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(What’s Left of) Our Economy: Were the US Washing Machine Tariffs Really Failures?

22 Tuesday Oct 2019

Posted by Alan Tonelson in Uncategorized

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consumers, Federal Reserve, General Electric, imports, jobs multiplier, large residential washers, LRWs, manufacturing jobs, metals tariffs, safeguard tariffs, South Korea, tariff-rate quota, tariffs, U.S. International Trade Commission, University of Chicago, USITC, washing machines, Whirlpool, {What's Left of) Our Economy

It’s as close to a slam dunk conclusion as can be – at least according to economists, think tank hacks, and Mainstream Media journalists: The early 2018 U.S. tariffs on large household laundry machines have been a dismal failure.

Or have they been?

The levies belong in a category different from those of the main Trump administration trade-limiting measures because they were first mandated by an independent federal agency (the U.S. International Trade Commission, or USITC) via a long-standing legal process.  And they’ve been panned for supercharging costs for consumers, and padding the profits of the domestic industry to extents that dwarfed the new production and jobs they fostered. (Here’s a typical example of the press’ evaluation, drawing on equally typical research from the venerable University of Chicago and the even venerable-er Federal Reserve.)

What has gone oddly unreported has been the verdict rendered by the USITC – which came out in August. Sure, the agency is grading itself. At the same time, it’s privy to the most authoritative data (taken from the domestic and foreign companies involved themselves), and it’s surely worth noting that the Commission paints a significantly different , and brighter, picture.

The tariffs, put in place in February, 2018, affected the nation’s total global imports of these products, but mainly impacted such “large residential washers” (LRWs) from China, Mexico, South Korea, Thailand, and Vietnam – the biggest foreign suppliers to the U.S. market. The duties’ aim: stemming a sudden surge of LRWs that injure U.S.-based manufacturers. But they don’t shelter the domestic industry forever.

After three years – the amount of time the Commission has determined these domestic manufacturers need to adjust – they’re phased out for both the final products and many of the parts covered in the “safeguard order.” In addition, consistent with their surge focus, they only apply to imports above a certain level of units – a trade curb known as a “tariff-rate quota.” In all, moreover, the ultimate objective is to give victim industries time to adjust and then stand on their own two feet. That’s why detailed adjustment plans are a condition of receiving tariff relief.

To some extent, the USITC’s judgment doesn’t contrast dramatically different from that of the tariffs’ critics. Both noted (in the Commission’s words) “generally increased prices” and “decreased imports.” The Commission, though reported some developments generally missed by the critics (especially “some improvement in the financial performance of continuously operating [domestic] producers,” and market share gains for these companies) and some given decidedly short shrift (“increased production by two new U.S. producers” – both of whose owners come from South Korea, undoubtedly because the option of supplying the American market through exports was sharply limited).

The Commission didn’t address one of the critics’ most compelling points – that the new U.S. jobs were created at a cost to consumers (via the higher prices they’ve paid) of a whopping $817,000 per job. But the University of Chicago/Federal Reserve study actually conceded that this number might be an exaggeration, since manufacturing jobs (like all jobs) create a “multiplier effect” – that is, they foster additional employment in related industries ranging from suppliers of inputs to transportation, packaging, and warehousing services. What these researchers didn’t mention is that manufacturing’s jobs multiplier is unusually high.

Moreover, like virtually all scholars of trade, tariffs, and employment, the Chicago/Fed team neglected other benefits of manufacturing job creation (and prevention of further manufacturing job loss). These include:

>avoiding the wage losses suffered by displaced manufacturing workers who find work in lower-paid industries (an especially important consideration given today’s very low overall unemployment rates)

>avoiding the revenue losses incurred by these workers’ communities and the economy as a whole due to reductions in their taxable income;

>avoiding the increased pressure on social programs required to serve employees who can’t find new jobs – which encompass not only unemployment compensation but spending that seeks to address the pathologies that often follow working class Americans’ deteriorating personal finances, like divorce, delinquency, alcoholism, and opioid and other drug use, not to mention higher mortality;

>and the costs incurred by local businesses because of worker-customers who can no longer afford as many of their products and services, which of course reduces business’ own taxable income and additionally crimps public finance at all levels. (See, e.g., this highly cited study.)

The USITC report, moreover, shed light on another big reason that the costs-per-manufacturing-job-saved might be exaggerated: Not all of the increased costs of the tariff-ed products are due to the tariffs. In particular, the Commission listed no less than 14 factors other than import competition (and the tariffs placed on these goods) that affect the prices of LRWs. They range from raw materials, transportation, and energy costs to competition levels from substitute and between domestic producers, U.S.-based production capacity, productivity changes, labor contracts, and state and local government incentives, and demand levels at home and abroad (because all the U.S.- and foreign-owned manufacturers sell all over the world). The USITC then proceeded to ask producers, importers, and purchasers (retailers) to rate the importance of these factors on prices since the tariffs’ imposition in February, 2018.

The answers were reported in table III-26, and import competition levels were anything but dominant. Indeed, their importance consistently was rated by all three stakeholder as lower or no greater than that not only of raw materials costs (higher due to entirely separate tariffs on metals that were imposed by the Trump administration) but of energy costs, domestic production capacity (surely limited over time by the previous import flood), the allocation of this production capacity to other products, productivity levels, labor agreements, transportation and delivery costs, and domestic demand levels.

And adding to the case for reducing the costs per job figure: According to the official U.S. Bureau of Labor Statistics figures, after jumping by 16.31 percent from the February, 2018 onset of the tariffs through that November, they’ve since fallen by 9.73 percent (through September).

In fact, this development leads to a major point completely missed by the tariffs’ critics. As also indicated by the phaseout schedule and the linkage of the tariffs to the submission of adjustment blueprints, the levies were never intended to produce instant results, or to furnish crutches forever. The USITC describes the implementation of these plans starting on p. IV-5 and, more revealing, presents the evaluations of the retailers – who are bound to be the most demanding judges.

The reviews are mixed, but varying numbers of these companies stated that the two domestic recipients of the tariff relief – Whirlpool and General Electric – introduced new products (the most commonly cited improvement), upgraded product quality, expanded marketing campaigns, bettered their customer service, and taken other positive steps (Table IV-2).

Will these measures prove sufficient? Even after the tariffs come off, definitive answers will prove elusive, because as made clear, the LRW trade policy picture contains so many moving parts. What does look definitive, however, is that so far, the critics have engaged in a flawed rush to judgment.

 

 

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(What’s Left of) Our Economy: Yes, We (Still) Have No Tariffs-Led Inflation

12 Wednesday Dec 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 1 Comment

Tags

China, consumer price index, consumer prices, inflation, metals tariffs, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

As with yesterday’s producer price data, good luck to anyone trying to find significant tariff-led inflation in the U.S. economy in today’s consumer price numbers (for November), whether on the metals front or the China front. Because it’s still not showing up. There’s one clear exception (household laundry machines), which has been hit with its own product-specific levy since early February, but where doubts still persist about whether the resulting pricing power can stick. Some inflation is also apparent in motor vehicle parts.

Here’s the raw data, first for metals-using consumer goods where – bizarrely – powerful inflationary pressure are already being reported. For comparison’s sake, I’ve also included the statistics for overall “core” inflation (“core CPIU” in government lingo), which strips out volatile food, energy, and housing prices. And for fruits and vegetables, I’ve presented the numbers for these products in their canned and un-canned processed forms, to reveal whether the prices for the steel and aluminum cans in which the former come are driving price trends, or whether other factors have been more important.

                                Oct.-Nov.       Since April        y/y April           y/y Nov

core CPIU             0.14 percent   +0.77 percent  +1.19 percent   +1.51 percent

processed fruits    -0.31 percent   -1.30 percent   -0.36 percent    -0.22 percent

& vegs

canned fruits         -0.42 percent   -0.48 percent   -0.07 percent   +0.69 percent

 & vegs

canned fruits         -0.07 percent   -0.05 percent   -1.52 percent   +0.67 percent

malt beverages     +0.30 percent  +1.78 percent  +0.84 percent   +1.61 percent  

 at home 

alcoholic               +0.25 percent  +1.38 percent  +2.17 percent   +2.60 percent

  beverages away

juices & non-         0.45 percent   +1.64 percent    -0.25 percent   +1.73 percent

-alcoholic drinks

non-frozen, non-    -0.27 percent  +1.19 percent    -0.53 percent   +0.79 percent

  carbonated non-

  alcoholic drinks

non-alcoholic         -0.02 percent  +2.72 percent   +0.03 percent   +3.04 percent

  carbonated drinks

new cars & trucks -0.01 percent   +0.77 percent    -1.62 percent    -0.29 percent

motor vehicle       +0.35 percent   +1.15 percent    -0.74 percent    +2.13 percent

  parts 

The main conclusions emerging from this first table? Between October and November, prices have been weaker than the overall core inflation rate for some products (canned fruits and vegetables, new motor vehicles, and three non-alcoholic drinks categories) and stronger in fewer products (beer and other malt drinks consumed at home, alcoholic beverages consumed in bars and restaurants, and motor vehicle parts). That development alone strongly indicates that metals prices are only one influence on the prices of metals-using products, and likely not the main influence.

Further evidence for the relatively low importance of metals prices, and therefore tariffs? Over the latest data month, prices for canned fruits and vegetables have fallen slightly faster than those for all processed fruits and vegetables, but prices for canned fruits have fallen more slowly. So it’s hard justify foisting lots of blame on the cans.

In addition, care is needed in interpreting all the drink statistics. In the first place, as noted in previous RealityChek posts on consumer prices, the beer and non-alcoholic drinks figures don’t distinguish between products sold in bottles from products sold in cans. And the alcoholic beverages numbers don’t even distinguish among beer, wine, and spirits, on top of combining canned products numbers with the results for products sold in bottles and other kinds of containers (although not much wine and spirits seems to come in cans).

A major spread also emerges from the numbers since April – the first full month when any metals tariffs had been imposed. The price increase for automotive parts is relatively strong, and the hikes for all drink categories are especially robust. These indicate that demand for drinks of all kinds has been up significantly during this period, but the data are complicated again by the failure to distinguish drinks sold in cans and in other packages. And most of these trends are clear and complications are clear from the two year-on-year statistics.

Less information about the impact of China tariffs can be gleaned from the new consumer price report, because the first of these levies was only imposed in early July, and most of these were slapped on producer, not consumer goods. But some of these products contain a great deal of producer goods like steel or electronic components, and the figures for two of them are presented below – including the latest monthly results, the price changes since July, and the July and latest year-on-year data. And tariff-led inflation of any kind…just isn’t.

                              Oct.-Nov          Since July          July y/y            Nov y/y

core CPIU         +0.14 percent    +0.34 percent  +1.48 percent    +1.51 percent

tools, hardware  -0.24 percent     -0.31 percent   -0.07 percent     -0.12 percent

  et al

video/audio       +0.14 percent    +1.06 percent   -0.79 percent     -0.38 percent           equipment

But there is one product for which tariff-induced price hikes are clear, and that’s those separately tariff-ed household laundry machines. Here are the data for October-November, since February (shortly after they began, and year-on-year for February and November.

                                    Oct.-Nov.       Since Feb            Feb y/y            Nov y/y

core CPIU               +0.14 percent  +0.74 percent   +0.91 percent   +1.51 percent

laundry equipment +2.97 percent +18.25 percent    -7.61 percent  +15.52 percent

Of course, the steel levies have no doubt contributed to the elevated prices, too. Even here, though, it’s interesting that despite a big October-November price jump, the year-on-year increase in November prices is somewhat lower than that for February. Also, even with the big new monthly surge, washing machine prices remain at four-and-a-half-year lows. In other words, as with steel and aluminum, these goods were flooding the U.S. market and sold at prices having little to do with any free market forces, much less free trade.

(What’s Left of) Our Economy: Still Desperately Seeking Tariff-Induced Inflation

11 Tuesday Dec 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 1 Comment

Tags

aluminum, China, consumer prices, inflation, metals tariffs, producer prices, steel, tariffs, Trump, washing machines, {What's Left of) Our Economy

There’s especially bad news for trade war alarmists contained in this morning’s government report on producer prices. Not only does it contain yet more evidence that any inflation from President Trump’s metals tariffs keeps fading, but it’s now possible to show that his China tariffs aren’t fueling price hikes that are noteworthy, either – let alone increases likely to last.

Regarding the levies on steel and aluminum, which began to be imposed in late March, the weakest pricing trends have been apparent in aluminum. In April, its year-on-year price increases at the wholesale level stood at 11.9 percent, peaked at twenty percent in June, and as of November (the latest data reported this morning), the rate was down to 5.9 percent. That’s largely because wholesale aluminum prices have dropped on a monthly basis for five straight months, including by 1.5 percent from October to November.

More pricing power has been demonstrated in steel. Year-on-year wholesale prices for this metal advanced by 7.4 percent in April and have continued upward since, though at a much slower pace since August’s 18.6 percent. In November, the annual increase was 19.8 percent.

On a monthly basis since August, steel prices have dipped on net, even though between October and November, they increased by 0.5 percent.

Importantly, these higher metals prices don’t seem to be transferring uniformly into higher prices for metals-heavy products, including parts and components. For example, some mounting price pressure is apparent in pumps, compressors, and equipment; and mining machinery and equipment. But these sectors were greatly outnumbered by those in which price momentum seemed weak at best and going nowhere – such as construction machinery; machine tools; oil field and gas field machinery; aircraft; and motor vehicles and parts.

And if the price increases aren’t at least roughly comparable, then it’s hard to justify singling out tariffs as a major problem to this point.

The Trump China tariffs began in early July, but evidence that they’re igniting much inflation is even more elusive. On the one hand, it’s true that China’s currency is down versus the U.S. dollar since July – by a little over four percent – which all else equal will depress the prices of Chinese-made goods and services versus their American competitors all over the world. On the other, that’s a sign that, when it comes to China, many special variables influence prices (like a wide range of subsidies), along with the usual supply and demand forces.

Most important, here are the wholesale price changes for some leading products on the Trump administration’s list of the first 818 imports from China slapped with tariffs on July 6. So they represent the changes from July through November.

aircraft engines and engine parts:                                  0.35 percent

industrial heating equipment:                                       0.89 percent

oil and gas drilling platform parts:                               0.46 percent

farm machinery and equipment:                                   2.08 percent

paper-making machinery:                                            0.54 percent

ball bearings:                                                                1.12 percent

electric generators:                                                      1.71 percent

electricity transformers:                                              0.35 percent

medical equipment incl X-rays, pacemakers:                  0 percent

Three arguably major price spikes are apparent, but the big question remains whether these increases will stick. We’ll be watching.

Finally, there are the washing machine tariffs. As previously noted, at the retail level, prices of these appliances shot up shortly after they were first imposed in late January – to the unmistakable glee of supporters of the pre-Trump trade policy status quo. But at the wholesale level, home appliance prices (washing machines aren’t broken out from this category) have climbed only 0.76 percent from February through November. And during the last two months, they’ve fallen by 0.7 percent and 0.6 percent sequentially. So good luck with claiming that levies at the border deserve blame for whatever higher prices were paid by American consumers who had the misfortune to buy washing machines earlier this year.

As for the November consumer price data (measuring changes at the retail level), the data don’t come out until tomorrow. But on a monthly basis, they fell by 0.2 percent from July to August and by 3.8 percent between August and September before recovering by 0.2 percent between September and October.

In other words, there’s been deflation in washing machine prices lately. As these and the wholesale price figures make clear, that continues to be a fate richly deserved to date by tariff-led inflation claims.

(What’s Left of) Our Economy: No Signs of Tariff-Led Consumer Price Inflation, Either

12 Friday Oct 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

automotive, beer, canned goods, consumer price index, CPI, inflation, Labor Department, Producer Price Index, tariffs, Trade, Trump, washing machines, wholesale prices, {What's Left of) Our Economy

Honestly, I hate to bombard everyone with official U.S. government data showing that President Trump’s tariffs so far have done exactly zero damage to the U.S. economy, contrary to upteen claims. Except official U.S. government data keeps showing that President Trump’s tariffs so far have done exactly zero damage to the U.S. economy, contrary to upteen claims.

Two days ago, this conclusion was borne out by the Labor Department’s latest report on price changes faced by businesses (measured by the Producer Price Index). Yesterday, the same message was sent loud and clear by the Department’s latest report on price changes faced by consumers (measured by the Consumer Price Index), which take the story up to September.

Since Mr. Trump’s first tariffs on imports from China didn’t go into effect until late August, not enough time has passed to assess their impact. But new American levies on steel and aluminum began to be collected in late-March. In addition, separate tariffs have been imposed on imports of large home washing machines since February. So this post focuses on price changes in sectors that use lots of steel and aluminum – the very sectors of course that have complained loudest about the tariffs. And it will present some seasonally adjusted and non-adjusted figures, because the only year-on-year data provided are unadjusted.

First, the main overall results for the Consumer Price Index for All Urban Consumers (not the only U.S. government measure of inflation at the retail level, but one that’s widely cited and that the Labor Department emphasizes). Between August and September, the overall CPI was up 0.1 percent on both adjusted and unadjusted bases. Year-on-year on year, these September prices rose by 2.3 percent (again, on an unadjusted basis).

Most students of the economy more closely follow the so-called “core CPI,” which strips out food and energy prices because of their volatility. But they weren’t much different from the overall CPI results. Between August and September, the core CPI increased by 0.2 percent on an unadjusted basis, by 0.1 percent on an adjusted basis, and on year by 2.2 percent (adjusted).

So these numbers don’t exactly scream “Raging inflation!” But what about products with lots of steel and/or aluminum? In most cases, prices went up considerably less than overall prices and core prices, and especially year-on-year – which provides the best indicator of trends over time.

Take new motor vehicles. Their September year-on-year price increase has been just 0.5 percent – less than a quarter the rate of core inflation. And on both adjusted and unadjusted basis, they were down between August and September – by 0.1 and 0.3 percent, respectively. Don’t forget: Both the adjusted and unadjusted monthly figures show that core inflation rose in September.

Take canned fruits and vegetables. Year-on-year, their price is up 1.9 percent as of September – nearly the rate of core inflation and overall inflation. But look beneath the hood: Most of those higher prices were generated by canned vegetables, which were 3.2 percent more expensive this September than during the previous September. So it sounds very much like the price hikes had little to do with cans made more expensive by more expensive metals.

On a sequential basis, the price changes in canned fruits and vegetables seem to make the tariff-induced inflation claims look more convincing. When seasonally adjusted, in particular, prices for the group rose by 0.7 percent in September – much faster than the overall or core consumer inflation rates. But look even more closely at that line item, and you’ll find a footnote making clear that the size of the sample on which the figure is based is “substantially smaller” than the norm. So presumably its reliability isn’t sterling.

Because the CPI data don’t distinguish between canned beer, soda, and soup, and the uncanned varieties, the impact of higher metals prices on these foods is tougher to figure out.

For example, for carbonated drinks, September year-on-year prices rose by 2.1 percent – again, close, but not quite at the overall CPI rate. And of course, many of these drinks are sold in bottles as well. Both the adjusted and unadjusted monthly September consumer inflation rates for these drinks were actually a good deal higher than the overall rate – 0.3 percent and 0.6 percent, respectively. But how many of the drinks surveyed were cans?

The same question arises for beer. The Labor Department distinguishes between suds consumed at home and away from home. For beer (and “ale and other malt beverages”) drunk at home, prices rose in September at an annualized 1.1 percent – less than half the overall inflation rate. On an adjusted and unadjusted basis on month in September, the increases were greater – 0.5 percent and 0.7 percent, respectively. Indeed, they were both greater than the comparable overall inflation numbers. But what was the can-bottle ratio?

For these malt beverages consumed away from home, the annual September price increase was twice as great as for home-consumed drinks in the beer category (2.2 percent). But the monthly increases were in the same neighborhood as for beer etc drunk at home – 0.5 percent adjusted and unadjusted. And there’s still that can-bottle puzzle.

Therefore, there’s no reason to think that price for canned produce and beer-type drinks are rising through the roof due to the metals tariffs.  The case for tariff-led inflation is even weaker for soups – many of which are canned but some of which are powdered or otherwise dried. On-year, their prices were down by 3.8 percent. On month, prices also dropped on both adjusted and unadjusted bases – by 1.4 percent and four percent, respectively. So if anything, prices for soups are deflating.

And finally, let’s take those washing machines. Year-on-year, their September prices rose by a robust 10.6 percent. But the latest figures show that the pricing trend has actually shifted into reverse.  On month, washing machine prices were down by 1.9 percent on an unadjusted basis and by fully 3.8 percent on an adjusted basis.  Moreover, the rate of monthly price drops has been speeding up.  So although producers tried to jack up prices in response to the tariffs, they’re failing to make those price hikes stick.   

As for the future, who knows? But the tariff-led inflation alarmists still haven’t answered this crucial question: If business thinks it will have great scope to boost prices after tariffs are imposed, why isn’t it raising those prices right now? That is, why will companies have the major extra pricing power on Tariff Day Plus One that they will have lacked up until Tariff Day Minus One?

Once that question is answered, tariff alarmism will start looking highly plausible, even if no tariff-led inflation is visible yet. But not one day before.

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

10 Wednesday Oct 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

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.

(What’s Left of) Our Economy: Where’s the (Trump Tariff-Created) Consumer Price Inflation?

03 Monday Sep 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

Best Buy, Breitbart.com, canned goods, consumers, inflation, John Carney, tariffs, Trade, Trump, U.S. International Trade Commission, washing machines, Wilbur Ross, {What's Left of) Our Economy

Have you been shopping for any Labor Day bargains this weekend? If not, you might check out the deals on washing machines. Or just wait a little longer and you could save even more money.

Why on earth am I giving out this kind of consumer advice? Because in recent months, data pointing to soaring prices for these appliances were repeatedly touted as proof that the kinds of tariffs slapped on these goods early in the year – and representative of the trade policy approach generally favored by President Trump – would backfire on American consumers and seriously weaken the consumption-driven U.S. economy.

The tariffs on large residential washing machines went into effect in January, when President Trump approved a recommendation from the U.S. International Trade Commission (USITC)– an independent federal agency – to use such measures to counter a surge of these appliances that threatened the viability of domestic producers. (In this way, they did not result from trade diplomacy being conducted by the administration aimed at reworking existing trade deals like the North American Free Agreement or allegedly lopsided relationships like U.S.-China trade.)

But although prices for these appliances have shot up, advertising for dishwashers that’s appeared this weekend indicates that more powerful countervailing economic trends – trends that, incidentally, have hardly been secrets – will quickly begin bringing them back to earth. Specifically, as I’ve noted, despite moving into its tenth year, the current American economic recovery has been too weak, wages and incomes have been too stagnant, and consumers have been too cautious to permit such prices to stick for any serious length of time.

As a result, I wasn’t at all surprised to see Best Buy, a pretty typical appliance retailer, offer the following specials:

>A Whirlpool model marked down from $474.99 to $349.99. (More than 25 percent off.) Whirlpool, incidentally, was the plaintiff in the USITC trade law case that resulted in the tariffs;

>A KitchenAid machine being discounted by nearly 18 percent from its $1,034.99 list price – on top of free installation;

>Two Samsung washers being offered for more than 18 percent less than their $674.99 list price.

>An LG model on sale for $749.99 – nearly 17 percent below its $899.99 list prices.

And P.S. All these offers entail a price match guarantee, as well as “open box” versions of these products that can be had for much, much less.

And don’t think for a minute that washing machines are the only tariff-ed product for which price predictions are looking awfully Chicken Little-ish. Right after President Trump made his initial announcement of tariffs on steel and aluminum imports, Commerce Secretary Wilbur Ross was widely ridiculed for going onto CNBC and using cans of soup as props to argue that the levies would only marginally impact the prices of these goods. Moreover, canned goods producers strongly disagreed.

Yet as reported last week by Breitbart.com‘s John Carney, the latest official inflation figures show that, as of July, the prices of a variety of canned goods – from soup to fruit – have actually fallen year-on-year. Canned beer and vegetables did get more expensive, but by a mere 1.40 percent – much less so than the overall 2.40 percent rate of inflation. And the prices of other metals-using products, like cars and trucks and auto parts, were up just fractionally at best.

I’ve noted previously that there are any number of valid arguments that can be raised against the Trump trade policies. And no one has a perfectly clear crystal ball. But with the predicted effects on employment, output, investment, and now consumer prices so far not coming close to panning out, it’s now clear that the tariff opponents are rapidly running out of arguments.

(What’s Left of) Our Economy: The Tariff-Induced Carnage in U.S. Metals-Using Manufacturing is Still MIA

15 Wednesday Aug 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ 1 Comment

Tags

appliances, automotive, durable goods, fabricated metal products, Federal Reserve, industrial production, machinery, manufacturing, metals tariffs, metals-using industries, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

The July figures for after-inflation U.S. manufacturing production came in this morning from the Federal Reserve, and they further debunk widespread reports that President Trump’s tariff-heavy trade policies – and particular his levies on steel and aluminum imports – are backfiring badly by decimating metals-using manufacturing sectors that dwarf the steel and aluminum makers.

Let’s first look at the monthly numbers, and compare the (preliminary) real growth of major metals-using sectors and manufacturing overall from June to July:

overall manufacturing:  +0.31 percent

durable goods:   +0.39 percent

fab metals:  -0.03 percent

machinery:  +0.56 percent

automotive:  +0.94 percent

small appliances:  -1.41 percent

major appliances:  -4.56 percent

Clearly, most metals-using sectors actually outperformed overall, with the top exceptions being appliance makers. Those in the major appliance category, of course, have been hit not only with the metals tariffs, but with safeguard tariffs on one of their actual products – large residential laundry machines.

Moreover, the output data since the advent of the first metals tariffs – in late March – show that the metals-using sectors in general have at least held their own. Here are the inflation-adjusted output percentage changes since April; they include the initially reported numbers through June (released by the Fed last month), and the revised June and initial July figures (released this morning).

                                                       old thru June   new thru June    new thru July

overall manufacturing                     – 0.21                +0.06                 +0.25

durables manufacturing                    -0.05               +0.09                  +0.48

fabricated metals products               +0.90               +0.82                 +0.79

machinery                                         -0.75                -0.47                  +0.09

automotive                                        -0.68                -1.56                   -0.63

small appliances                               -3.31                -3.98                   -5.33

major appliances                              -3.16                -0.73                    -5.25

Although the results for the very large machinery and automotive sectors look worse than the overall manufacturing numbers at first glance, they’ve each been undermined by some one-off developments.

In machinery, as reported here last month, the subpar post-April constant dollar growth clearly reflects some giveback from a big production jump between March and April. This increase was initially reported as a 2.27 percent surge, and it was estimated this morning at a still impressive 2.21 percent.

In automotive, production is still recovering from the effects of a fire in early May at a factory that produced parts for a popular Ford pickup truck, and which depressed after-inflation output that month by a huge 8.52 percent.

The post-April numbers confirm that both appliance sectors continue to be the big tariff losers, but the rest of the data show that they’ve been the exceptions, not the rule.

As usual with data, “past performance does not guarantee future results.” But the new Fed figures (along with comparable employment figures I’ve reported) also make clear that, so far, claims of major tariff-induced losses for domestic metals-using manufacturing belong in the realm of speculation, not of facts.

(What’s Left of) Our Economy: Trump Tariffs to Raise Washing Machine Prices? Good Luck with That!

05 Monday Feb 2018

Posted by Alan Tonelson in (What's Left of) Our Economy

≈ Leave a comment

Tags

consumer price index, consumers, CPI, inflation, PCE, personal consumption expenditures index, prices, South Korea, tariffs, Trade, Trump, washing machines, {What's Left of) Our Economy

It’s painfully clear that none of the journalists and offshoring lobby-funded think tank hacks who have parroted the threats by South Korean washing machine makers to raise their U.S. retail prices to offset tariffs imposed by the Trump administration last month has shopped for a washing machine lately. Nor have they looked at the price data for home appliances in America. If they had, they’d recognize that the South Koreans seem to be blowing so much smoke. For no one could possibly look at the U.S. washing machine market either first hand or statistically and conclude that any producer thinks they have much pricing power.

The first-hand evidence? Just check the ads in your daily newspaper. Or take a look at this post from about a year ago offering tips to appliance shoppers. For example, consumers are told that: 

>in-store sales people and on-line shopping sites will often sell a machine for less (and “sometimes a lot less” than the advertised price;

>”If you’ve had your eye on an appliance but wish it were just a smidgen cheaper, try putting it in your cart. Then walk away (so to speak). If you leave it there for a few days, a retailer might send you a coupon to entice you to close the deal.”

>”Never be afraid to ask salespeople, cashiers, and store managers if they can do a little better on the price. In fact, Consumer Reports says that nearly all people who haggle over appliances are successful at least once—and save an average $200.”

The statistics? They mock even more cruelly the idea that the tariffs will drive washing machine prices up. Let’s start off with the Federal Reserve’s favorite measure of inflation, the personal consumption expenditures (PCE) index. And as the broadest gauge, let’s use the “core” PCE numbers, which strip out food and energy prices because they’re considered volatile for reasons having little to do with the main determinants of price changes for the rest of the economy.

According to the Commerce Department, which tracks this data, between 2009 (when the current U.S. economic recovery began) and 2016 (the latest figures), core PCE rose by a cumulative 13.10 percent. But for durable goods (the category containing home appliances), prices during this period fell by 13.54 percent. And although there are no statistics for washing machines specifically, prices for “household appliances” plunged by 18 percent over those seven years. These trends don’t exactly scream “Pricing power!”

Moreover, let’s look at what happened with appliances prices after 2013, when the Obama administration imposed tariffs on subsidized and dumped South Korean-brand washing machines from South Korea and Mexico. After having fallen by 2.39 percent the previous year, they fell even faster – by 5.61 percent, 4.96 percent, and 5.03 percent annually over the next three years. And in each instance, the rate of decrease for appliance prices was much steeper than for prices for other durable goods.

The Labor Department’s different sets of inflation data do extend through 2017. They’re grouped under the heading “consumer price index” (CPI), and show that prices for major appliances decreased that year by 2.57 percent, and for appliances generally by 1.03 percent. That year, the CPI for urban consumers less food, energy, and shelter rose by 0.72 percent.  And according to this CPI, appliance and major appliance prices have been falling throughout the current recovery, too.  

There’s a first time for everything, and so it’s possible that Korean washing machine manufacturers really will carry through on their price increase vows. And of course, since it’s their business, they may know something I don’t. But the first-hand evidence and the data strongly indicate that the tariffs will simply require them to charge closer to fair market value for their goods, and that until much stronger pricing pressures emerge, this fair market value will remain pretty low and could well keep falling.

As a result, there’s a heavy burden of proof not only for taking them at their word, but for continuing to accept blithely the standard assumption that tariffs always hit consumers hardest – or will at all.

Following Up: A Big China-Related National Security Hole May Get Plugged, and Trade Derangement Syndrome Keeps Spreading

30 Tuesday Jan 2018

Posted by Alan Tonelson in Following Up

≈ Leave a comment

Tags

CFIUS, China, Committee on Foreign Investment in the United States, consumers, East Asia-Pacific, Following Up, foreign direct investment, LG Electronics, manufacturing, Samsung, South Carolina, tariffs, technology, Tennessee, Trade, washing machines

Yesterday alone produced a news item that provides important grounds for hope that America’s policy toward China might finally be getting coherent, and one that shows that Mainstream Media coverage of international trade issues remains almost determinedly brain-dead. And conveniently, both items concern developments recently reported on by RealityChek.

The first came in The Wall Street Journal, and describes some important new provisions in legislation proceeding through Congress that would update the federal government’s standards for approving or blocking prospective foreign proposals to take over U.S. businesses with defense-related implications. The current process for screening such investment enables Washington to nix (and this is just an obvious hypothetical example) a Russian or Chinese proposal to buy a company that makes jet fighter craft.

Most cases examined by the inter-agency group that makes recommendations to the President for final action (the Committee on Foreign Investment in the United States, or CFIUS) aren’t such easy calls, which is precisely why lawmakers seem determined to expand the grounds for blocking potentially dangerous takeovers. That’s an idea I’ve long favored.

But at least as important is a provision in the bill that addresses a problem I’ve written on, but that Washington has been slow to recognize – even under the Trump administration. That’s the growing tendency of American technology companies to share their best knowhow with partners in places like China. In some cases, the U.S. firms voluntarily hand over the keys to these kingdoms. In others, they invest capital in Chinese start-ups and other ventures.

It’s true that the United States maintains a system for controlling exports of national security-related technology to problematic countries like China. But the proliferation of these corporate transfers and investments makes clear it’s too sieve-like. And plugging holes is particularly important now because China has so aggressively challenged America’s position as the lead power in the economically vibrant East Asia-Pacific region.

I’ve long opposed the U.S. strategy of maintaining major military forces in this far-off area decades after the Cold War’s end in order to fend off the Chinese and North Koreans. But if American leaders stay determined to ignore my advice (!), it’s nonsensical to keep pushing for bigger and bigger military budgets and stronger forces (in part to buttress its East Asia strategy) while allowing American companies in effect to help China strengthen the military against which Americans may fight. So let’s hope Congress sends a CFIUS reform bill to President Trump’s desk tout de suite.

The second, more dispiriting news item came from Reuters, and dealt with those tariffs Mr. Trump last week imposed on certain imported washing machines from South Korea. As I wrote on January 24, these actions seemed to infect officials in South Carolina with a case of Trade Derangement Syndrome – the utter mindlessness produced by announcements or fears of even small-scale restrictions on trade flows. In this case, South Carolina officials were criticizing the tariff decision even though it undoubtedly led one South Korean manufacturer – Samsung – to announce that it would begin producing washing machines in the Palmetto State, thereby avoiding the tariffs and creating hundreds of jobs for South Carolinians.

Yesterday, Reuters reported similarly looney reactions on the part of the other South Korean company fingered – LG Electronics. LG, too, clearly has been convinced by the prospect of tariffs to manufacture some of its products in the United States – in this case, in Tennessee. But the company clearly is not thrilled with the prospect. It’s grousing that, because of the tariffs, it will need to raise the prices it charges American consumers.

That’s pretty par for the course – though has anyone who’s bought a major appliance lately seen many producers or retailers that are full of confidence that they can charge more? But what was completely doofy was what the company spokesperson quoted by Reuters reporter David Lawder (with a figurative straight face) said next. He fretted that the price increase could cost the company market share, therefore reducing the demand for the new Tennessee factory’s products and for local workers. And then he noted that the costs could be long-lasting: “If you lose floor space at retail, it can take years to get it back.”

I don’t blame the LG spokesperson for trying to drum up American opposition to the tariffs any way possible. But maybe Lawder could have asked him why on earth the company would take actions that it’s admitting would lose it money – for “years”? Or pointed out that these adverse consequences do a great job of explaining why LG is not remotely likely to raise prices? Instead, Lawder simply permitted the LG flack to get away with arrant nonsense – and reinforced my claim that nothing, but nothing, is as badly, and as tendentiously covered by the media as anything having to do with international trade.

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Current Thoughts on Trade

Terence P. Stewart

Protecting U.S. Workers

Marc to Market

So Much Nonsense Out There, So Little Time....

Alastair Winter

Chief Economist at Daniel Stewart & Co - Trying to make sense of Global Markets, Macroeconomics & Politics

Smaulgld

Real Estate + Economics + Gold + Silver

Reclaim the American Dream

So Much Nonsense Out There, So Little Time....

Mickey Kaus

Kausfiles

David Stockman's Contra Corner

Washington Decoded

So Much Nonsense Out There, So Little Time....

Upon Closer inspection

Keep America At Work

Sober Look

So Much Nonsense Out There, So Little Time....

Credit Writedowns

Finance, Economics and Markets

GubbmintCheese

So Much Nonsense Out There, So Little Time....

VoxEU.org: Recent Articles

So Much Nonsense Out There, So Little Time....

Michael Pettis' CHINA FINANCIAL MARKETS

RSS

So Much Nonsense Out There, So Little Time....

George Magnus

So Much Nonsense Out There, So Little Time....

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