Entries Tagged 'Money' ↓

March 12th , 2018
Nearly everyone and his or her brother and sister have come out against Trump’s tariffs on steel and aluminum this week! 25 percent on steel and 10 percent on aluminum.

I have read some things I didn’t know about tariffs on steel and aluminum. Most of these things came from an article in The Conversation titled “George W. Bush tried steel tariffs. It didn’t work” by William Hauk, Associate Professor of Economics at one of my alma maters, the University of South Carolina in Columbia.

Here are some facts I didn’t know:

Trade protection transfers money from a good’s consumers to its producers. I talked about this in February in my post, “Trump’s Trade and Infrastructure Weaknesses“. But what I didn’t know is it really matters who the consumers of the good being tariffed are!

Americans are the one’s who get taxed on imports we wish to buy when trade wars start.

If we mean consumers or investors like you and I, a tariff might have little impact because there are so many of us our that individual shares of the tariffs might be quite low.

On the other hand, if the consumers are giant auto companies and the construction industry, the concentration of wealth within these two sectors is so great, they have far more lobbying power in Congress than we individual investors or the steel industry do.

Thus, happpened when George W. Bush imposed tariffs of up to 30% on imports of steel to the US. back in 2002 the auto and construction industries convinced the National Association of Manufacturers to come out against the tariffs. Lawsuits were threatened.

By the time President Bush backed off of those tariffs in 2003, 200,000 employees of other US manufacturing companies had lost their jobs, while the entire steel industry consisted of 197,00 workers. All that resulted was a huge displacement of American workers from one location to another, a topic I’ll cover in my next post.

So now it’s even worse. According to the Council on Foreign Relations, there are roughly 140,000 people employed in the steel industry.

A TV news commenter I watched this weekend pointed to technological advances as the cause for the 25% loss of steel industry jobs over the past 15 years. This has a ring of truth to it. Others have blamed the industry for itself profits on dividend payouts and buyouts rather than making use of it’s excess capacity to output more steel.

Whatever the cause, it is likely that President Trump’s steel tariffs will meet an even worse fate than Bush’s and will perhaps far more enmity among our trade partners—causing them to retaliate by slapping export taxes on goods we sell them.

This is particularly true because Canada provides the U.S. President Trump’s willingness to let Canada off the hook for steel tariffs.

According to Professor Hauk we now import a fifth of the US with 63% of the aluminum we use. Our own aluminum industry is now largely defunct with only a handful of plants in Washington State, Kentucky and New York State remaining open.

A reason I hadn’t heard before

So why would the President impose a one-sided deal that is so likely to backfire and cause a huge trade war along with even more dislocation of workers within the other manufacturing industries within our economy?

Lots of news commentators have been claiming it is because Donald Trump wants to create any distraction he can from the current investigations of collusion with Russia and other crimes by his campaign team and possibly himself.

Is President Trump that desperate and ignorant of economics? Perhaps not. 

Professor Hauk suggests that Trump’s tariffs were imposed because of steel’s “political advantages”.

Steel producers are mostly located in Pennsylvania and Ohio. Like Florida, with its heavy protective tariffs on sugar, these states are the most important “swing states” in our Presidential elections.

Given President Trump’s campaigning this weekend in Pennsylvania for a Republican candidate in the 2018 Congressional elections where Trump mostly bragged about himself, that idea doesn’t seem quite so far fetched to me.

After all Trump beat Clinton in the 2016 Presidential election in Pennsylvania by only 44,294 votes and in Ohio by 446,841 votes. Will Trump’s tariffs enable him to swing the vote his way again in 2020? or even 2024?

May 13th, 2019 | Economics and Investing, Jobs

Those of us who lived through recession during Jimmy Carter’s Presidency will remember this word—stagflation.
During Carter’s time in office we had long-lasting rise in unemployment and even gasoline rationing – onecould only fill up on certain days of the week.

It was a frustrating time for me as, with two graduate college degrees I stood in a line of 200 unemployed workers in South Carolina trying for a grocery store’s cashier job.

Stagflation is a word that conflates inflation with stagnation into one word.

First inflation comes about because there is “too much money chasing too few goods”. (And since our tariffs on imports are a tax on U.S. consumers, we expect prices of U.S.-made goods will go up in a trade war).

Then, if the government does nothing to curtail inflation, will come layoffs of workers.

After that, if too many Americans aren’t able afford to buy higher-priced U.S. goods, we’ll have stagnation occur in our economy because the production of goods and services slows down or even starts to decline.

Note too that the US. is a debtor country. We import $3.1 trillion and export only $2.5 trillion in goods and services.

Trump’s tariffs are threatening us with this fate again. Here’s why.
Today the stock market is plunging downwards. The reason is Trump’s tariffs. China has retaliated.

And China is angry. We import around three to four times as many goods from China as China imports from us. China has more to lose from Trump’s two hundred- to over three hundred-billion dollar tariffs on its imports to the U.S.

As the costs of buying Made in China exports rise, consumers will pay more for Made in America goods. That will cause inflation in the short run as American shoppers vie for the limited supply of U.S. consumer goods.

Supposedly that will create more jobs over the long run. But here’s the rub.

The 2018 tax change shifted billions of dollars from the poor and middle class to the rich. Now even more Americans will be unable to bridge the financial gap to pay higher prices for American goods.

The rich know this and they are selling their shares of stocks. This means less in the pockets of corporations.

Even if that tax law hadn’t weakened the market for domestic American consumer goods already, there was little expectation that U.S. corporations were going to create a significant number of new jobs in manufacturing or raises in wages for working people.

That’s because corporations are spending their money on buybacks, buyouts of other companies, bonuses to managers, and and dividends to shareholders. This is where they will cut down on their expenses.

In addition, many manufacturing industries such as steel and aluminum have already disappeared in the U.S. as China and other countries, including our now-tariffed allies in Canada and Europe, as we bought more and more of their exports of good to us.

The costs of starting up those defunct industries again will be very high.

Already we have seen farmers complaining about what is happening to them in the U.S. from the effects of tariffs on food products. Uncertainty is the anathema for markets.

This is where the danger of stagflation comes in. When inflation (people chasing limited supplies of goods) causes shortages in the goods markets, there has to be an expansion of the supply of those goods.

In other words supply-side economics does not work unless the demand-side is working too. Here the long- term outlook is grim. Who is going to pay for manufacturing to start up again?

A statistic I heard recently is is from a study that found three men in the United States hold half of the wealth of our country. Bill Gates, Jeff Bezos, and Warren Buffett are worth a combined total of $2,68 trillion dollars.

Meanwhile “one in five US households live in what the report’s authors call the ‘underwater nation,’ with either zero or negative wealth.”

Without huge government support for farming and manufacturing in the U.S., declining demand for non- essential consumer goods will in the long-run lead to stagflation.

But where are the taxpayers who are supposed to pay for the vital increasing demand for starting up or funding existing farming, manufacturing, and other sectors of the economy? Our economy could stagnate if the minority of U.S. taxpayers are struggling to survive—and/or working at jobs paying minimum wage jobs, $7.50 an hour. All the while wealthy people are paying zero taxes.

Our services sector is the biggest industry sector is the U.S. today. Many of the workers in this sector are paid minimum wages. Many of those work in service and retail industries will be the first to become unemployed. Those in other sectors may soon find themselves out of work as well.

Stagflation was a word created after the Japanese economy in the 1970s had stalled after a huge period of inflation set in.