Trade War, part 2

<Beep, beep, beep, beep> Good Evening Mr. and Mrs. America and all the ships at sea. Flash: Washington D.C.

On Thursday, May 31, President Trump fired the first shot of the Trade War. Was it at the acknowledged enemy, China? No. Instead, in a surprise move, the President shot our trading allies and friends. Not only did this catch them off guard, but the White House staff was not aware of it until he tweeted about it.

Which allies you ask? Canada, Mexico, and the EU. Notice that China, Russia, and other “enemies” were not targeted. Granted there are still some tariffs going back and forth between the U.S. and China, but the Steel and Aluminum tariffs were not implemented there, only on our allies. Could this be because Trump rolled back the Sanctions on telecom giant ZTE (“Concerned about Chinese jobs”), while the Chinese invested a half Billion for a Trump Tower in Indonesia? You decide. I think it was a flat-out bribe and a violation of the Emoluments clause.

But let’s get back to the Trade War. With any war, it is a good idea to figure how it started, why, and who has the authority to do so. We know how (see above). Trump has been agitating to do this for months. Why now? This is what is driving everyone crazy. At this point, I and others can only speculate but let’s give it a go.

Welcome to the Mid-terms, boys and girls. This is a twofold move. First is to energize the base. “Look at what those terrible countries have done to our poor industries.” Forget the fact that these industries have been in decline since the 1970s and automation has killed more jobs than anything else, the base wants their Boogeyman. Get a good Boogeyman and support more candidates like you and Poof! you hold the House and Senate.

The other is negotiating tactics. Trump has stated that he is re-negotiating NAFTA with Canada and Mexico on an individual basis. Cause a little pain, some concern about local industry, and try to panic the politicians. He also has this mistaken belief that we have a trade deficit with Canada, when we really have a surplus.

But how can he do this? You see, there is this little clause in the Constitution that states that Congress has the power “To regulate commerce with foreign nations…” (Article 1, Section 8, clause 3). This is referred to as the “Commerce Clause.” Thus only Congress can determine Trade and trade issues (see Smoot-Hawley Act). So, why is the President able to implement the tariffs?

In 1962, it was the height of the Cold War. Congress was looking to let the President raise or lower tariffs as a way of dealing with National Security issues. Thus was born the Trade Expansion Act of 1962. Then it was passed (and signed), and 5 days later started the Cuban Missile Crisis. (Some believe it was this act that was quietly used that got the Organization of American States to vote unanimously against Cuba during the Crisis.) This is the stated excuse for the Tariffs. That the Canadian Steel and Aluminum mills are a security threat to us. Think about that. The one country that has stood by us in just about every military action since the First World War is now a security threat. (This threat being stated as the need for in-country production.)

Now what are the impacts to Canada? The U.S. Media does not talk about much about this, but there are some easy ones. The most obvious is the Steel and Aluminum workers. They export nearly 90% of their steel to the U.S. That is only 16% of U.S. steel imports. But let’s not forget that 42% of Aluminum imports come from Canada. And of course, the Canadian autoworker. The price of cars is going up.

Of course, the Canadians responded with some targeted tariffs of their own. A lot of them have to deal with manufactured steel and aluminum: bars, rolls, wire, and ingots. It is the other items that are getting the most press. They include strawberry jam, ketchup, mayo, salad dressings, whiskies, and paper products. There are more, but I have only a limited time and space.

Who will they affect here in the United States and how? The one that I have been thinking about the most is whisky, mainly bourbon. Most of the bourbon manufactured in American comes from the great state of Kentucky. We’ll get why this is important later.

The largest producer is Jim Beam in Clermont Kentucky. The impact on the Jim Beam company is obvious. More tariffs, less profits, and less exports. With less Exports, that means there will be a whole lot of bourbon sitting around in warehouses. You are probably thinking, “Great! Lower prices.” Not so fast. Like most companies, they will just pass the cost onto the customer. But it is the future you should worry about. You see it takes a minimum of two years for bourbon to be made. A lot can happen in two years. Now the company execs will have to make some hard decisions. Do they plan on the tariffs being long term or is this just a blip?

Either way, they will be more than likely be cutting back production. Less production means less people needed at the distillery. They will not need as many White Oak Barrels, so less people at the Cooper. And of course, less corn and wheat. Think about the impact on the local farmers. And don’t forget the truck drivers who deliver the raw materials and the finished products.

Now why is this important that it is impacting Kentucky? If you remember at the beginning, we talked about how Congress is supposed to set the trade policy. During the beginnings of this war, Congress has been largely missing. Who are the two Senators from the great state of Kentucky? Why Mitch McConnell and Rand Paul.

A major industry and the supporting businesses are about to be negatively impacted and the Kentucky Senators have said nothing. Want to bet that Jim Beam and the local farmers will not be donating to their re-election campaigns?

So, what do we have here? From the previous post about a Trade War and this one, we are seeing that the countries that are targeted by the Trump administration are responding in kind and aiming at his base. This Trade War is going hurt the Rust Belt and the Farmers of the Midwest. And by doing so, hurt the rest of us and send us back into a recession.

More has happened since I started writing this Rant. Too many other things pulled me away. But let me tell you about a few of these events. Harley-Davidson is moving some production out of the country. (Trump claims that they will get taxed heavily.) Soy Bean prices are down 15-19%. Mid-Continental Nail Company, the largest U.S. nail manufacturer, has had to lay off 10% of its work force and announced that they could be out of business by Labor Day if the tariffs aren’t lifted. Finally, GM has announced that they will have to lay people off and raise the price of cars on average by $5500.

There are more to tell, but I think you get the idea. Now let’s add some more “fun.” On July 7, this administration will impose $30 Billion worth of tariffs on China. China has stated that they will respond in kind. Make no mistake here. A lot of businesses and people are going to get hurt here. Prices across the board are going to go up and layoffs will happen. There goes the great economy and jobs numbers President Trump has been touting.

The benefits you think you are getting from the tax cut are going to be gone. The corporations will lay off more people. Congress and the Trump Administration will panic and propose another tax cut bill. Heck, they are already starting the process to be passed in September (Remember those mid-terms). But no matter what, you are going to be paying more for everything.

Is this how we “Make American Great Again?” By killing the economy? How is he going to blame the Dems and liberals? This is all Trump’s doing. And how can we stop this? You can’t. Not until November 6. You will have to change the House of Representatives and the Senate.

But will you? Will this be the thing that gets you to say: Enough!? Will people vote the bums out, like they are always screaming about? We will know on November 7. Until then, tighten your belt and water down the soup. It is going to be a long hot summer.