We Tell You Why They’re Actually Not…
The President promises steep across the board tariffs on steel and aluminum imports by next week: 25% on steel, 10% on aluminum. And he Tweeted this, this morning:
Politico reports both Defense Secretary James Mattis and Chief Economic Adviser Gary Cohn tried endlessly to talk Trump out of it. Most Republicans are against it too, especially old-time free marketeers like Senate Finance Committee Chair, Orrin Hatch.
And many thought they’d succeeded in talking the President out of it. In fact the story moved so fast, even the Washington Post couldn’t keep up and at one point actually published a single story with two completely contradictory explanations of what was happening:
Why A Trade War Is Actually Bad
Almost All U.S. Presidents have taken action against out-and-out dumping of goods. Dumping is where a company sells something below cost into a foreign country for a period of time, sometimes with government support. The idea being domestic producers in that country won’t be able to compete, so they’ll go out of business.
The Obama administration slapped steel dumping sanctions on China 2 years ago, and they’ve been effective, reducing China’s share of the U.S. market dramatically, to about 2%, down about 30% from 2016 levels.
Perhaps the most famous anti-dumping tariffs were those President Reagan imposed against Japan during the 1980’s: first on cars and motorcycles (which led to much higher prices in the U.S.), then on semiconductors.
So why is this so different?:
• Today’s China is not 80’s Japan. Japan needed the U.S. It knew it would eventually have to fall into line because it had to be able to sell stuff here. China has other outlets. Global trade is more ubiquitous.
Also, as we mentioned above, China’s already been hit by U.S. anti-dumping tariffs on steel. Now, most of America’s steel imports come from Canada, Brazil, and Europe.
• In the past, tariffs were targeted specifically at countries that were badly misbehaving. The New York Times reports Trump says he’d like them to apply to any import, regardless of its origin, and regardless of whether that country has an “unfair” trade deal with the U.S. or not, or is dumping or not. And he vowed to keep the tariffs on “for a long period of time”.
That does actually make some sense: in the past, because tariffs did not apply to all countries equally, they often just shifted the balance of imports. So the U.S. would end up importing almost as much, just from different countries. And since Trump wants to create U.S. jobs, that doesn’t really fit with his vision of how this is going to work.
On the other hand, by applying tariffs equally to everybody, Trump runs the risk of angering some of our closest trading partners who have done nothing wrong.
• While tax cuts might leave room to do some tariffs now without much impact, you have to factor in retaliation. CNBC asserts higher costs for steel and aluminum will remove 10% of the value of recent tax cuts from corporate America’s balance sheets, at most.
First of all, that underscores how radically huge the Trump/Republican tax cut actually is for corporate America. Secondly, they’re only looking at one side of the equation. Because there’s no way of predicting how forcefully other countries will react. The first thing that’s always targeted: U.S. Agriculture. That’s because farmers and ranchers can’t just sit back for a few years with a warehouse full of soybeans or a pasture full of cattle and wait for this whole thing to work itself out.
Once that’s done, they’ll start looking for the biggest ticket items the U.S. still makes a lot of. Which at this point is pretty much airplanes and iPhones. So not only is Boeing potentially paying a lot more for the steel and aluminum it needs to build planes, it’s also seeing contracts getting cancelled. And China’s one of its biggest customers. No wonder Boeing’s stock plunged nearly triple what the market as a whole did on Trump’s announcement.
Or they’ll look for politically sensitive targets: like Harleys from Paul Ryan’s home state of Wisconsin, or bourbon from Mitch McConnell’s home state of Kentucky.
• Finally, there’s the threat of inflation. Higher steel and aluminum prices can lead to higher consumer prices on everything from cars to cans of beer. Even without that, the stock market is already really worried about inflation. And a sustained sell-off could wipe out a lot more wealth.
Interest rates are creeping up to levels we haven’t seen in years. (Higher interest rates mean it costs more to borrow money, which means money is more expensive). Throwing tariffs into the mix, which will absolutely make things more expensive, could freak people out even more, who are already a little freaked out.
Trump’s Even Got The “Origin Story” Wrong
The President announcing his tariffs while invoking a heady time in American economic history: the heyday of U.S. Steel. At a meeting with steel and aluminum industry executives, Trump rhapsodized about the once-powerful giant with roots going back to Andrew Carnegie and J.P. Morgan. You can watch a clip here:
But U.S. Steel didn’t get killed by “shameful” trade deals. It lost clout because its executives refused to modernize and invest in new technology, secure in the belief that if anything really bad happened, the U.S. government would bail them out. Japanese steelmakers at the time did innovate, and ate their lunch. And sure enough, the Reagan Administration came in and bailed them out, giving them huge tax breaks to help make up the gap in what they were charging for steel vs. what foreign manufacturers were now able to charge.
Only you know what U.S. Steel did with the money? They went out and bought an oil company. And still didn’t modernize. U.S. Steel now has about 1/10th the number of employees it once did.
We think We Finally Get What The President Was Up To In His Crazy Gun Control Meeting With Lawmakers
When the dust settled it was really quite simple. Even a bit noble. (Except for the part where he trampled on both the 2nd and 4th Amendments: “Take the guns first, go through due process second”.)
Amid the spectacle and brouhaha, all Trump was really trying to do was get them to add stuff (basically any common-sense measure) to the only gun-related bill that has any chance of passing.
That’s the Toomey-Manchin proposal to significantly strengthen background checks.
And Trump’s right: they’re not going to add anything to it because they’re afraid of the N.R.A. Then again, Trump seems to have warmed to the N.R.A. following a meeting late last night with the group’s chief lobbyist:
Meanwhile, earnings results for a major gun manufacturer show a somewhat shocking snapshot of what’s happening on the corporate side (and while major gun retailers are cutting back on their inventory too). American Outdoor Brands, formerly Smith and Wesson, saw profits fall nearly 88% year-to-year, on a 37% slide in sales. The decline attributed to the end of the Obama presidency, when everybody thought he’d be coming for their guns…
And the Republican controlled legislature in Georgia went ahead and–in effect–punched the state’s biggest employer in the face because it stopped giving small discounts to N.R.A. members. Delta Air Lines went out of its way to say it was not taking a position on gun control, but that didn’t matter. Earlier this week we wondered out loud if Amazon might be keeping an eye on what’s going on, since Atlanta’s on its 2nd Headquarters “short list”. The state’s Lieutenant Governor seems to have the same idea and came up with this ridiculous rationale for the crazy move he spearheaded: it proves Georgia has “diversity in thought”.
Senate Intelligence Committee Accuses House Intelligence Committee Of Leaking Info About Senate Intelligence Committee
The Republican Chairman of the Senate Committee, Richard Burr, along with his Democratic counterpart, Mark Warner, took the highly unusual step of bringing their grievance directly to House Speaker Paul Ryan, who seems poised to do nothing about it (but we’ll see). It involves leaking text messages from Warner. He was seeking the whereabouts of “Trump Dossier” author Michael Steele, apparently to get him before the Committee. But it was presented as a sneaky unilateral “back-channel”.
The far Right media, and Trump himself in Tweets made much of this a week or two ago. The House Intelligence Committee is Chaired by Devin Nunes, he of “the memo”.
Some Weekend Reading
This is not going to be one of our most fun assignments, but we think it’s highly instructive. Take a look at a piece former Speaker of the House and rabid Trump supporter, Newt Gingrich wrote for Fox News. Because it hits on every single argument Republican candidates are going to be making across the country as campaigns heat up for the 2018 midterm elections. Every seat in the House is up for grabs, as it is every 2 years. Gingrich is optimistic about Republicans’ chances (no surprise there) if they can argue that Democrats did not lift a finger to support middle class families. And unless Trump sabotages himself, they might have a chance at pulling that argument off. Because while the tax cuts undoubtedly benefit corporations and the super-wealthy far more than anyone else, they may been designed cleverly enough to give working people just enough of a bump for it to be noticable, at least this year.
Gingrich makes another extremely valid point about the 2018 elections: when Trump named his Presidential campaign manager this week, it wasn’t so Brad Parscale could sit around counting the days to 2020. He’s going to be active in trying to set the table for Trump by working this year to promote hand-picked Republican candidates. What Gingrich doesn’t mention, is how highly unusual that is. Usually it’s the Republican National Committee’s job. When Steve Bannon was still around, he threatened to run a whole slate of candidates across the country outside the purview of the RNC, and while that’s not happening overtly anymore, some deep rifts and contentious wrangling could emerge. After all, the RNC is currently run by Mitt Romney’s niece, who until recently went by the name Ronna Romney McDaniel, but conveniently shortened it to just Ronna McDaniel.
