(What’s Left of) Our Economy: More Evidence that Trump’s Metals Tariffs are Winning

Tags

aluminum, Federal Reserve, industrial production, inflation-adjusted output, manufacturing, steel, tariffs, Trump, {What's Left of) Our Economy

One big and neglected result from the Trump administration’s metals tariffs comes ssthrough loud and clear from going deep into the weeds of yesterday’s report on September industrial production from the Federal Reserve: American steel production is growing robustly – refuting charges (see., e.g., here and here) that the steel makers would simply sit on their hands and enjoy bigger profits – as is the output of primary aluminum.

Here are the numbers for inflation-adjusted production of steel – including its major sub-sectors – starting in April (because the tariffs began to be imposed in late March) through September, and year-on-year for September:

                                                         April thru Sept            Sept year-on-year

overall iron & steel mill products:   +3.84 percent               +7.54 percent

raw steel:                                          +1.60 percent               +8.30 percent

construction steel:                           +10.73 percent             +14.50 percent

consumer durable steel:                     -3.59 percent                -6.44 percent

can and closure steel:                      +42.48 percent             +15.86 percent

equipment steel:                              +16.87 percent              +14.44 percent

miscellaneous steel:                           -1.47 percent                +5.44 percent

The results are particularly impressive when compared with inflation-adjusted production in the rest of manufacturing during this period:

                                                         April thru Sept             Sept year-on-year

overall manufacturing:                     +0.77 percent                +3.85 percent

The aluminum industry results are decidedly more mixed, because of domestic aluminum companies’ significant reliance on imported primary aluminum and alumina both for their smelting and for other further processing operations. But the primary production jump is impressive. And on a year-on-year basis, the rest of the industry is still performing respectably.

                                                         April thru Sept            Sept year-on-year

overall aluminum:                            +1.86 percent                  +4.89 percent

primary aluminum production:      +13.84 percent                 +47.92 percent

secondary smelting & alloying:      -0.34 percent                     +2.75 percent

misc aluminum materials:               -2.31 percent                     +0.52 percent

aluminum extruded product:           -2.01 percent                      +4.03 percent

Combine these statistics with the strong output recorded for metals-using industries – which are widely reported to be hammered by higher input prices – and a clear picture emerges of a metals tariff policy definitely deserving the description of “winning.” Maybe one day their news media will let Americans in on the story.

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(What’s Left of) Our Economy: Raging Tariffs-Led Inflation Still Isn’t a Thing – or Even Close

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aluminum, Canada, household appliances, housing, inflation, metals-using industries, Producer Price Index, producer prices, softwood lumber, steel, tariffs, Trump, washing machines, {What's Left of) Our Economy

Good luck to everyone trying to find some signs in this morning’s producer price report of President Trump’s tariffs igniting ruinous, raging inflation throughout the U.S. economy. How come? Because they aren’t there. Yet again.

Let’s quickly examine some of the main products in the tariff spotlight, starting with washing machines, imports of which were slapped in February with levies aimed at countering sharp surges of product streaming into U.S. markets that harm domestic producers (called “safeguard tariffs).

Even though this Producer Price Index (PPI) data from the Labor Department focus on inflation or lack thereof for wholesalers, it does contain information on the consumer goods in which wholesalers deal. This morning’s report shows that prices for “household appliances” (including several products aside from the tariff-ed washing machines) rose by 4.1 percent from September, 2017 to September, 2018. That’s higher than the 2.7 percent year-on-year overall advance for such goods less the volatile food and energy sectors. But it’s anything but the steepest price rise in this category.

Moreover, on a monthly basis, household appliance prices don’t seem to be going anywhere lately. Between June and July, they actually fell by 0.2 percent. From July to August, they dipped another 0.1 percent. From August to September, they increased by 1.3 percent. Again, that’s greater than the 0.1 percent average for “Final demand goods less foods and energy.” But not excessively so. P.S.: Household appliance prices are affected by many factors other than tariffs.

How about steel and aluminum, where a series of tariffs began to be imposed in late March? Steel mill product prices did indeed jump by 18.1 percent year-on-year in September. But here are the last three monthly prices changes: +1.6 percent, +2.6 percent, and zero percent. So let’s hold off on the inflation alarmism here, too. And don’t forget: Thanks to Chinese and other foreign subsidies, steel prices have long been depressed for reasons having almost nothing to do with free market forces. So the tariffs have mainly been encouraging the restoration of accurate price signals – something that all free market supporters should regard as key to long-term economic health and prosperity.

The ebbing of inflation is even more striking when it comes to aluminum mill shapes. In September, their prices rose by a sharp 10.1 percent on an annual basis. But over the last three months? They’ve actually fallen significantly – by three percent, 2.1 percent, and 0.3 percent, sequentially. So thanks to the tariffs, normality seems to be returning to the aluminum market, too.

Much the same story is being played out in metals-using sectors – where reports of tariffs-caused devastation have been widespread. The pricing developments in fabricated structural metals products are a typical example: up 8.3 percent year-on-year in September, down sequentially by 0.6 percent in July, up by 0.2 percent in August, up by 0.5 percent in September.

Softwood lumber from Canada is another important economic input being tariff-ed by President Trump – this time since last November. Of course, they resulted in forecasts of impending disaster for the U.S. housing industry. But the PPI report shows that softwood lumber prices were up only 5.4 percent on year in September, and have been dropping sharply on month since July – by 2.5 percent, 9.6 percent (I repeat: 9.6 percent!), and 0.4 percent. That looks like deflation, not inflation.

To repeat a point I’ve made often, it’s entirely possible that these pricing trends could reverse themselves in the months ahead. But since we’ve seen nothing of the kind so far, it’s also entirely legitimate to suppose that current trends will continue – and important to start examining possible reasons why. Even though such an exercise will doubtless be more difficult and less fun that repeating forecasts of Tariffs-mageddon.

Making News: Tariffs and Jobs Research Covered by Bloomberg…& More!

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aluminum, Bloomberg.com, Brendan Kirby, Jobs, Lifezette.com, Mainstream Media, Making News, metals tariffs, steel, tariffs, Trade, Trump

I’m pleased to report that Bloomberg.com has just come out with a post featuring my findings that, despite endless doomsaying claims in the Mainstream Media, there’s absolutely no evidence showing that President Trump’s steel and aluminum tariffs are already devastating America’s metals-using industries.  Author Peter Coy focuses on my research on employment in these sectors, but I hope his piece will stimulate more coverage of tariffs-related reporting that’s just as wildly off-base when it comes to other economic indicators.

In addition, last Friday, Brendan Kirby of Lifezette.com quoted my views in his post on that morning’s monthly U.S. jobs figures and what they reveal about the future.  Brendan also spotlighted my work showing outsized job-creation in metals-using industries.

And keep checking in a RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: Metals Tariffs Damage Still Showing Up Everywhere Except the Data

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aluminum, Jobs, Labor Department, metals, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

This morning’s September U.S. jobs figures from the Labor Department once again expose as nonsense the long string of news reports claiming that President Trump’s metals tariffs are already causing tremendous damage to American domestic metals-using industries

As with preceding jobs reports, and other official economic data (such as output and capital spending statistics), the new non-farm payrolls reading makes clear that most of the sectors that are major users of the two tariff-ed metals – steel and aluminum – are more than holding their own on the employment front. In fact, most are out-hiring not only the rest of manufacturing. They’re out-hiring the entire private sector.

And although harm may come in the future, these jobs figures place burden of proof on the pessimists. After all, if, as often noted, many metals purchasing contracts are locked in – for, say, six- or twelve-month periods – why would metals users keep hiring robustly if they were certain they’d face devastating price hikes down the road?

So here are the latest numbers showing the relevant rate of employment changes from April (the first full months in which the metals tariffs were in effect) through July (the newest final – for now – data), through August, and through September:

                                                 through July        through Aug.         through Sept.

entire private sector:              +0.47 percent        +0.67 percent       +0.76 percent

overall manufacturing:          +0.52 percent        +0.56 percent       +0.70 percent

durable goods:                       +0.68 percent        +0.75 percent       +0.96 percent

fabricated metals products:    +0.91 percent        +1.19 percent       +1.44 percent

non-electrical machinery:       +1.23 percent       +1.14 percent       +1.29 percent

automotive vehicles & parts:   -0.31 percent        -0.15 percent         -0.19 percent

household appliances :             -0.31 percent       -0.16 percent          not available

aerospace products & parts:    +2.11 percent      +2.54 percent          not available

There continue to be shifts within this list. But what’s also important to note is that even though the metals tariffs have been broadened overall in scope, as countries such as Canada and Mexico had initially received exemptions, the metals-using sectors out-performed as job creators by roughly the same margins in September as in July.

The next major data set that will spotlight the metals-using sector’s performance will be the September industrial production data that the Federal Reserve will release on October 16. They may reveal a major turnabout in the metals-using industries’ fortunes. But unless they do, a heavy burden of proof will remain with the tariff opponents to come up with any serious reasons to think that the new levies are economic losers – or even close.

(What’s Left of) Our Economy: New Fed Figures Show Still More Solid Metals-Users Growth Despite Tariffs

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aluminum, durable goods, Federal Reserve, industrial production, inflation-adjusted growth, manufacturing, metals, metals tariffs, metals-using industries, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Although the media remains far from catching on, with the release this morning of the Federal Reserve’s latest manufacturing production figures (for August), it should no longer be news to report that President Trump’s metals tariffs show absolutely no sign of harming U.S. industry overall or sectors that use significant amounts of steel and aluminum – where the levies have been imposed. The real metals tariff-related news will come if and when such damage actually does turn up in any official data.

Here’s how major metals-using industries have done in terms of generating real growth between July and August (according to this morning’s preliminary data) – along with the numbers for manufacturing as a whole, and durable goods as a whole (the super-category in which the heaviest metals users tend to be found):

overall manufacturing: +0.28 percent

durable goods:   +1.01 percent

fabricated metal products:  +0.22 percent

machinery:  +1.07 percent

automotive:  +4.02 percent

small appliances:  +0.81 percent

major appliances:  -2.76 percent

In general, the metals-using sectors have clearly performed quite well. Moreover, major appliance makers – the top exception – have of course, have been hit not only with the metals tariffs, but with safeguard tariffs on one of their products – large residential laundry machines.

But since a single month does not a trend make, let’s examine the inflation-adjusted output data since the advent of the first metals tariffs – in late March. Once again, the big takeaway is that the metals-using sectors in general have at least held their own. In fact, except for the major appliances category, their price-adjusted production has begun to accelerate.

                                                  old thru July   new thru July    new thru Aug

overall manufacturing                     +0.25                +0.26                 +0.54

durables manufacturing                    +0.48               -0.09                  +0.94

fabricated metals products               +0.79               +0.62                 +0.84

machinery                                        +0.09                +0.69                  +1.77

automotive                                        -0.63                -3.38                   +0.49

small appliances                               -5.33                -4.11                     -3.34

major appliances                              -5.25                -2.87                     -5.55

Finally, the metals tariffs now appear to be resulting in notable after-inflation production increases in the protected metals sectors, too. In August, constant dollar primary metals production grew on month by three percent – its best such performance since March, 2010 (3.43 percent), when the current economy-wide recovery was in its very early stages. In addition, since the first steel and aluminum tariffs went into effect, real primary metals production is up 1.15 percent – which compares very favorably with the output performance of manufacturing in general, the durable goods super-sector, and the metals-using industries.

In other words, rather than sitting on their hands and just enjoying the higher profits enabled by the tariffs, it seems that the steel and aluminum industries are indeed ramping up production. So in a world where trade-related news was reported accurately, reports on the new industrial production numbers would specify that the levies so far are a win-win for the economy – working as intended for the metals makers and leaving metals users unscathed. Let’s see if this winds up as an accurate description of this world. 

  

(What’s Left of) Our Economy: Still No Evidence of Noteworthy Inflation from Metals Tariffs

Tags

aluminum, inflation, Labor Department, metals tariffs, metals-using industries, PPI, Producer Price Index, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

Another day, another set of U.S. government data showing that, so far, claims that President Trump’s metals tariffs are devastating steel- and aluminum-using industries and triggering virulent inflation have no basis in fact other than a few anecdotes.

The latest figures come from the Labor Department and they show changes in the nation’s producer prices – that is, inflation (or the lack thereof) in what businesses pay for the goods and services they buy in order to turn out their final products, as opposed to inflation in the prices that consumers pay for their own purchases.

Conveniently, the monthly Producer Price Index (PPI) release comes with tables that show in considerable detail exactly where and how much prices have changed since April – the first full month following the imposition of the first set of metals tariffs. So nothing could be easier than to look at this morning’s report and see that from May through August (the time period covered), prices of steel mill products have grown sequentially by 1.9 percent, 1.6 percent, and 2.6 percent, respectively. That’s higher than producer price increases for the economy as a whole. But the numbers don’t exactly scream “raging inflation.”

That goes double for aluminum mill products. After rising by 2.1 percent between May and June, they actually dropped in each of the next two months – by three and 2.1 percent, respectively.

As a result, it shouldn’t be the least bit surprising that there’s been no major producer price inflation for any of the metals-using industries tracked by the Labor Department during this period. Here are some representative numbers:

                                     May-June           June-July             July-August

metal containers          0.6 percent         0.4 percent             0.4 percent

hardware                     0.2 percent         0.5 percent             0.0 percent

fabricated structural    0.9 percent        -0.6 percent             0.2 percent

metal products

bolts, nuts, screws,     -0.5 percent         0.5 percent            0.6 percent

rivets, & washers

non-fluid power           0.2 percent        0.1 percent             0.3 percent 

metal valves 

ball & roller bearings   0.0 percent        0.2 percent             0.6 percent

machine shop              -0.1 percent        0.6 percent             0.0 percent   

  products 

motor vehicle parts     -0.1 percent        0.2 percent            -0.1 percent

The only evidence for a significant tariff impact comes from the year-on-year price changes. For aluminum mill products in August, it was 14 percent, for steel mill products 18.6 percent. These figures are not seasonally adjusted, unlike most of the above numbers, which are. But they’re very steep nonetheless. So is this the real evidence for the “devastating tariffs” argument?

No. And here’s why. A year ago, steel and aluminum products were being massively dumped into the U.S. market. That is, thanks to foreign government subsidies, they were artificially low, and by definition had little or nothing to do with free market forces. Naturally, metal-users liked this situation. But is this how we want the American economy to run? On the basis of addiction to foreign government decisions?

Moreover, the monthly numbers indicate some fading even of these price spikes.

As noted above, nothing could be easier than to look up these data – and report on them in news stories. But since other official numbers making clear that tariff fears so far have been nothing-burgers have been studiously ignored by the Mainstream Media, the case for optimism concerning producer prices looks less than convincing.

(What’s Left of) Our Economy: The New Jobs Report Shows that the Metal Tariffs Sky Keeps Not Falling

Tags

aluminum, core capex, Jobs, Labor Department, manufacturing, metals tariffs, metals-using industries, private sector, steel, tariffs, Trade, {What's Left of) Our Economy

This is getting just embarrassing. Economists and mainstream media reporters and pundits keep claiming that President Trump’s metals tariffs are already damaging the U.S. economy – and especially industries that heavily use the steel and aluminum that have become more expensive because of the levies on imports of those goods. (Here’s a new example.)

And the most authoritative data available keep demonstrating that these claims so far are absolute hokum. (See this RealityChek column for a summary and relevant links.) The latest evidence: this morning’s August jobs report from the Labor Department. It shows emphatically that those metals-using sectors have mainly created net new jobs at a faster pace than domestic manufacturing overall, and that several have boosted payrolls more rapidly than the entire private sector (including service industries that are not heavy metals users).

Here are the numbers showing the relevant rate of employment changes from April (the first full month in which the metals tariffs were in effect) through both July (where they stood as of the previous monthly jobs report) and through August:

                                                       thru July                        thru August

entire private sector:                 +0.53 percent                   +0.64 percent

overall manufacturing:              +0.73 percent                   +0.47 percent

durable goods:                          +0.96 percent                   +0.57 percent

fabricated metals products:      +1.10 percent                   +1.17 percent

non-electrical machinery:         +1.43 percent                   +1.04 percent

automotive vehicles & parts:    +1.06 percent                  -1.08 percent

household appliances (thru June): -0.63 percent           +0.16 percent (thru July)

aerospace products & parts (thru June): +1.05 percent  +2.03 percent (thru July)

 

There have been some shifts within this list. But with the exception of automotive, no metals-using sector has slacked off more than manufacturing as a whole, and three of these industries (fabricated metals products, appliances, and aerospace) have picked up the pace. And even the metals-using durable goods super-sector as a whole didn’t fade much more on the employment front than manufacturing overall.

In addition, yesterday’s official business investment numbers confirmed that, through July, new orders for core capital goods (such machinery and equipment minus demand for defense and the volatile numbers for aircraft) have now advanced sequentially for four straight months. Since “core capex” is rightly viewed as the economy’s best proxy for business’ confidence in its future prospects, these results stuck a new fork in the narrative that the Trump tariffs would vitiate such spending by boosting that predominant bugaboo of corporate planning – uncertainty.

The new jobs report did contain some disquieting news for domestic manufacturing. Payrolls fell on month in August (by 3,000) for the first time since July, 2017. And the revisions pretty much cut the previously reported impressive June and July gains in half. (The new July increase of 18,000 is still preliminary.)

But today’s employment release also made clear that, after several months of metals tariffs, the fears about their impact are no more than fears. Why is that not considered newsworthy?

(What’s Left of) Our Economy: Trump Metals Tariffs Coverage has Just (Again) Been Exposed as Largely Fake News

Tags

ABC News, aluminum, Associated Press, Bloomberg, CBS News, CNN, durable goods, Financial Times, Jobs, Mainstream Media, manufacturing, Marketwatch.com, metals, metals-using industries, NBC News, PBS, private sector, Reuters, steel, tariffs, The New York Times, The Wall Street Journal, Trade, Trump, Washington Post, {What's Left of) Our Economy

In case you still think that President Trump’s charges of fake news-peddling by the national news media are fake news themselves, consider this: For the second time in two months, if you decided to hold your breath till you found a Mainstream Media item reporting that the America’s metals-using industries have been major job-creation leaders, not laggards, you’d have died.

Such omissions are especially important because since the Trump administration began imposing tariffs on steel and aluminum imports (in March), the media has been filled not only with predictions of massive employment and production losses in metals-using manufacturing (because the prices of two noteworthy inputs for these industries was bound to rise), but with accounts of actual economic damage that numerous companies in these sectors have already suffered. (See here and here for just two examples.) 

Last month, I noted that, for all these accounts, authoritative government data (through June) showed that the metals-using industries’ performance by both measures had both generally improved, and had indeed both generally improved more than job creation and output in the rest of manufacturing.

Since then, more steel and aluminum tariffs were put in place (mainly because some major U.S. trade partners initially exempted from the tariffs were subjected to the levies). And what did we learn from the newest jobs report, which was released last Friday, and took the story through July (on a preliminary basis)? That the metals-using industries continue to set the national job-creation pace for the entire economy, not simply for manufacturing.

Here are the percentage gains for employment in some major sectors of the economy from April (the first month during which any metals tariffs effects would have been felt) through July except for the industries noted:

entire private sector: +0.53 percent

overall manufacturing: +0.73 percent

durable goods: +0.96 percent

fabricated metals products: +1.10 percent

non-electrical machinery: +1.43 percent

automotive vehicles & parts: +1.06 percent

household appliances (thru June): -0.63 percent

aerospace products & parts (thru June): +1.05 percent

Unfortunately, it was not possible to learn any of this from America’s leading news organizations. For these figures were completely ignored.

To their credit, some leading media mentioned that Trump tariffs and trade war fears in general seemed to be having no effect on manufacturing job creation overall despite industry’s exposure in principle to the fall-out. These included the Associated Press, The New York Times, the Financial Times, CNN, ABC News, and NBC News. Yet the metals-using sectors were never mentioned.

As for The Wall Street Journal, the Washington Post, and CBS News, they made no connection of the tariff/trade war-manufacturing job connection whatever.

And several news organizations actually tried to rationalize the unexpected results. Reuters, for example, claimed that “With manufacturing payrolls increasing by the most in seven months, the moderation in hiring reported by the Labor Department on Friday likely does not reflect the rising trade tensions between the United States and other nations including China.”

According to PBS, “Economists say it is too early to tell whether the Trump administration’s tariffs on imported steel and aluminum are having a significant effect on manufacturing jobs.”

Bloomberg and Marketwatch.com weren’t as disingenuous, but still felt compelled to contend that rising trade tensions continued to cast a long shadow on the job markets’ future – without reporting that, if anything, new U.S. policies and statements were so far having exactly the opposite effect on parts of the economy most exposed to existing metals tariffs.

But no account of press coverage of these Trump trade policies would be complete without observing an equally weird development: Neither the President nor anyone else in his administration has pointed to the outperformance of the metals-using industries, either.

In a little over a week, the nation will get its next major opportunity to gauge the impact of metals and other tariffs, and future possibilities thereof – when the Federal Reserve releases the July industrial production data, which includes detailed statistics on inflation-adjusted manufacturing output. Will the Mainstream Media finally zero in on the sectors where the tariff rubber hits the road? At this rate, Americans should be grateful if they simply ended the string of job loss and other Chicken Little metals tariff impact stories.

(What’s Left of) Our Economy: A Fake News Attack on the Trump Metals Tariffs

Tags

aluminum, Catherine Rampell, competitiveness, fake news, manufacturing, metals, steel, tariffs, The Washington Post, Trade, Trump, {What's Left of) Our Economy

Pundits like the Washington Post‘s Catherine Rampell have every right to warn that President Trump’s metals (and other) tariffs will ultimately harm the U.S. economy more than it helps. What they have no right to do is peddle demonstrably false claims like her contention that because of the price hikes so far seen for steel and aluminum since these levies came onto the American trade agenda earlier this year, companies reliant on these materials for their final products “are now less competitive.”

I call these claims demonstrably false because every month, the U.S. government publishes detailed statistics on the nation’s trade performance, and the data through April contain absolutely no evidence that domestic metals-using industries are on the ropes – or anywhere close.

Let’s examine what seems to be the national chattering class’ and policy establishment’s favorite measure of industrial competitiveness: American exports. If the Trump tariffs have indeed been pushing U.S. metals-using industries close to the ash heap of economic history, then their overseas sales for the first few months of this year (the tariffs became likely when the Commerce Department officially recommended them in mid-February), should be much lower than they were the first few months of last year – or at least growing much more slowly.

In fact, just the opposite has been seen, at least when it comes to three major sectors of the economy that are especially heavy users of steel and aluminum – transportation equipment, non-electrical machinery, and fabricated metals products.

Over the first four months of this year (the latest data available), America’s global exports in these categories were not only 5.83 percent greater than over the same period in 2017. The year-to-date growth rate was some 7.2 times higher than that for 2017 (0.81 percent).

Perhaps more significant, the difference between the January-April, 2018 export growth rates for these metals-using industries and their January-April, 2017 growth rates was much greater than for American manufacturing as a whole. During the first four months of 2018, total U.S. manufacturing exports have grown 7.45 percent year-to-date. That’s higher in absolute terms than the export growth for the metals-using industries, but this export increase has been only 2.12 times faster than their export growth rate for January-April, 2017 (3.52 percent).

But what about my favorite measure of American competitiveness – trade balances and how they’ve changed? I focus on these two-way flows because the theory of comparative advantage at the heart of all justifications for the freest possible global trade makes sense only if these surpluses and deficits have consequences for global production patterns.

After all, comparative advantage holds that trade is the best possible way to create the best possible global division of labor – meaning that in a world of unfettered commerce, countries that trade products and services most successfully will inevitably wind up making those products and providing those services most successfully, and that all countries will benefit on net. And the countries that trade products and services most successfully are those that amass the biggest surpluses in those products and services. The opposite propositions logically hold the impact of running deficits in various sectors.

As it happens, the trade balance figures don’t show or presage any apocalypse for America’s metals-using industries, either. During the first four months of 2017, their cumulative trade deficit with the rest of the world increased by 10.56 percent on year. For the comparable period this year, the deficit’s year-to-date growth rate was faster: 11.64 percent. But clearly, this trade shortfall didn’t grow much faster.

The comparison with trade deficits for manufacturing as a whole is instructive as well. During January-April, 2017, this trade gap increased by 10.19 percent on year. During January-April, 2018, the figure was 10.85 percent.

So the metals-using industries’ trade deficit did grow faster during both periods than the shortfall for manufacturing as a whole. But the difference in the rate of acceleration has been trivial. In the metals-using sectors, the deficit during the first four months of 2018 grew 1.10 times faster than it grew during the first four months of 2017. For manufacturing as a whole, the deficit during the first four months of 2018 grew 1.06 times faster than during the same period in 2017.

I’d be the last to argue that this situation will never change. The Trump metals tariffs haven’t been imposed very long. Moreover, they’ve been phased in, so the full impact of their final (for now!), most sweeping version hasn’t yet been felt.  

Nonetheless, the effects could also be swamped by the benefits metals-using sectors have gained from the new corporate tax cuts and the regulatory relief offered by the Trump administration – two policies that industry as a whole has hailed enthusiastically as major boosters of competitiveness.

What should be unmistakably clear, though, is that claims that U.S. metals-using industries are already suffering from the Trump steel and aluminum are no better than Fake News – and deserve nothing more than scorn from all fair-minded readers.

(What’s Left of) Our Economy: On Those Latest Trump Tariffs

Tags

aluminum, border adjustment tax, China, European Union, FDI, foreign direct investment, intellectual property theft, Made in China 2025, metals, overcapacity, steel, subsidies, tariffs, tax reform, Trade, Trump, value-added tax, {What's Left of) Our Economy

Never let a good set of talking points go to waste! Earlier this morning, one of the broadcast networks asked if I was available for a segment on the latest Trump administration tariff announcements, and wanted to get an idea of where I came down. Even as I was typing up the following, though, I was told that the plan had changed, and that the program in question had decided to go with a Member of Congress instead.

Yet since they’re still relevant to this latest phase of U.S. trade policy, I thought you might find them useful in this slightly edited form.

1.  If the Europeans and other major economies retaliate vs the new U.S. steel and aluminum tariffs, they’ll make clear their indifference to the government-subsidized Chinese output has flooded global markets with both these metals, and seriously distorted trade flows.  In recent years, these foreign governments have paid lip service to the need to curb Chinese overcapacity, but many have enabled it by transshipping Chinese metals (mainly steel) to the US market or stepping up their own exports to the US to relieve the pressure China has put on their own producers.

2.  As a result, (as I’ve previously documented) during the current global economic recovery, the US is the only major steel producing country that has seen its share of world output fall significantly. 

3. Moreover, (as I’ve also shown), the higher input costs resulting from the new metals and other tariffs pale beside the benefits recently received by U.S.-based businesses (including metals users) due to tax reform and regulatory relief.

4. Re both the steel and China tariffs, I wish that Trump had backed a superior alternative:  the Border Adjustment Tax contained in the original version of the House GOP tax bill.

The BAT would have functioned like a value-added tax (a levy imposed by virtually every other country) — imposing a tax on imports heading for the U.S. market, and providing a subsidy for U.S. exports.  Since the BAT would have been across-the-board, no U.S. industry (e.g., metals-using manufacturers) could have argued that it was going to be disadvantaged because its products would have received the same benefits.

Moreover, the BAT was backed not only by House GOP leaders with staunch pro-free trade records.  It was also supported by many major multinational manufacturers.  In addition, it would have been perfectly legal under the WTO, since it so closely resembles the value-added taxes so many other countries have had in place for decades.  But President Trump – for reasons that remain unclear – never came on board.

5. In the absence of the BAT, though, the metals tariffs are essential for correcting major distortions in global trade flows caused by Chinese overcapacity, and the China-specific tariffs are essential for offsetting the impact of Chinese trade predation (including rampant intellectual property theft and extortion) on high tech industries, exemplified by the “Made in China 2025” program.

6. Nonetheless, re China specifically, I have criticized some of the Trump response as being internally inconsistent.  If for example the United States convinces the Chinese to treat U.S. companies operating in China more equitably, U.S. corporate investment in the PRC could well increase, and the trade deficit that Mr. Trump wants to shrink is likely to grow, as much US investment in China creates products exported to the US.

7. More generally, I’m deeply skeptical that any Chinese promises to halt or reduce these forms of protectionism can be verified — because the Chinese bureaucracy operates so secretively, the Chinese national manufacturing complex is so vast, and because the United States will never be able to send over to China enough officials to monitor compliance effectively.

8. As a result, rather than seeking to improve Chinese behavior, I believe U.S. policy toward the PRC should aim first and foremost to reduce the extensive linkages between the two economies.  In this vein, ever more sweeping U.S. moves and proposals to curb Chinese direct investment in key industries in America is a good first step.