Trump’s Objectives On Trade Are So Different Than Anything That’s Been Attempted Before, At Least In Our Lifetimes
Much Of This Week Will Be Spent Trying To Get The President To Reverse Or At Least Moderate His Stance
So far the President’s not having it, saying “our country, in trade, has been ripped off by every country in the world.” Here’s a clip (click on photo to play):
And many reports compare Trump’s promised tariffs to George W. Bush’s action against steel imports back in 2002. It is worth making the comparison because Bush’s tariffs resulted in a 30% plunge in the stock market, and the U.S. dollar falling to historic lows against the Japanese yen.
At the same time, what Trump’s trying to do is not the same at all. Bush’s tariffs were more limited: targeting “bad actors” and exempting close trading partners. Trump’s treating everybody as “unfair traders”, and (so far) exempting nobody.
• Most Presidents have taken the approach that U.S. corporations can compete just fine as long as they’re on a level playing field, so their efforts have been focused on punitive actions against countries that are behaving badly and manipulating the prices of their products or currencies.
• Trump instead is putting the U.S. government in a more directly interventionist role: working to give U.S. corporations a leg up by taking action against other countries whether they’re behaving badly or not. His vision involves partly shutting the U.S. off from the global marketplace, so U.S. manufacturers will have to buy supplies from other U.S. manufacturers. Why? Because that should create jobs.
• In that scenario, he can’t afford to exempt certain “favored” countries from tariffs, because then U.S. companies will just shift their purchases over to those countries and the jobs won’t come back. We’ve seen that happen in the past couple of years: after China was slapped with very steep tariffs on steel, their direct exports to the U.S. plunged, so U.S. companies turned to other countries like Canada and Brazil to pick up a lot of the slack (although domestic production is also up).
• And China is still a factor: in fact if you listen to Trump and those around him, it’s the main factor. They reason that even though this tariff doesn’t impact China that much directly, China’s still “at the root of the problem” because it floods markets, driving the price of steel and aluminum down globally.
• The problem is, Trump’s taking the pressure off U.S. companies to compete with global manufacturers on price. And with that, the U.S. will become a higher-cost producer, and those costs will be passed on to American consumers. Ken Iverson, erstwhile founder of Nucor Steel, warmed about this, saying: “Unless you’re under intense competitive pressure and it becomes a question of the survival of the business to do it, you’re just going to lapse back into your old ways”.
• Trump’s people don’t deny this: but they’re portraying it as “pennies”. Those pennies still add up. Especially at a time when interest rates are up and worries about inflation are starting to flare even without that extra pressure.
• Trump has reportedly agreed to attend a meeting of companies that use a lot of steel and aluminum, set up by his Chief economic adviser, Gary Cohn. It’s tentatively scheduled for Thursday. (We wonder if that meeting will be open to the viewing public, “Trump-style”.) Cohn apparently playing the “last person in the room” card: that Trump often agrees with the position of the last person he spoke with on an issue.