Companies are mounting a campaign to soften the Trump’s trade threats, but Trump’s team says he is serious.
Trump Not Budging on Tariffs
The Wall Street Journal reports CEOs Want Trump to Change Course on Tariffs. He Isn’t Budging.
Donald Trump’s tariff threats have triggered a behind-the-scenes lobbying campaign to soften or alter the president-elect’s plans. But the effort faces a potentially insurmountable roadblock: Trump isn’t budging.
So far, executives are facing setbacks as they canvass Trump’s aides for advice on how to influence the president-elect’s next steps. Trump is largely acting on his own, leaving his incoming team of advisers with few opportunities to shape his thinking. His recent late-night social-media statements about tariffs have come with little warning even to some of his closest allies, according to people familiar with the matter.
Trump’s team has told corporate consultants there is no waving the president-elect off his plans to make liberal use of tariffs once he gets into office, the people said.
Late last month, Trump said in a Truth Social post that he would place a 25% tariff on imports from Canada and Mexico if the countries didn’t do more to stem the flow of migrants and drugs across the border. He raised the prospect of imposing an additional 10% levy on goods coming from China because, he said, Beijing hadn’t done enough to prevent fentanyl from coming into the U.S. Days later, Trump warned that he could place 100% tariffs on Brics countries, which include Brazil, Russia, India, China and South Africa, if they try to replace the U.S. dollar as the main global currency. That is on top of his pledge during the presidential campaign to impose across-the-board tariffs of as much as 20% on all U.S. imports.
A lobbyist who worked in the first Trump administration said that he now warns clients to take what Trump says about his use of tariffs at face value and that there is little consultants can do to dissuade him from using these tactics.
If confirmed, Rubio and Bessent would play central roles in shaping and defending Trump’s tariffs, alongside the businessman Howard Lutnick, Trump’s pick to lead the Commerce Department, and Jamieson Greer, whom the president-elect has chosen as his U.S. trade representative. Trump has said Lutnick will help oversee his trade agenda with Peter Navarro, a longtime adviser to the president-elect who is a proponent of sweeping tariffs. The team will have to deal with the concerns of foreign allies and adversaries alike, as well as companies and lawmakers.
The Trump transition senior adviser Brian Hughes said the president-elect would “implement economic and trade policies to make life affordable and more prosperous for our nation.”
Some companies and Republicans are holding out hope that Trump’s promises to impose stiff tariffs won’t translate into action because they are being used as a negotiating tactic to extract concessions from other countries.
A day after Trump announced that he had chosen Navarro as a senior trade adviser, a Journal reporter received an email from H.O. Woltz III, the chief executive of Insteel Industries, with a request: How can he get in touch with Navarro to discuss Trump’s tariff policies?
Woltz’s company is the country’s largest manufacturer of steel wire products used to reinforce concrete for construction projects. When Trump imposed tariffs on steel imports during his first term, the price of the raw material used to make the company’s products rose “to the highest level in the world,” Woltz wrote.
Take Trump Seriously or Literally?
A close friend of mine is fond of saying “Take Trump seriously, not literally.”
In this case, where is the line between seriously and literally?
There is no doubt Trump will raise tariffs. The more literally Trump does what he says, the more damage he will do to the US.
Tariffs Act to Increase Prices
Tariffs are a tax on consumers. Either importers eat the increase or consumers do. There is no evidence supporting anything else. The above article makes it clear what happened to steel.
Steel price hikes are unavoidable because the tariff is on a specific set of goods, not a country.
Tariffs on countries can be avoided via backdoors to other countries. Trump reduced the trade deficit with China but at the expense of an increased deficit with Mexico, Vietnam, and Canada.
Also tariffs act to strengthen the US dollar. This also mitigates a portion of the tariff.
Tariff the Whole World?
That’s Trump’s threat now because he failed in his first term to reduce the US trade deficit.
The US trade deficit also rose and during the Biden administration despite the fact that Biden kept all of Trump’s tariffs intact and even added some on China.
In short, Trump failed, and the result is seen in the lead chart.
His threat is now to tariff the whole world. Should we take that literally?
Trump’s Tariff Claims on Truth Social
May 31, 2023: Remember, I terminated the worst trade deal in USA history, NAFTA, and replaced it with the best, USMCA. Also got China to pay our great FARMERS 28 Billion Dollars in damages! [Both sentences are blatant lies.]
June 19, 2024: The Smoot-Hawley Tariff Act was passed AFTER the Great Depression had already started. If you want to study Tariffs, and how powerful they are, study the administration of President William McKinley. America had so much money they didn’t know what to do with it!
August 19, 2024: I will revoke China’s Most Favored Nation Trade Status. I will pass the Trump Reciprocal Trade Act. If China or any other country makes us pay a 100 or 200 percent tariff, we will make them pay a reciprocal tariff of 100 or 200 percent right back. You hurt us, we hurt you! Eye for an Eye.
September 2, 2024: In my First Term, we achieved Major Successes to protect American Workers by negotiating Free and Fair Trade Deals, passing the USMCA (U.S./Mexico/Canada), and giving Businesses and their Workers the tools to thrive. [For the success or lack thereof of Trump’s claim, please see the next chart.]
2024 US Balance of Trade Through September
Trade Realities
- When Trump took office in 2017, the trade deficit with Mexico was $69.06 Billion. It’s now $125.47 billion for just 9months.
- The Mexico+Taiwan+Vietnam (MTV) deficit went from $124.08 billion to $270.59 in the same time frame despite the fact that Biden kept Trump’s tariffs.
- When Trump took office in 2017, the total trade deficit was $792 billion. When he left office it was $901 billion. It’s now $872 billion for just 9 months despite the fact Biden continued Trump’s trade policies.
USMCA the Best Deal in History
Trump now threatens to break his alleged best deal in history with 25 percent tariffs.
With USMCA, I do not take Trump either seriously or literally. NAFTA and USMCA were signed off by the Senate.
I view 25 percent tariffs on our top trading partners as not only blatantly stupid, but something that would be challenged in court and lose.
That process could take a while, but in the meantime both Canada and Mexico would retaliate. We get huge supplies of medical kits from Mexico. And if Trump was stupid enough to do what he says, Mexico could stop sending medical supplies to the US and we would not have kits for US medical operations.
There would be huge, instantaneous, very negative reactions. So, in the case of USMCA, I sense an obvious bluff. Perhaps Trump gets some minor concession and brags about it, but don’t look for much here.
BRICS Silliness
The idea of a BRICS currency going anywhere is silly. And this is where Tr
Trump shows he is really clueless.
“Trump warned that he could place 100% tariffs on Brics countries, which include Brazil, Russia, India, China and South Africa, if they try to replace the U.S. dollar as the main global currency.”
60 percent tariffs on China would probably kill all US trade with China. More importantly, that the dollar is the world’s reserve currency is one of the reasons countries can dump excess goods into the US.
China does not want to have the world’s reserve currency because it implies trade deficits and the end of China’s export mercantilism.
So Trump is blowing total bullsheet, insisting the world stay on a system that guarantees the US will have a trade deficit!
What a hoot.
A reserve currency was not always synonymous with large, growing trade deficits, but it became that way once president Nixon ended convertibility of gold.
That move by Nixon is what allowed massive fiscal deficits at will. Those large fiscal deficits coupled with global export mercantilism outside the US resulted in large US trade deficits.
So if Trump wants to fix the trade deficit, he also needs to fix fiscal deficits. He won’t.
Assume I am Wrong
Let’s assume that Trump is right and he brings manufacturing back to the US and fixes the trade deficit. In short, let’s assume Trump’s tariffs act to balance trade.
But balance how?
The implication is higher consumer prices (more inflation) because the US will not be able to compete with China, Vietnam, or Mexico.
The US would be the world’s highest cost producer. Refer to the example of steel above. So what exactly would that do for US exports?
The success in reducing the trade deficit and returning manufacturing to the US would simultaneously be success in reducing exports.
We have more made in America! But US consumers will pay the highest prices in the world.
In this example, where I am assuming Trump “succeeds”, exactly what are we going to be exporting to China, Brazil, Latin America, anywhere, given the US will be paying the highest wages and our goods will be the world’s most expensive?
Should Anyone Care Whether Underwear Is Produced in the US or China?
On November 22, I asked Should Anyone Care Whether Underwear Is Produced in the US or China?
This ridiculous-looking question gets to the heart of tariff discussions.
The answer is no. More precisely, we should take all of the underwear China, Vietnam, or the world wants to give us for free.
Free underwear would be fantastic. US consumers would have more money to spend on other goods and services. To argue otherwise is akin to candlemakers proposing to tax the sun for the free energy it provides.
The same does not apply to airplanes, microchips, and weapons. For strategic reasons, the US does not want to be dependent on Russia, China, or Iran for any goods of strategic importance.
Unfortunately, Trump makes no distinction between underwear and strategic items.
Also, Trump’s threat on the whole world is counterproductive to goal of reducing deficits with China.
Q: Why?
A: If we increase tariffs on China by 25% and the rest of the world by 25% as well there is no incentive for US importers to shift from China.
The same applies to a lesser extent if Trump were to raise tariffs on China by 25 percent and the rest of the world by 15 percent. In this case, if China could devalue the yuan by 10 percent, making up the difference.
Also, my lead charts show targeting countries mostly resorts in trade shifts as opposed to improved trade balances.
Minerals US Needs for Weapons and Technology
Please note China’s Puts Export Curbs on Minerals US Needs for Weapons and Technology
In a warning shot to the Trump administration, China tightens export controls on some dual-use minerals.
China produces an astonishing ~70% of the world’s rare earth minerals and controls nearly 50% of the global antimony supply [Used in communication equipment, night vision goggles, explosives, ammunition, nuclear weapons, submarines, warships, optics, laser sighting and more].
China controls about 90% of global rare earth processing on minerals mined elsewhere.
Biden and Trump are Both Wrong on US Steel Nippon Merger
Yesterday, I noted Biden and Trump are Both Wrong on US Steel Nippon Merger
President Biden will block the merger of US Steel and Nippon based on alleged national security risks. It’s really the opposite.
If a Cleveland Cliffs merger took place instead of the Nippon deal, Cleveland Cliffs would have control 100% of blast furnace production in the U.S. and 65% to 90% of domestic steel used in vehicles.
That’s the real security threat. And the side impact is US auto manufacturers would have to raise prices to accommodate higher priced steel.
Also, Trump promised to make it easier for foreign companies to produce in the US. If Nippon is blocked, that will be another Trump lie.
Finally, Trump’s worry over underwear (imports in general), is likely to resort in a shutdown of the imports we strategically need.
Trump has seriously conflicting goals on inflation, security, made in America, exports, trade balances, and fiscal deficits.
He does not at all understand why the US has trade imbalances.
A sensible strategy would be to act on items of strategic importance, not fake national security claims.
Unfortunately, The best we can hope for is Trump is mostly bluffing because trade wars are neither good, nor easy to win, especially when Trump does not understand why we have the trade deficits in the first place.