Trump's tariffs

So the idea of a trade war is beginning to rise with Trump slapping tariffs on our closest allies, plus China. As someone who isn't very knowledgeable when it comes to trade, can someone on the escapist enlighten me on how this harms the american economy? Thank you.

Historically, they attribute Tariffs to be what caused the great depression to get much worse as it increased the costs of goods to citizens meaning their money does not go as far as it would without them and put more Americans out of work due to loss of exports:

Trade wars increase the cost of necessary goods in addition to reducing exports and decreasing jobs as retaliatory tariffs often result in other nations boycotting US goods as well as increasing their prices. They often stop buying any US goods and instead choose to buy them elsewhere out of spite.

When you actively try to harm other nations, they usually do not respond well and do the same, if not more in turn. It angers consumers in other nations causing " made in USA" to be toxic and no one wanting to buy any products from the US at all.

The poor cannot afford to have their grocery bills go up and US industries really do not really want to take a hit to their exports. American businesses spend an awful lot trying to market their products to consumers in other nations, having their brands tainted by a nasty public trade war is not popular among businesses or consumers. History shows this does not work. This is why even Trumps economic adviser resigned over it.

WolvDragon:
So the idea of a trade war is beginning to rise with Trump slapping tariffs on our closest allies, plus China. As someone who isn't very knowledgeable when it comes to trade, can someone on the escapist enlighten me on how this harms the american economy? Thank you.

Well, because Trump's tariffs injure multiple trading partners, and the Chinese as well asother nations have promised to meet dollar for dollar the costs of Trump's tariffs.

So what ends up happening is that U.S. products will be priced out of competition, as thus diminished consumption and yet higher domestic prices due to more expensive domestic materials production and supply leading to higher manufacturing costs ... and this injures U.S. jobs as well as the double whammy of making so many basic goods far more expensive. Like aluminium for instance doesnot affect the Chinese at all (well, not much). It injures Canada.

One of the reasons U.S. motorcycles were targeted by the EU, because steel and aluminium prices will jump tremendously in the U.S., and on top of that, U.S. motorcycles in the EU will be well and truly priced out of favour compared to local producers like Triumph, etc.

I mean .... why the fuck you'd buy a Hardly Rideable when you can buy a Triumph or Moto Guzzi to begin with? There'll always be idiots with cash, I suppose.

And given that the U.S. cannot really produce aluminium domestically as cheaply as places lke Canada, which provides roughly half of all U.S. consumption of primary aluminium. Primary aluminium and alumina is cheapest made in countries with a lot of excess (cheap) power (Canada has an abundance of hydroelectric power generation tosubsidise high energy demanding industries like aluminium production), and the easiest possible means to access bauxite.

The U.S. will need to import 99% of the bauxite it will need to produce equivalent volume in the U.S.

So it will likely import that from Australia if it wishes to domestically source more of its own primary aluminium through domestic smelters. Which might be why the U.S. excluded Australia from the tariffs given where the fuck else would it even begin to resource the bauxite necessary to stimulate their own domestic production?

Australia is a a decent provider of high quality primary aluminium, but not a large producer of things like aluminium for soda cans.

So there's an item that will increase in cost if the U.S. attempts to resource more of its domestic consumption.

The other big one is steel ... despite the U.S. not having the right coking coal to produce high quality steel products. So if the U.S. legitimately wants to resource its own high quality steel consumption, it will need to import high grade coking coal from places like Australia (as well as buy our high carbon steel like they do already) to supply steel manufacturing consumption. Once again, another reason why Australia may have been spared such tariffs. Given reciprocation might have meant that price and cost inflation may have resulted in still yet cheaper steel overseas, and merely greater consumption costs.

The problem with tariffs as they are, is the biggest winners are often the people who try to avoid them all together and stay out of a trade war.

Like why Australian pollies were kicking up a stink and sending delegates to the U.S. aboutthe 'evils' of a trade war, but are now quiet when the U.S. excluded Australian exports ... even though tariffs are affecting its allies. Ultimately Australian consumers may end up having to watch out for dumping, and will suffer the downturn in Chinese manufacturing, but at the same time we benefit from cheaper consumption of Chinese goods with perhaps increased export capacity into U.S. and European markets...

Much like the trade war of the 70s inbetween the U.S. and numerous European markets, the big winner of that was none other than the Soviet Union, who stayed out of it, and benefitted from cheaper European imports whose prices may have been higher if the U.S. accounted for more of their consumption.

So trade wars are kind of funny like that, given there are rarely winners barring those thatare really quiet, off on the side, and don't feel the need to weigh into the discussion.

Best to be the arms dealer, not the shooter/target.

The big problem isn't merely reduced consumption of U.S. goods and dearer materials supply. It's also the price of shipping. Something economists often forget to factor into prices of goods. See, when ships enter harbours, it costs a hell of a lot more if those hips can't load up for the trip back/elsewhere.

So nations often negotiate FTAs from the position of how best the other nation might facilitate a consumption of goods liable to promote that equality of exchange.

It's the whole reason why scrap iron was the 2nd most exported good the U.S. had at its disposal.

Global trade, and cheap shipping, is a careful ballet. Too much, or too little the total volume deficit (incredibly complex when you consider multinational stops), the higher the prices of shipping goods. This is particularly relevant the more isolated you are. One of the reasons FTAs help not only market exposure and access, but also help reduce the prices of doing business between two countries in a very literal sense that you have a lot more cargo going both ways.

Australia had an FTA with China concerning a whole lot of weird goods for a reason ... it made Chinese shipping to Australia cheaper because there were more goods Australia could load up on ships going back.

Like Australian wine...

https://www.reuters.com/article/us-australia-wine-china/australian-wine-exports-to-china-surge-as-fta-cuts-tariffs-idUSKBN1FC028

Cheaper shipping, by ships coming and going equally or closely mutually loaded, is the secret to successful penetration of foreign markets. If the price of shipping is too expensive between two nations due to high disparity of total volume exchange, so too does the operating costs of trying to penetrate that market in the first place.

You need a careful ballet.

Which is another reason why trade wars can become so destabilizing. Hence why you sort of want to be the nation that stays out of it, and cansee where best to negotiate and with whom in the aftermath... because after a trade war, nations become very interested in examining how best to penetrate other markets and capitalize on total supply and cheapen thecost ofbusiness in multiple places.

Where are the opportunities of operating?

Which is why FTAs often create jobs as much as destroy them.

The FTA between Australia and China allowed Australian wine producers to dismantle the European presence there and clawing their way into a dominant position for Chinese consumption ... a combination of greater shipping equality as well as lower tariffs meant Australians could outperform European producers.

And within a year you're talking almost twice the volume in total consumption.

Addressing shipping is important.

WolvDragon:
So the idea of a trade war is beginning to rise with Trump slapping tariffs on our closest allies, plus China. As someone who isn't very knowledgeable when it comes to trade, can someone on the escapist enlighten me on how this harms the american economy? Thank you.

Well, a tariff is essentially a tax imposed on imports, usually specific goods being imported from specific countries. This makes those goods more expensive to import, which theoretically makes domestic producers of those goods more competitive.

So when China is producing a lot of steel very cheaply and exporting it globally, domestic US steel producers have trouble, because the overall price of steel drops and that can make domestic US steel production unprofitable. If it's cheaper to buy your steel from China than buy it locally, you'll buy your steel from China, just like Trump did. So domestic steel producers have a vested interest in making it more expensive to import steel from overseas, because that increases the value of their product and therefore increases their earnings. In theory, slapping a tariff on Chinese steel imports would buffer domestic US steel production.

In practice, it's more complicated. While a tariff benefits domestic producers of a specific good by raising the value of the good, it harms domestic consumers of that same good for the same reason. A steel producer in the US will welcome a rise in the value of his steel, but a steel consumer will find themselves losing money because now they have to pay more for the raw materials that they take and turn into a product. That makes tariffs very, very tricky to use, because there is a very high risk that whatever economic gains enjoyed by steel producers will be wiped out by the losses suffered by steel consumers.

Then there's another level to the process, which is the possibility of a trade war. When a country like America puts a tariff on imports of a specific good in order to protect domestic production of that good, then the other countries exporting that good to America are hurt indirectly, because it will make their exports less profitable. That hurts their economy. Now, a foreign country can't compel America to not impose tariffs, so what they do instead is impose tariffs of their own, making the importation of American goods more expensive, and therefore damaging the American export market - which includes the companies producing the good that the original tariffs were meant to protect.

So there's two things going on. The first is that a tariff can boost one part of the domestic economy, but will always harm other parts of the same economy, meaning that you're likely to break even overall in terms of total economic benefit. The second is that you risk the possibility of other countries putting tariffs on your exports, which is guaranteed to hurt your economy. So overall, tariffs just aren't worth it. Trade wars are a game where each side takes turns punching each other until they agree to stop, and everyone just ends up bruised.

Tariffs an exceptionally risky and impractical tool to use in the best of times - like performing surgery with a shard of broken glass - but Trump is using them in the worst possible way. So imagine that surgery happening with a shard of broken glass for a scalpel, except the guy holding it isn't even a surgeon; he's a reality TV star being advised by a 19th-century barber who still thinks that you need to drain the humours out. That's the Trump economic plan.

bastardofmelbourne:

WolvDragon:
So the idea of a trade war is beginning to rise with Trump slapping tariffs on our closest allies, plus China. As someone who isn't very knowledgeable when it comes to trade, can someone on the escapist enlighten me on how this harms the american economy? Thank you.

Well, a tariff is essentially a tax imposed on imports, usually specific goods being imported from specific countries. This makes those goods more expensive to import, which theoretically makes domestic producers of those goods more competitive.

So when China is producing a lot of steel very cheaply and exporting it globally, domestic US steel producers have trouble, because the overall price of steel drops and that can make domestic US steel production unprofitable. If it's cheaper to buy your steel from China than buy it locally, you'll buy your steel from China, just like Trump did. So domestic steel producers have a vested interest in making it more expensive to import steel from overseas, because that increases the value of their product and therefore increases their earnings. In theory, slapping a tariff on Chinese steel imports would buffer domestic US steel production.

In practice, it's more complicated. While a tariff benefits domestic producers of a specific good by raising the value of the good, it harms domestic consumers of that same good for the same reason. A steel producer in the US will welcome a rise in the value of his steel, but a steel consumer will find themselves losing money because now they have to pay more for the raw materials that they take and turn into a product. That makes tariffs very, very tricky to use, because there is a very high risk that whatever economic gains enjoyed by steel producers will be wiped out by the losses suffered by steel consumers.

Then there's another level to the process, which is the possibility of a trade war. When a country like America puts a tariff on imports of a specific good in order to protect domestic production of that good, then the other countries exporting that good to America are hurt indirectly, because it will make their exports less profitable. That hurts their economy. Now, a foreign country can't compel America to not impose tariffs, so what they do instead is impose tariffs of their own, making the importation of American goods more expensive, and therefore damaging the American export market - which includes the companies producing the good that the original tariffs were meant to protect.

So there's two things going on. The first is that a tariff can boost one part of the domestic economy, but will always harm other parts of the same economy, meaning that you're likely to break even overall in terms of total economic benefit. The second is that you risk the possibility of other countries putting tariffs on your exports, which is guaranteed to hurt your economy. So overall, tariffs just aren't worth it. Trade wars are a game where each side takes turns punching each other until they agree to stop, and everyone just ends up bruised.

Tariffs an exceptionally risky and impractical tool to use in the best of times - like performing surgery with a shard of broken glass - but Trump is using them in the worst possible way. So imagine that surgery happening with a shard of broken glass for a scalpel, except the guy holding it isn't even a surgeon; he's a reality TV star being advised by a 19th-century barber who still thinks that you need to drain the humours out. That's the Trump economic plan.

You also have the additional risk when starting a trade war of the people from the other nations affected seeing this as an insult, an attack on their own people and jobs and then decide to boycott other goods in addition to the tariffed items. It can make all items from the nation who started the trade war as being seen as undesirable by the people in the affected nation, especially if people start to lose jobs over it and local businesses, groups and individuals choosing to no longer carry or buy merchandise from that country all together. It can have a much wider impact than the initial tariffed items and last long after the trade war is stopped. Piss people off and spite can be a huge motivating factor.

People do not like feeling as though their nation and livelihood are being unfairly targeted, and it does not help the public image of the Nation who started the trade war, or the public image of their businesses. It often sets off a chain of events and unforeseen consequences.

Lil devils x:

Trade wars increase the cost of necessary goods in addition to reducing exports and decreasing jobs as retaliatory tariffs often result in other nations boycotting US goods as well as increasing their prices. They often stop buying any US goods and instead choose to buy them elsewhere out of spite.

Oh in that case go hog wild America. Maybe it'll finally kill Starbucks over here. Next one that pops up I'm petrol bombing it.

CheetoDust:

Lil devils x:

Trade wars increase the cost of necessary goods in addition to reducing exports and decreasing jobs as retaliatory tariffs often result in other nations boycotting US goods as well as increasing their prices. They often stop buying any US goods and instead choose to buy them elsewhere out of spite.

Oh in that case go hog wild America. Maybe it'll finally kill Starbucks over here. Next one that pops up I'm petrol bombing it.

That is a service rather than a good. They provide local jobs so not as likely to be boycotted. As much as I would like to see them go away, they are not as likely to be affected by a trade war unless someone puts a tariff on their coffee bean supply or cups. I have no idea why people like Starbucks, their coffee and food sucks compared to every single other coffee shop I have experienced. WHY do people keep drinking that mess when there are places like Cafe Brazil that actually has fresh coffee beans that do not taste stale and good food?

http://cafebrazil.com/

WolvDragon:
So the idea of a trade war is beginning to rise with Trump slapping tariffs on our closest allies, plus China. As someone who isn't very knowledgeable when it comes to trade, can someone on the escapist enlighten me on how this harms the american economy? Thank you.

I'm not sure if anything I say will enlighten you more than the other previous replies but in short:

1) While tariffs can help local production by making foreign competition more expensive it also drives up costs for consumers of the product which has been struck by tariffs. And considering companies do not want to bear that cost it's the final consumer that will pay. Actually to be fair that's not necessarily true for all products. Because higher tariffs on a raw material/unfinished product may result in higher prices of final products which can than face competition from foreign competition on that final product. And than the loser will be the one who transforms the particular unfinished good. (E.g.: your tariffs on steel may drive up costs of producing trucks, and if trucks produced in foreign countries are not facing tariffs local truck production will be harmed)

2) A tariff can be met with retaliatory tariffs which will make your industry less competitive in foreign markets. Basically here you have the exact opposite effect of 1)

3) If you combine these two you will have costs being driven up in both your country and foreign countries with the only winners being the countries not taking part in the trade war as they now gain competitiveness in your market and the ones you targeted. The government can be said to win as well due to the extra tariff income but this can be counteracted by reduced domestic consumption and exports.

4) This is why tariffs make no sense unless you are trying one of two things: temporarily protect your local industry while it catches up technologically (which is what the US did during the industrial revolution) or if it's to protect a truly strategic industry you don't want to see being offshored. But these two can also be achieved through subsidies. The latter one is better for diplomacy and the consumers but costs more to the state.

generals3:

4) This is why tariffs make no sense unless you are trying one of two things: temporarily protect your local industry while it catches up technologically (which is what the US did during the industrial revolution) or if it's to protect a truly strategic industry you don't want to see being offshored.

Plus, the idea that tariffs are going to temporarily help local manufacturers until they get up to speed technologically requires that said manufacturers...get up to speed technologically. Which, if Detroit's automobile manufacturers and our steel producers are any indication...we don't do that.

Seriously, auto manufacturers lobbied for protectionist tariffs on Japanese cars, got the Japanese government to agree to limit the number of cars they would sell here, and then squandered the next decade making no changes to how they did things. Actually fixing the problem would cost money and make shareholders unhappy, and we have a sad habit of prioritizing short term gains of longevity in our relatively unrestrained version of capitalism.

Likewise steel, which we could have been kings of the world at if we didn't sit back on our laurels hoarding cash. It wasn't free trade or Neo-liberal globalization or the like that killed our steel industry, it's hubris, unwillingness to believe anybody else could do the job better, and balking at the short term price tag to remain viable in the long term. Tariffs aren't gonna fix that problem, it'll just let shareholders and gratuitously overpriced executive sit back and rake in the cash for another few years.

WolvDragon:
So the idea of a trade war is beginning to rise with Trump slapping tariffs on our closest allies, plus China. As someone who isn't very knowledgeable when it comes to trade, can someone on the escapist enlighten me on how this harms the american economy? Thank you.

Okay, so the guys above have supplied reaonable explanations. I want to more take the angle of Trump's underlying reasons for these tariffs and likely oncoming trade war. Trump seems to be obsessed with the USA's balance of trade: how much more the USA imports compared to how it exports. Trump cites $800 billion. For a start, this is inaccurate. He's missing out various forms of service industry exports (telecommunications, finance, etc.) which would take it to about $500 billion. [1]

The simplistic view would suggest that the trade deficit means USA is "worse" at making stuff and selling it abroad than other nations. If it were better, it could be making goods and products worth $500 billion a year itself which would remove the need to import other countries' stuff, meaning jobs and incomes for the USA.

But it's more complex than that.

Now think of it this way. The trade deficit actually represents the difference between saving and spending. You have money, you have to do something with it. You can save it, or spend it. Necessarily, if a country spends more than it produces, that must mean imports - because there is nowhere else it can go. It also has to finance that spending by borrowing from abroad: foreign countries lending money, buying US government bonds, currency (keeping the dollar strong at a higher value) and US stocks. So what the USA really wants to do to reduce the trade deficit is save, not spend: and most of this is done by the population and corporations. It's their activity that is driving the trade deficit.

An irony we can note here is that we would often expect the trade deficit to increase if the USA does well economically, because Americans will spend more money.

So how to tackle the trade deficit? Firstly, make imports more expensive (tariffs). But this will actually mean Americans are less able to buy stuff, so it kind of makes them poorer. Make exports cheaper - now tariffs actually make it more expensive for the USA to acquire raw materials, so this would somewhat increase the cost of producing stuff. Making things cheaper would to a large extent be done by American firms reducing labour costs: which means redundancies or reduced pay, making Americans poorer.

The government could reduce spending and increase saving by increasing interest rates - although of course this will also hit American willingness to buy American stuff as well foreign; so it will weaken the US economy in the short term (long-term, it should gain the fruits of those savings being invested). The government could stop running a deficit: remember that US government spending is overwhelmingly spent on Americans (which they will spend or save), and part-financed by foreign borrowing as other countries by government bonds. This also will weaken the US economy and make Americans poorer in the short term. It could weaken the dollar (tariffs will actually increase it), which is probably a good way - although excessive weakening could cause global economic damage, some of which would rebound on the USA.

The USA's trade deficit is thus overwhelmingly about itself, not others. Tariffs are not the answer, and in many ways counterproductive. And on the things you might expect most useful, Trump's policies have been at best inconsistent.

[1] I might point out I'm going to to carry on talking about the trade deficit here, although more technically it's probably the related concept of the current account deficit

 

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