Friday, March 02, 2018

Trump's Likely Costly Tariff Blunder

America's modern day version of Nero likes to boast about the highs on the stock market, yet seemingly knows little about economics (his only understanding appears to be of real estate deals propped up with underworld and Russian oligarch funding) and yesterday gave the stock markets a big jolt that led to a sell off.  The cause was Trump's announcement of steel and aluminum tariffs based seemingly on ads on Fox & Friends and a desire to appear to give something to thrill his knuckle dragging white nationalist base.  Then, of course, there may have been a desire to change the media conversation - at least temporarily - from Russiagate and the travails of Jared Kushner.  As a piece in The Atlantic notes, the  parallels between Trump and Nixon continue to grow with average Americans being the big losers in the long term.  Here are article excerpts:
Trump just raised the price of cars, beer, vacations, and apartment rentals. 
That’s not what most headlines say. Those headlines say that Trump will raise tariffs on steel and aluminum. Higher tariffs mean higher prices for those inputs—and therefore for the products ultimately made from those outputs. Automotive and construction top the largest users of steel in the United States. Aluminum is heavily used to make airplanes, cars and trucks, and beverage containers, and also in construction.
The last time the U.S. imposed steel tariffs, back in 2002, the project was abandoned after 20 months. A 2003 report commissioned by industries that consumed steel estimated that the Bush steel tariffs cost in excess of 200,000 jobs—or more than the total number of people then employed in the entire steel industry at the time.
This time the cost-benefit ratio is likely to skew much worse. There are fewer steel jobs to protect this time. Auto sales growth has stalled. The first warnings of consumer price inflation are appearing.
Even by Trump standards, the decision-making process was a chaos. As late as 9 p.m. last night, it remained undecided whether there would be an announcement today at all—never mind what that announcement would be. Key congressional committee chairs were unconsulted and uninformed.
The president [Trump] as so often relied on junk information. . . . Industries seeking protection reportedly bought commercials on Fox & Friends. Apparently a decisive event in the debate was the firing of staff secretary Rob Porter, after revelations that he had engaged in spousal abuse. Porter had also chaired the weekly trade debate, forcing the president to confront the costs and harms of protectionism. His removal also empowered Trump’s worst instincts.
The Department of Defense intervention in the debate shredded the logic of protectionists like Commerce Secretary Wilbur Ross, himself a former steel man.
U.S. military requirements for steel and aluminum each only represent about 3 percent of U.S. production. Therefore, DoD does not believe that the findings in the reports [of harm to domestic steel and aluminum producers from foreign competition] impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements. What did alarm the Department of Defense about proposed steel and aluminum tariffs was potential harm to vital U.S. alliances.
Trump’s unpredictability and threatening language have not only jolted U.S. financial markets, but have done further damage to the U.S.-led alliance system. European Union trade ministers agreed earlier this week to retaliate if the U.S. imposes steel tariffs, further degrading a U.S.-EU relationship already badly damaged by Trump’s hostility to NATO and deference to Russia.
Donald Trump is often compared to Richard Nixon in his disdain for law and ethics. The parallel applies to economics too.
Nixon governed not according to what would work in the long term, but according to “the prevailing mood of the two-thirds of the country he called the ‘constituency of uneducated people.’”
Nixon did indeed win in 1972. He also bequeathed his country not only the worst political scandal in its history to date, but a decade of stagflation that bore most heavily upon the very people Nixon claimed to champion. We’ve been there before; it looks like we’re returning there again.

Trump's rust belt and hill billy supporters will likely cheer their "dear leaders" move without realizing that yet again they are seeing a result directly against their own best economic interest.  Feeling good about "punching back" on someone will not make up for the economic pain.  Sadly, Trump supporters are too stupid to grasp this reality. 

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