Trade War

Ladies and Gentlemen, boys and girls, children of all ages. The U.S. Government and the Trump administration is proud to present in the center ring… a War!
Whoa! Hold on there, kid. This is not the bloody, death, and destruction type of war. We already have two of those and another getting ready in the wings. Nope this is the type of war that is going to impact a majority of Americans. This is a Trade War.Yep, a Trade War. Something that we have not seen since 1930. Oh sure, we have had some minor skirmishes here and there, but nothing like the great war coming. But first, a little history and civics for those of you coming in late or have forgotten your high school lessons and economics. Yep, this is that one time you should have paid attention in high school.
Trade wars are when the government places tariffs on imported products (sometimes on exported ones). They could also limit the number of products coming in or going out. This included certain products from leaving the country (i.e. Rocket technology) or limiting amounts of certain products entering. This is all usually aimed at certain countries or industries. It becomes a war when the other country (or countries) retaliates with their own tariffs and limits.
Now for the history part. In 1930, Congress passed the Smoot-Hawley Tariff Act. This was a campaign promise of President Hoover. It was originally designed to protect farmers due to the great change in technology. (Electricity and Automobiles if you were wondering.) There was surplus of agricultural products, due to less farming needed to feed horses and mules. But Congress being Congress could not just focus on the farmers. They started adding stuff for their own states. Now for the fun historical fact. The Republicans of the time controlled both houses of Congress and the White House. Sound familiar?Now while this and previous tariffs did not cause the Great Depression (lack of liquidity did. Déjà vu all over again. See 2008.), it did make it worse. In this case, the past is prologue. And all of this, is important to understand our current situation.Four events happened starting in December 2017 through March 2018. First was the Tax Cut and Jobs Act. The Law was by most standards a tax cut/giveaway to big corporations and the very rich. Turns out, the tax cut was not as big as promised. Speaker of the House Paul Ryan was bragging that the average teacher was getting an extra $1.50 in their paychecks. Heck, you can’t even buy a cup of coffee with that. This Bill was signed into law on Dec 22, 2017.
Second was the Tariffs on solar panels and washing machines manufactured outside of the country. These tariffs were designed to help domestic manufacturing of both products. A four-year plan that started with a 25% tariff on solar panels and washing machines get hit with a 20% tariff for the first 1.2 million machines (everything after that is 50%).
Next was an out of the blue announcement of 25% tariff on Steel and 10% on Aluminum (March 1, 2018). This was announced that since China and Europe were “dumping” low grade and low-cost materials in our market, this was needed. We will be discussing what this means to you later. Canada, Mexico, the European Union, Australia, South Korea, Brazil, and Argentina were all provided with wavers. That lasted until May 1, 2018. All major traders and places that a majority of American Business do business with. The one country not even trying is China. It was implemented on March 23, 2018. Finally, the Trump Administration announced on March 22 that they would imposing $50 Billion of Tariffs on Chinese products. This was in response to Intellectual Property theft. The Chinese have a history of openly stealing tech and requiring companies to work with local firms. And for the Chinese, that was a bridge too far and this is what turned it into a Trade War.
The Chinese announced tariffs of their own amounting to $50 Billion. Most of these were aimed at agricultural products. The big hits being pork and soybeans. Right in the middle of the Heartland and Trump supporters. On April 5, the President told the Office of the United States Trade Representative to consider another $100 Billion in tariffs. This was done a day after tweeting “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”
OK, that’s the facts. Now how is this going to impact you? Why should you worry?The simple fact is that you are going to pay for it all. New cars are going up in price. That washing machine? Price just got jacked. A lot of items that say “Made in China” will probably be increased too. Companies are going shift that cost on to your wallet and then some.
Here’s a little thought on the law of unintended consequences. President Trump just killed his own infrastructure plans. Wait? How’s that again? You see the cost of the steel used to repair and build bridges just went up by 25%. Same with that new school in the neighborhood. That and more.
But OK, you’re not going to buy a new car or washing machine. And the bridges you drive on are fine. (not really, but for the sake of the argument…) But there are some other ways that this Trade war is already impacting you. That can of food (veggies, beans, spam, etc.) just went up. That can of soda is now costing your kid even more. Ok, your kid doesn’t drink soda and you never buy canned food. Then let’s talk about that can of beer you are drinking.
Now what a minute, you saw some guy on the news talk about how it will only add about a penny per can. But let’s talk about the hidden costs. The trucks and trains that move those cans use Steel and Aluminum in them. (The train tracks are made from high grade steel.) These things break down and will need to be fixed or replaced. More Materials. (Gas will cost more for same reasons, thus adding to transport cost.) The tools and tanks for the making of the Beer are made of Stainless Steel. So, instead of the 6-pack going up 6 cents, you are looking at 50 cents to a dollar. I’m betting on a dollar.
Right, you’re not a beer drinker. How do you feel about nuts? Me, I love pistachios. Just can’t get enough of them. Did you know that 50% of all pistachios grown in the US are bought in China? Can you guess a nut product that has been hit with tariff by the Chinese government? If you had said Cashews, Chestnuts, Walnuts, Almonds, Hazelnuts, Macadamia nuts, and Brazilian nuts, you would have been correct also. Also impacted will be Pineapple, Mangos, Oranges, and other citrus products. All of these will and are having a major impact on growers in California. (Side note: now that the U.S. has left the Iran Deal, Iranian Pistachios are banned from the U.S. Guess where they are headed?)
Now I can hear a number of you already grumbling, “that’s just those tie-dye-wearing, hippy-dippy California farmers. Who cares?” Well, given that the state of California is now the fifth largest economy in the world (just surpassing England), what hurts them, hurts the rest of the country. But does the President care about California? Nope, they didn’t vote for him.
Fine, then let’s talk Trump country. In the fall, China buys nearly 60% of all soybeans grown in the United States ($14 Billion). The top growers of Soybeans are Illinois and Iowa. Last month, China canceled 365,000 metric tons of soybeans. The price has since dropped by 13.7 %. The other products impacted by this Trade War: Beef (Texas, Kansas, Nebraska), Pork (Iowa), Wheat (Oklahoma), Corn (Iowa, Illinois), and Cotton (Texas, Georgia). I have not even gotten into the Scrap Aluminum and Paper for recycling barges that are being turned away. Once those tariffs start to bite and orders start declining, how long will the President keep his supporters then?
Who is going to pay for this? Who is going to be impacted the most? Trump and his millionaire/billionaire buddies and government officials? Nope. It will be the working and middle class. But not at first. The prices for these consumer goods never react quickly to your store shelf. (Oil is the expectation. Oil companies run what is known as a just in time operation.) You can expect to see food prices rise over the summer and manufactured goods by the Christmas season. There go those Tax savings. Will this Trade War work? Will the Presidents goals be achieved? If history and the current situation are any indication, then no. Not only will it not work, but it will hurt the U.S. economy and take years for us to recover, if at all.
Congratulations America, you are about to get a whole lot poorer.