Yes, The Tariffs Are Hitting Home - And Even A "Strong Economy" Won't Halt The Expanding Trade Deficit
Seasonally-adjusted trade deficit over the last two years.
"Stand up and do something about it! Say something! "
"These tariffs are taxes on the working people!"
Remarks shouted out to SC Reepo Tom Rice Saturday, in Spartanburg, SC
The news this morning that BMW's Spartanburg, SC plant may have to raise prices on their fork lift components (made with Canadian steel) by 15 percent or more, thanks to Trump's tariffs. This has the local hoi polloi screeching and running for cover. Even the SC Chamber of Commerce chimed in, as reported on CBS this a,m., sending a letter to lawmakers e,g,
"We urge you to do whatever it takes to inform the administration of the jobs at risk due to rising tariffs."
Does Trump the angry monkey care? Of course not. He's only interested in hurling his feces at anyone he regards as getting the better of him - even though it's HIM grifting on his pathetic supporters. And SC's monkey see monkey do lawmakers are not much better, given five of six are sticking with Dotard's suicidal plan.
It is difficult to tell Trump and his Trumpers that they are fighting a losing battle in the trade war, but the numbers don't lie. According to the Commerce Department the trade deficit in goods and services expanded in June at the fastest rate since November, 2016. It increased 7.3 percent in June to a seasonally adjusted $46.35 billion. (Exports had fallen 0.7 % from May while imports increased 0.6% - from the same report issued last Friday, Aug. 3rd).
We also learned, e.g. U.S. Trade Gap Widened in June - WSJ
"The data confirmed economists' expectations that a narrowing trade deficit earlier this year was likely to reverse, despite a renewed focus on trade policy from Trump".
But as I pointed out in previous posts, the problem is that Trump doesn't grasp the nature of global trade or how conducting a no holds barred trade war cuts at his own supporters, including Midwest farmers, and now Maine fishermen. In June, for example, Trump barked at one point, highlighting his abysmal ignorance:
"Why should I allow countries to make massive trade surpluses as they have for decades?"
Well, because those trade surpluses mean more Americans are able to buy those goods because they are cheaper! More cheap goods = more items bought, i.e. from the Chinese, so the Chinese run up a trade surplus. Trump, senseless buffoon that he is, can't seem to appreciate that lower income Americans (i.e. the Trump base) benefit from competitively priced Chinese electronics, or Mexican produce, Japanese cars and Canadian steel.
This ability to purchase at lower cost is now even more important as we've since learned e.g.
Rising U.S. Consumer Prices Are Eroding Wage Gains - WSJ
So the strong U.S. economy is pushing up inflation and American paychecks are barely keeping up. Add on the higher costs of goods (e.g. fish, electronics, etc.) on account of the responses to Trump's tariffs. and working citizens as well as unemployed are behind the proverbial eight ball. As the article cited above notes:
"Rising prices are now eating up much of Americans' wage gains, restraining their ability to spend in the future. "
Add on Trump's tariff "tax" - which is what it is - and his supporters, as well as the rest of us are now paying for his folly in trade as well as the idiotic tax cuts from last year - which according to a GAO report have now increased the budget deficit 21 percent since January.
The other aspect is that Trump and most Trumpkins fail to process that trade deficits are neither good or bad. Indeed, the WSJ's Greg Ip answered the question of why the US. itself runs a continuing trade deficit:
"Because it consumes more than it produces while its trading partners collectively do the opposite.. Another way of saying this is that the U.S. invests more than it saves while other countries save more than they invest."
Let's parse those words a bit because they may seem inscrutable or counter intuitive to many. Why not invest? Save? Aren't you saving when you invest? Well, no. Saving means stashing money, capital into fixed income instruments like CDs, money markets (not funds), and regular bank savings accounts, as well as in immediate fixed annuities. Anything which is unlikely to be perturbed, affected or lost in a stock market correction or crash.
"Investing" means plowing money into regular stocks or into mutual funds - say as offered in your IRA or 401(k). These stocks or funds are tied to actual products or services, say Apple Iphones, or Musk's Tesla, or even Chipotle - as incredible as that sounds. The investor puts his or her money into investment devices and instruments which he believes will offer a return on the investment because the product will grow in share value, or in actual distribution- which ultimately leads to higher market valuations.
The problem is that growth can generate many expensive products (like $999 Iphones) that too many Americans with lower (or stagnant) wages will not be able to afford. So they will instead tend to buy cheaper Chinese smart phones. But as they consume more and more of these cheaper Chinese electronic wares they wittingly (or unwittingly) drive up the trade deficit, i.e. the Chinese trade surplus. In retrospect then, it would have been better to save the money - stash it away in savings vehicles- then when enough is available, use it to purchase U.S. made products if such are around.
Even if one personally doesn't go into debt - say from a stock loss- and buys shares with "found" money or disposable income, a net loss in share prices before redemption translates to a loss in that savings. Also, your 401k or IRA may be tied to big institutional investors who do the leveraging for you. In the Business & Investing section WSJ piece 'In Selloff, A Trading Strategy Is Faulted' (Feb. 9th, p. B11) we learned:
"Risk parity funds aim to reduce the danger from a collapse in any one market by limiting bets on more volatile assets like stocks and commodities, and use leverage to load up on safer assets such as government bonds."
Tax cuts - like the Reepo ones passed in 2017 - are also not the lower wage worker's friend because: 1) he's getting barely a chump change (say $38 a month for a Walmart worker) tax cut to use, and 2) the higher salaries for the bigger spenders will drive up inflation.
Greg Ip in a previous WSJ piece, e.g.
Tax Cut to Widen Trade Gap That Riles Trump - Wall Street Journal )
explained how the tax cuts will now increase the trade deficit as well, approximately $35 for each $100 increment in the budget deficit. Since the tax cuts are now conservatively estimated to add $1. 5 trillion to the deficit, you can do the math for the trade deficit using Ip's ratio, which will come to $525 b..
William Galston in his (8/8, WSJ) op -ed aptly observed:
"In effect, President Trump has issued a large promissory note to the American people: After I bust up existing arrangements I'll replace them with something better"
Well, he also said that about health care (e.g. "Well have the best health care in the world!") and look how that one turned out! In this case the evidence thus far is that his promissory note on trade amounts to more bullshit. But what would you expect from a lowlife, low class Queens' real estate grifter? So no surprise he's already had to make way for a $12b bailout, e.g.
http://brane-space.blogspot.com/2018/07/sorry-trumpies-if-you-take-dotards-12-b.html
But that only applies to farmers, i.e. certain ones inhabiting Trump land who never should have pinned their hopes on Dotard in the first place..
Further, his import tariffs are now adding thousands of dollars to the cost of rebuilding homes reduced to cinders by one or other of the 14 California wildfires. According to one building associated official quoted in an AP report (D. Post, Aug. 12, p. 22A). "the tariffs could raise the price of a typical new home by up to $20,000." Meanwhile, the California Building Industry Association estimates from $8,000-10,000 higher costs to rebuild a home. This is based on Trump's import tariffs having raised the cost of lumber, dry wall and other construction materials.
Even more pain has also been noted by Galston (ibid.):
"But manufacturers that depend on affordable imports of steel and aluminum will be priced out of their markets. Caterpillar Inc. expects that metal tariffs will raise its material costs by $200 million in the second half of this year alone, forcing it to raise prices. Beijing is prepared to match each round of U.S. tariffs with painful countermeasures. Where does this end?"
Well, possibly in another recession or even depression. Here, Trump and his band of merry finance loons and buffoons might do well to study the effect of the 1929-30 Smoot-Hawley tariff in making the Great Depression much worse. E.g.
As another similar site on Smoot -Hawley noted:
"What exactly was Smoot-Hawley? Its stated purpose sounds eerily similar to the goals that Trump has espoused. It was, said its title, “an Act to provide revenue, to regulate commerce with foreign countries, to encourage the industries of the United States, to protect American labor, and for other purposes…”
But in the end, the act of so-called "protection" ended up roasting most American workers even more badly in the Great Depression. Do people ever learn from history? Not Donald Trump. As Galston ended his op -ed:
"President Trump risks leaving Americans with a flattened barn and in need of a new carpenter"
This after referencing former Speaker Sam Rayburn's famous quote:
"Any jackass can kick down a barn but it takes a carpenter to build one."
Is Donald Trump a jackass or a "carpenter"? Voters will be able to decide long before the 2020 general election.
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