who represented the U.S." You can't fight a war you've already lost, and so that's why we must fight, amirite?! (Also, the U.S. trade deficit with China isn't close to $500 billion; the president is once again pulling scary-sounding trade stats out of his arse.) Conservatives used to know damn well that trade deficits don't matter, budget deficits do; not vice-versa. Here's Uncle Milton Friedman making the succinct case about that, and against steel tariffs, 40 years ago. But now that a populist protectionist has taken over the GOP and the White House, that new song is getting sung right out loud: Fox & Friends just now on Trump's trade war: 1) "I love that he's doing this" 2) "I support President Trump's hard stand" 3) "He is good at this. He is great at this." 4) "The president is on your side" — Matthew Gertz (@MattGertz) April 4, 2018 We have already seen opportunistic heel-turns on trade from the likes of Mike Pence, Reince Priebus, and Stephen Moore, as well as a big opinion-shift among the Republican electorate (Democrats, bless their hearts, are already there). But could we be witnessing the same pattern from new Economic Council Director and lifelong free trader Larry Kudlow? Let's hope not. But today, Kudlow was certainly whistling a different tune on China from the White House than he did from his CNBC desk during the Obama administration. Asked by reporters to respond to the market-roiling news that China was announcing retaliatory tariffs on $50 billion worth of American goods, Kudlow implausibly characterized the president as a "free-trader" who "wants to solve this with the least amount of pain." He then added: "This is a growth action. I can't emphasize that enough." The best you can say about Kudlow's rosy interpretation is that he's doing what it takes to have access to a Mercantilist president's ear. A less charitable explanation is that proximity to power corrupts analytical integrity. During Obama's first term, when the then-president slapped duties on Chinese tire imports, Larry Kudlow repeatedly warned that a "trade war with China" would be "a disaster." A "Smoot-Hawley protectionist trade war," he cautioned in June 2010, "is the last thing we need right now." Also: "A message to all those people blaming China for our slow, jobless recovery: Shame on you. Stick to your own knitting." Even "the threat of higher tariffs," he wrote that October, "only adds to uncertainty and weakens the foundation of growth." Today? It's "not about trade wars," Kudlow insisted. "This is about holding to the laws and customs of free trade and holding violators to account. It's not about war." Kudlow would not appear to be on the same page as his new boss. When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy! — Donald J. Trump (@realDonaldTrump) March 2, 2018 Reason on Trumpian trade here. UPDATE: I forgot to include one of the greatest trade-policy quotes in the history of cable news. In March 2011, Kudlow featured on his CNBC program the one and only Donald J. Trump. Who said this: "I have a son, and he loves little airplanes....Most of them are made in China....He has so many of 'em...[...]

A True but Nonobvious Proposition?

Tue, 03 Apr 2018 08:15:00 -0400

The great mathematician Stanislaw Ulam challenged the great economist Paul Samuelson to name a principle in the social sciences that was both true and nonobvious. Samuelson thought for a bit, then replied, "Ricardo's theory of comparative advantage." "That this idea is logically true," he said, "need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them." You can make the argument for comparative advantage seem highly nontrivial and devilishly hard to believe after it is explained to you by following the great English economist David Ricardo into arithmetic and clotted prose. Ricardo wrote in 1817 that "England exported cloth [to Portugal] in exchange for wine because, by so doing, her industry was rendered more productive to her; she had more cloth and wine than if she had manufactured both for herself; and…the industry of Portugal could be more beneficially employed for both countries in producing wine." If you can instantly grasp that logic (and go on believing it for practical purposes such as opposing Donald Trump's view of foreign trade) you are either already an economist or have an astonishing natural ability for the subject. The economist Paul Krugman wrote a column a long time ago claiming that comparative advantage is in fact difficult to comprehend, requiring various tricky assumptions only an economist could love. But it is "difficult" only in the world of Princeton University economists in which market "imperfections" abound and mathematical proof reigns. Actually, it's dead easy. No math, no arithmetic. It is, in fact, the soul of common sense. Comparative advantage is merely the principle of cooperation. The word advantage gets us thinking of competition, perfectly reasonable in our own individual lives—we do compete with other businesses or other writers or whomever. But we also massively cooperate with family and colleagues. The world as a whole, furthermore, does well by cooperating, in business or science or cultural life. It's not all we do, admittedly. I said: We also compete. But within a household or a company or a world economy, the job is to produce a result in the best way, cooperatively. If you were running a sports team, say, you would want to assign roles to the various contributors to the common purpose sensibly. It turns out to be precisely on grounds of comparative advantage. Consider 12-year-old Oliver and his mother, who are to spend Saturday morning tidying up the garage. Oliver is incompetent in everything compared with mom. He cannot sweep the floor as quickly as she can, and he is truly hopeless in sorting through the masses of rubbish that garages grow spontaneously. Mom, that is, has an absolute advantage in every sub-task in tidying up the garage. Oliver is like Bangladesh, which is poor because it requires more labor and capital to make everything—from knit goods to medical reactors for shooting cancers—than more developed countries do. Its output per person is 8.4 percent of what it is in Britain. So too Oliver. What to do? Let mom do everything? Of course not. That would not produce the most tidied garage in a morning's work. Oliver should obviously be assigned to the broom, in which his disadvantage compared with mom is least—hence "comparative advantage." An omniscient central planner of the garage-tidying would assign mom and Oliver just that way. So would an omniscient central planner of world production and trade. In reality, there's no need for an international planner. The market, if Trump does not wreck it, does the correct assignment of tasks worldwide. Bangladesh does not sit down and let the British make everything merely because they are "competitive" absolutely in[...]

Everyone Loses as China Escalates Trade War With Tariffs on American Pork, Fruit, and More

Mon, 02 Apr 2018 11:01:00 -0400

President Donald Trump's trade war just got a little harder to win. China announced new tariffs on 128 American imports yesterday, primarily targeting agricultural products such as pork, nuts, fruit, and wine. In a statement, the Chinese government said it was imposing the new tariffs "in order to safeguard China's interests and balance the losses caused by the United States' additional tariffs." Trump put tariffs on steel and aluminum imports to America last month, then doubled down with a second round of tariffs on Chinese-made electronics, furniture, and other goods. If the former failed to trigger a trade war with China, Trump seemed determined to get one started when he announced the latter on March 22. "This is the first of many" penalties aimed at Chinese goods, the president said as he signed the order. Regardless of whether it's Trump or Chinese President Xi Jinping ordering the tariffs, Americans stand to lose. The trade barriers Trump issued to prop up the steel and aluminum industries will end up increasing costs for thousands of downstream businesses—by one count, there are 46 American jobs in steel-consuming industries for every steel-producing job in the country. Other tariffs aimed at Chinese goods will likely have less of a direct effect on the economy as a whole, analysts say, but will leave Americans will fewer options and higher prices for a variety of household items. Now retaliatory tariffs may cut off overseas markets for American farms and wineries. If American pork, wine, and other products become more expensive in China, Chinese importers might start getting their supplies elsewhere. Spanish pork, Chilean wine, and Australian nuts could replace American products in one of the world's largest and fastest-growing economies. No wonder American producers are worried. "We sell a lot of pork to China, so higher tariffs on our exports going there will harm our producers and undermine the rural economy," says Jim Heimerl, president of the National Pork Producers Council and the owner of an Ohio farm. "No one wins in these tit-for-tat trade disputes, least of all the farmers and the consumers." According to Heimerl's group, the United States exported $1.1 billion of pork to China, making that country the third largest market for U.S. pork. The Chinese tariffs will hit a wide range of American-grown fruit as well, including apples, oranges, watermelons, strawberries, raspberries, cranberries, cherries, grapes, and pineapples. China's retaliatory tariffs have to meet two conditions to be effective, writes Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, a French investment firm. "First, China should be a large enough (possibly irreplaceable) market for a specific US export product, so that a reduction in Chinese imports due to tariff measures does harm the US industry providing that specific good," Garcia-Herrero writes. "Second, the US should not be the main producer of that specific product, so China can easily find substitutes when trying to import that product." Trade retaliation will be costly for China, in the same way that slapping tariffs on Chinese commodities and consumer goods will be costly for Americans. That might be enough to push China to negotiate with Trump, but a trade war is unlikely to be as straightforward or as easy as Trump seems to think. China could also retaliate in other ways, by slowing investment in the U.S. or selling American debt, says Garcia-Herrero. The new Chinese tariffs are a double blow to American farmers, who were already facing the prospect of higher prices for farm machinery and equipment, thanks to Trump's tariffs on steel and aluminum. In a March letter to the White House, Iowa's congressional delegation urged Trump to reconsider the tariff. The effects are being felt on Wall Street too. The Dow Jone[...]

This American Metalworking Company Is Already Paying Up to 30 Percent More for Steel Thanks to Trump's Tariffs

Fri, 30 Mar 2018 10:00:00 -0400

Less than a month after President Donald Trump announced new tariffs on imported steel and aluminum, the CEO of an Ohio-based manufacturing company says his business is already paying significantly higher prices for rolls of steel—and that he will have little choice but to pass those costs on to his customers. Mike Schmitt, CEO of The Metalworking Group, tells Reason that prices for cold-rolled steel have jumped by 18 percent since January, while hot-rolled steel (a less-well-finished and less expensive product) has increased in price by 30 percent. "The reality is that those are traumatic increases. They are shocks to our system," Schmitt says. "This isn't a level of price increase where you can say 'oh, I'll negotiate a little bit of it.' You have to pass it on." The Metalworking Group operates in the middle of the supply chain, buying raw steel from suppliers and cutting, stamping, or machining it into components for a wide range of industrial uses. Schmitt says he has several different contracts with steel suppliers, with prices usually updated every three months to avoid the difficulty of adjusting every time the price of steel fluctuates. Major contracts signed in January are expiring at the end of the month, and his business will have to start paying the higher prices in April. Steel prices fluctuate as supply and demand rise and fall, but Schmitt says the increases he's facing this spring are well outside of the ordinary. In contracts his businesses signs, they usually agree to ignore increases or decreases of less than 5 percent, as a way of smoothing typical volatility in the commodities market. Trump has pitched his tariffs as being in the best interest of national security. "If you don't have steel, you don't have a country," he famously tweeted shortly before announcing the 25 percent import tax. He has downplayed the potential threat of starting a trade war (those are "good, and easy to win," he announced on Twitter) with America's top trading partners, and others in his administration, like Commerce Secretary Wilbur Ross, have downplayed the potential consequences tariffs have on American businesses that use steel. But from Schmitt's perspective, the tariffs are "punitive." And while higher prices might help prop up American steelmakers, there are far more businesses like The Metalworking Group that consume steel, rather than make it. According to 2015 Census data, steel mills employed about 140,000 Americans and added about $36 billion to the economy that year, but steel-consuming industries employed more than 6.5 million Americans and added $1 trillion to the economy. In other words, for every steel-producing employee in the country who might benefit from Trump's proposed tariffs, there are 46 employees whose companies may suffer serious economic distress. Schmitt, 55, says The Metalworking Group has no immediate plans to lay off any of his 180 workers in response to the higher production costs, but the tariffs will create plenty of other headaches. Contracts have to be rewritten to account for higher prices, which might cause some of his company's customers to look elsewhere for the parts they need. Already thin margins will get narrower. Investment and expansion will be put off. The consequences will be felt across almost every sector of the economy, from agriculture to manufacturing, and could raise the price of everything from electricity to beer. According to a policy brief released by the Trade Partnership, a Washington-based pro-trade think tank, tariffs are projected to cause 146,000 net job losses—five jobs lost for every job gained. Even protectionist think tanks like the Coalition for a Prosperous America project a net decline in American jobs as a result of tariffs. The only point of disagreement seems to be how bad th[...]

The Two Parties Are Awful on Almost Everything Important

Thu, 22 Mar 2018 16:18:00 -0400

Today, as the Dow Jones Industrial Average was well on its way to a 700+-point drop, Senate Minority Leader Chuck Schumer (D-N.Y.) reached across the aisle in support of the very policy that was spooking investors: the Trump administration's embrace of trade wars, particularly against the backstabbing Chinese. "I don't agree with President Trump on a whole lot, but today I want to give him a big pat on the back. He is doing the right thing when it comes to China," Schumer said on the Senate floor, in comments that could easily be cut-and-pasted into a Trump campaign speech. "We have watched China rapaciously take advantage of America—of American jobs, of American workers, and of American intellectual property. China's ruthless in how they go after us: They do it quietly, they do it with a smile. And unfortunately, the previous presidents, Democrat and Republican, just stood by as China did what it did to us. President Trump is exactly right." The proximate cause for Schumer's enthusiasm was Trump's announcement this afternoon that the U.S. would be slapping tariffs on as many as 1,300 Chinese products, while limiting China-based companies from purchasing American technology companies. The White House claims concurrently that the duties will impact $60 billion worth of goods yet have a "minimal impact" on American consumers. (As always, check out the Twitter feed of trade lawyer and Cato Institute adjunct Scott Lincicome for the ins and outs of the new rule.) But there's a broader truth behind Schumer's grin. However this November shakes out, his party—and potentially the cereal killer himself—will have considerably more power than now. And in Trump, Democrats have a willing partner for some of their worst policy ideas, from trade to spending to anti-speech sex panics. In fact, given how much Trump is helping transform the ideologies of both the GOP grassroots and its spineless elite (today's money Trumpism from the formerly free-trading vice president: "The era of economic surrender is over"), it's long since past time to recognize a glaring truth about two-party politics in 2018: In both effective practice and, increasingly, aspirational rhetoric, there are no significant Republican or Democratic voting blocs on Capitol Hill in favor of reducing deficits, restraining government growth, tackling entitlements, protecting privacy, defending free speech, practicing transparency, challenging prohibition, conducting legislative-branch oversight, passing damn budgets, reducing war, or extending the post–World War II America-led system of reducing global tariffs in the name of both prosperity and peace. These are among the most important issues facing the country, and the two major parties are currently awful on all of them. This is not a nihilistic, equal-pox-on-both-houses observation. In an era of increasing polarization, it's ignorant to pretend that the parties (and as importantly, their customers) are the same. On abortion, immigration, guns, and plenty besides, there has been a great divergence, particularly in recent years. But when we return to trillion-dollar deficits and pivot toward trillion-dollar debt-service bills without causing much more than a ripple of public fuss, it's worth stepping back and wondering where the fiscal-sanity bloc will land after our current political re-sorting. It won't take many more 700-point drops to focus people's attention and call into question whether the long, sluggish economic recovery is coming to a close. There is still muscle memory in this country about the virtues of government living within its means; it remains to be seen where that will find expression in a Trump-Schumer world.[...]

Even Protectionists Agree: Tariffs Will Cost American Jobs

Thu, 22 Mar 2018 10:01:00 -0400

Economists and pro-trade organizations were quick to criticize President Donald Trump's decision to impose tariffs on imported steel and aluminum, a maneuver that many analysts say will harm far more workers, businesses, and consumers than it will help. Now, it seems, even pro-tariff protectionists agree with that assessment. A study released this week by the Coalition for a Prosperous America—and trumpeted on the pro-tariff organization's website under the not very convincing headline "Steel and Aluminum Tariffs Produce Minimal Impact on Jobs"—shows that Trump's tariffs will produce an overall decline in both jobs and gross domestic product, leaving Americans with less work and less wealth. While tariffs will boost employment in the production of iron, steel, and aluminum, those gains will be offset by bigger losses across other sectors of the economy. The manufacturing and construction sectors rely heavily on steel, and those companies would pay more for it due to the tariffs. Unsurprisingly, they are projected to lose the most jobs as a result of the cost increase. The U.S. manufacturing sector is projected to lose 10,000 jobs and the construction industry is projected to lose 7,500 jobs, according to CPA's analysis. Jeff Ferry, CPA's research director, tries to put a positive spin on those jobs loses by claiming that "losses would be negligible, as the 19,000 jobs gained in the steel and aluminum sectors would largely offset any job losses in metal-consuming industries," but that's probably not much comfort to workers in auto plants across the country, keg manufacturers in Pennsylvania, or farm suppliers in Iowa. The study also fails to account for the potential fallout from retaliatory tariffs that could be imposed by the European Union or China. The study claims that agricultural jobs will increase because of tariffs, but the farm industry is likely to be a major target in any trade war launched against the United States. "The debate is no longer whether these tariffs will be harmful to the U.S. economy—the protectionists have effectively run a white flag up the pole on that question—but rather the magnitude of the damage," concludes Colin Grabow, a trade policy analyst at the Cato Institute, after reviewing the CPA study. Other projections suggest the damage could be much worse. The most detailed analysis of Trump's tariffs comes from the Trade Partnership, a Washington-based pro-trade think tank. According to that study, tariffs could grow the steel, iron, and aluminum industries by about 33,400 jobs, but will also wipe out more than 179,000 other jobs. That's about 146,000 net job losses—or five jobs lost for every job gained. And that's before retaliatory tariffs kick-in. If the EU and other American trading partners follow through on current threats to raise import taxes on American goods, a separate Trade Partnership analysis shows, domestic job losses would soar to over 468,000. Perhaps the most enjoyable part of the CPA study is the group's attempt to find some scenario in which jobs are not lost under Trump's tariffs. Because the tariffs will raise an estimated $5.97 billion in new revenue for the federal government, and "if this revenue is proactively invested by the federal government, it could lead to net job creation." Given the federal government's history with money, that seems lie a pretty big "if." But there it is. Tariffs can be good for the economy if you discount possible retaliation, if you underestimate the consequences on agricultural jobs, and if you trust the federal government to spend $6 billion in the wisest way possible. That's literally the best argument the protectionists have made.[...]

Trump Says He's 'Delivering' for Farmers. His Steel Tariff Says Otherwise

Wed, 21 Mar 2018 12:15:00 -0400

Tuesday was National Agriculture Day, and President Donald Trump was on it: Our Nation was founded by farmers. Our independence was won by farmers. And our continent was tamed by farmers. Our farmers always lead the way -- we are PROUD of them, and we are DELIVERING for them! #NationalAgricultureDay — Donald J. Trump (@realDonaldTrump) March 20, 2018 But while Trump talks about "delivering for" American farmers, the most significant economic policy to come out of the White House so far this year stands to hurt farmers—and businesses dependent on farming—more than many other sectors of the economy. Trump's 25 percent tariff on imported steel will increase the cost of farming equipment and cut into farmers' bottom lines, and the tariff might trigger a trade war that could cut off American exports to Europe and China. "There's not a day on the farm when a farmer doesn't touch steel," Rep. David Young (R-Iowa) told Treasury Secretary Steve Mnuchin during a House Appropriations Committee hearing earlier this month. "The agriculture industry is worried about these tariffs on aluminum and steel." Young joined the rest of Iowa's congresssional delegation in sending a letter to the White House earlier this month urging Trump to reconsider the tariff "given the consequences this will have on states like Iowa, rural communities throughout the nation, and on America's farms." While Iowa is best known for its farms (and its caucuses), the state's manufacturing industry is also worried about the potential consequences of tariffs. More than 3,000 factories are scattered across the state, according to the Des Moines Register, and many of them make the equipment used on farms in Iowa and across the Midwest. Steve Sukup, CFO of Sukup Manufacturing, which employs about 600 Iowans to make steel grain bins and dryers, tells the Register that tariffs are "a step backward" after tax and regulatory reforms helped businesses like his. Agriculture industries are hardly alone in fearing Trump's tariffs. Artificially inflating the price of imported steel will hurt businesses across a wide swath of the economy. According to 2015 Census data, steel mills employed about 140,000 Americans and added about $36 billion to the economy that year, but steel-consuming industries employed more than 6.5 million Americans and added $1 trillion to the economy. In other words, for every steel-producing job in the country that might benefit from Trump's proposed tariffs, 46 steel-consuming jobs are put at risk. Everything from cars to housing will be affected. According to a policy brief released by the Trade Partnership, a Washington-based pro-trade think tank, Trump's tariffs will wipe out about 179,000 jobs. Farmers and lawmakers from farming states are particularly worried about the prospect of retaliatory tariffs being imposed by Europe, China, and others targeted by Trump's steel and aluminum levies. American agricultural products would be an easy target for retaliation, because America has a large trade surplus with many other nations. For example, 60 percent of the soybeans grown in Iowa end up being shipped to China. "Strong, fair trade favors American families and businesses," the Iowa lawmakers wrote in their letter to the White House, "and allows them to export their goods, which is critical for the farmers, manufacturers, and insurers in our state." Soybean exports were already in a precarious state, according to Peter Meyer, senior director of agricultural analytics at S&P Global Platts, which advises investors about commodity markets. Writing at The Hill, he warns that fewer exports to China would wreak havoc on American farmers. "The fragile U.S. economy cannot afford a trade war with China," h[...]

Trump Doesn't Understand How Tariffs Work, Brags About Making Up Trade Stats

Thu, 15 Mar 2018 11:15:00 -0400

In a speech to Republican donors on Wednesday, President Donald Trump bragged about making up fake statistics during a meeting with the Canadian prime minister and argued that tariffs on imported steel would stimulate domestic car manufacturing despite mounting evidence that the exact opposite will happen. Trump's comments, reported Thursday by the Washington Post, which says it received a recording of the address, suggest a disregard for facts and a level of economic illiteracy that is remarkable even by the president's own standards. The Post described the 30-minute speech as a "blistering attack against major U.S. allies and global economies." In one part of the speech, Trump reportedly claimed that Japan used a bizarre gimmick to prevent American cars from being imported there. From the Post: "It's the bowling ball test. They take a bowling ball from 20 feet up in the air and drop it on the hood of the car," Trump said of Japan. "If the hood dents, the car doesn't qualify. It's horrible," he said. It was unclear what he was talking about. Trump said he didn't even want Japan to pay the tariffs but to build more automobiles in the United States, adding that Japan would do so if tariffs were imposed. As crazy as the so-called "bowling ball test" is, what follows is actually more insane. Trump seems to be suggesting that tariffs on steel could make Japanese car companies manufacture more cars in the United States, but the 25 percent tariffs he signed last week will make it more expensive to build cars in the United States. That's true for both domestic and foreign automakers. The tariffs only apply to raw and unprocessed steel—in other words, they do not apply to imported items made from steel, like cars. Instead of encouraging more automobile manufacturing in the United States, Trump's tariffs create incentives for cars (and anything else made with steel) to be built elsewhere and imported, tariff-free, here. Toyota, a Japanese company that operates six manufacturing plants across the southern United States, has warned that Trump's steel tariffs will jeopardize American workers' jobs at those facilities. The president's remarks, as reported by the Post, suggest that he is either completely ignorant of how tariffs work, or that he does not care about the potential economic damage they could do. Other comments made by Trump during Wednesday's speech suggest the former. Trump said that in a meeting with Canadian Prime Minister Justin Trudeau, he rebutted the claim that Canada has a trade surplus with the United States. Even after being told by one of aides that it was true, Trump maintained that "we lose $17 billion a year" when energy and timber are included in the calculation. Trump made a similar claim on Twitter this morning. We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive). P.M. Justin Trudeau of Canada, a very good guy, doesn't like saying that Canada has a Surplus vs. the U.S.(negotiating), but they do...they almost all do...and that's how I know! — Donald J. Trump (@realDonaldTrump) March 15, 2018 He's wrong. The United States has a trade surplus with Canada, according to the Office of the United States Trade Representative. This sort of willful ignorance about the importance of trade, the distorting effects of tariffs, and basic economic facts might be humorous if Trump didn't have the power to do such significant damage with the stroke of a pen. He was able to impose the steel tariff (and a similar one on aluminum) without congressional approval by claiming the maneuver was necessary for national security reasons. He has repeatedly threatened to pull the United States out of NAFTA [...]