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Trump’s Tariff Wars Will Hurt U.S. The Most
President Donald Trump seems to believe that tariffs can help to bring manufacturing back to the States.
Trump's tariffs have so far been aimed at four targets, the U.S. neighbors Canada and Mexico, China and, soon to come, the European Union.
During his first term Trump negotiated the U.S.M.C.A. with Mexico and Canada, a free trade zone covering the U.S. and its neighbors. He is now attempting to change the rules of it. But the way he does so is inconsistent.
On January 21 Trump promised tariffs on Canada and Mexico. On February 1 he announced them. Three days later he delayed the implementation of those tariffs. On February 27 he said the tariffs would go into effect on March 4. On March 5 he was again forced to pull back (archived):
President Trump said on Wednesday that he would pause tariffs on cars coming into the United States from Canada and Mexico for one month, after a 25 percent tariff that he placed on America’s closest trading partners a day earlier roiled stock markets and prompted stiff resistance from industry.
Karoline Leavitt, the White House press secretary, read a statement from Mr. Trump on Wednesday saying that White House had spoken with the three largest auto makers, and that a one-month exemption would be given to cars coming in through United States-Mexico-Canada Agreement.
A one-month exemption is a joke. It takes years to move parts production from one country to another. There are hundreds of companies in Mexico, Canada and the U.S. which make the myriad parts that go into a car. It is an completely integrated industry which took years to build.
U.S. car manufacturers had trusted that U.S.M.C.A. would hold. Should the tariffs apply anytime soon they will have to increase their prices by hefty margins or halt their production.
Trump's tariffs in north America can largely be seen as pressure method for gaining some valuable concessions from neighboring countries. They are part of a negotiation scheme and unlikely to be a longer term problem.
But Trump's tariffs against China are a different animal. The Trump administration views China as a strategic enemy and would like to seriously hurt it. But China is able to hit back (archived):
Minutes after President Trump’s latest tariffs took effect, the Chinese government said on Tuesday that it was imposing its own broad tariffs on food imported from the United States and would essentially halt sales to 15 American companies.
China’s Ministry of Finance put tariffs of 15 percent on imports of American chicken, wheat, corn and cotton and 10 percent tariffs on other foods, ranging from soybeans to dairy products. In addition, the Ministry of Commerce said 15 U.S. companies would no longer be allowed to buy products from China except with special permission, including Skydio, which is the largest American maker of drones and a supplier to the U.S. military and emergency services.
Lou Qinjian, a spokesman for China’s National People’s Congress, chastised the United States for violating the World Trade Organization’s free trade rules. “By imposing unilateral tariffs, the U.S. has violated W.T.O. rules and disrupted the security and stability of the global industrial and supply chains,” he said.
Trump claims that tariffs on China are necessary to stop the illegal import of Fentanyl, an addictive synthetic opioid widely used in the U.S.
China counters that it already has put strong controls on Fentanyl and its precursor chemicals. It can not be blamed for a problem that solely exists within the United States:
The reason why the fentanyl issue in the US is so serious has never been external; it has nothing to do with China, which strictly prohibits drugs. Illicit fentanyl started to enter the US market as early as the 1980s. Later, media revealed that US pharmaceutical companies concealed the addictive properties of synthetic opioids and that doctors overprescribed painkillers, leading to widespread addiction among patients. Statistics show that with 5 percent of the world's population, the US consumes 80 percent of the world's opioids, but still has not permanently scheduled fentanyl-related substances as a class. The almost abnormal demand has boosted the development of the illegal fentanyl market, fundamentally contributing to the proliferation of fentanyl in the US.
The Global Times points to the social causes of drug addiction:
[T]he lack of social governance in the US has exacerbated the drug problem. US Vice President JD Vance described a similar situation in his autobiography. Many low-income families live in chaotic community environments with a lack of education and supervision. This has led to many children living in adverse conditions of drug abuse and trafficking, forming a vicious cycle that is difficult to break.
China's government spokesperson is promising to fight back:
Intimidation does not scare us. Bullying does not work on us. Pressuring, coercion or threats are not the right way of dealing with China. Anyone using maximum pressure on China is picking the wrong guy and miscalculating. If the U.S. truly wants to solve the fentanyl issue, then the right thing to do is to consult with China by treating each other as equals.
If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.
Such language from China is far from the usual one. It therefore seems unlikely that there will soon be a compromise between the U.S. and China.
With respect to Europe the U.S. claims that it is importing more goods from Europe than it can export to it. That is true but does not cover the full width of economical relations. The U.S. is exporting way more services (think software) to Europe than Europe is exporting to the U.S. The total of goods and services exchanges is a wash. If the U.S. insist on putting tariffs on European goods the EU can counter adding a toll to all U.S. services. The results would be, in theory, a tie.
Tariffs however are dangerous. They distort markets and add significant costs to all participants. Their pain will be mostly felt by U.S. consumers:
All the planned tariffs would take the US tariff rate to above 20% in just a few weeks, the highest since pre-WWI. As Joseph Politano points out, the costs of these actions are enormous, covering $1.3trn in US imports or roughly 42% of all goods brought into the United States, or the single-largest tariff hike since the infamous Smoot-Hawley Act of nearly a century ago.
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The total costs of these tariffs would raise $160bn from US consumers and businesses paying more for their purchases of imported goods, with more to come. Trump’s Tuesday measures are only 40% of his proposed measures. If the next batch is implemented, it would raise the cost of imports to over $600bn, or 1.6% of GDP.
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So worried is the International Chamber of Commerce in the US, that it reckoned that the world economy could face a crash similar to the Great Depression of the 1930s unless Trump rows back on his plans. “Our deep concern is that this could be the start of a downward spiral that puts us in 1930s trade-war territory,” said Andrew Wilson, deputy secretary-general of the ICC. So Trump’s measures may go well beyond “a little disturbance”.
@Roger Boyd | Mar 6 2025 23:49 utc
Replies interleaved below.
Roger: You are delusional and simplistic on so many levels its is astounding. You sound like some economist with no actual knowledge of how manufacturing and manufacturing supply chains work. I will give you just one example of your fallacies, materials …
A Chinese export ban on titanium is likely coming soon, and will kill the Western robotics industry
Tom: So you’re saying that China is the only country with titanium? That the supply chains that exist are totally controlled, one point to the next, no one-to-many relationships, no traders (like there are for oil) that import (or obtain ownership) and resell to others?
Here’s a short list of current titanium production, by country.
Will you assert that there are no titanium deposits that might be developed, from locations not in China? What is it about Asia’s geology that somehow locates the planet’s entire titanium supply there?
Roger: There is a huge amount of production knowledge that is tacit, past along from one generation of workers to another. Much of that tacit knowledge, and even documented knowledge, has been lost in the US.
Tom: What was lost (and it was! Let’s keep the blame on the right people) is knowledge about how _things used to get made_. Go into a John Deere factory, and observe how many welders (people, not machines) there are. How many lathes, stamping, drilling, milling, etc. machines are operated by humans. Then come back and tell me about how relevant “how things used to get made is”. It’s different now. The skills needed to set up and operate a mfg’g facility are different than they used to be, and you didn’t rebut that assertion (twice now). The skills are different, and yes, indeed, they need to be expanded upon. That – right there – is “what needs to get fixed”. And that issue – production methods changing by virtue of automation – affects Germany, Russia, and China just as much as it does the U.S. They have a lot of old mfg’g gear, too.
If you’re going to lament “loss of skill”, concentrate on the skills that matter for how mfg’g will be done today and tomorrow, not the skills we lost from how things got built yesterday.
Roger: You need educated, trained and experienced workers to operate the machines and computers, more to plan production, more to plan the logistics, together with a large number of ongoing relationships with suppliers within the supply chain and with customers in many cases to co-design new products and processes. The US had all of this in the 1970s/1980s, but the corporate executives shut much of it down and threw away the experienced workers.
Tom: So you’re saying that SpaceX, Walmart, Amazon, data-center construction companies (hundreds (not a typo) in the pipeline, dozens under active construction in the _one_ county where I live), BNSF, Union Pacific, FedEx, UPS, Caterpillar … all those huge companies that were created and then nearly completely re-engineered for modern ops over the past few decades… nobody in the U.S. can run them? Each of those companies is world-class. How can they exist in the scenario you posit?
Roger: China took decades to build its manufacturing excellence, it will take decades for the US to rebuild its own manufacturing excellence. Thrown away for short-term profits.
Tom: That we agree upon. Where we disagree is your despondency, your condemnation of what the U.S. is currently capable of.
I understand the political reasons why many despise U.S. leadership. I believe your politics may be distorting your perception of the operational level. Go visit John Deere, or the newer auto mfg’ring plants, or GE’s turbine plant, or Gore’s (any!) facility … just to name a few … in the U.S. and tell me again how backward we are.
They will laugh you out of the room. They don’t – and shouldn’t – buy into the doom-scenario that’s being used as a cudgel to beat various political adversaries.
I note further, and this isn’t directed only at you, Roger, that all the doom-sayers have _yet_ to posit an industrial policy that will actually address the problems you point out (in many cases accurately).
It isn’t enough to point out problems. Since you’re self-style “not delusional”, maybe you can take a few minutes away from the doom-caster, and set out your suggested U.S. (or Canada’s) industrial policy for the next 30 years.
Can’t wait to read it.
Posted by: Tom Pfotzer | Mar 7 2025 1:43 utc | 231
Trumpian Phoneyfart talked a lot about trees in the Whitehouse today. When he was having another go at Canada.
So let’s talk about tariffs and trees.
So they used to tell the story about a guy who claimed he could make cars out of wood, and he started a company in Oregon that brought trees into one door of his giant building with new cars coming out of another door, and he wouldn’t let anyone inside to see how it was done.
He was given a award for innovation and widely acclaimed, until one day someone got inside and saw he was shipping the trees out the back to Japan and bringing in new Korean cars.
Point is, for the macro economy it didn’t make any immediate difference what was going on behind those closed doors, and that for purposes of understanding one can think of a nation’s foreign trade as similar to a company that takes in all that it can export and delivers back whatever is imported.
So what was actually happening in real terms, exports are the costs of imports, and optimizing real terms of trade is about getting the most cars for the fewest trees, which is likewise what first-pass productivity is all about for the domestic economy.
What about the jobs lost due to increased productivity?
Well, history shows it used to take 99% of the workforce to grow the food we need to eat to live, and today in the US it takes maybe 1% of the workforce to grow enough food to eat with a lot left over to export.
Yet unemployment isn’t necessarily any higher today than it was back then. Why? Because there’s always a lot more we think needs to get done than there are people allowed to do it, and unemployment comes from a lack of funding, and not a lack of things to do.
Today the service sector dominates, and more so every day, with no lack of services we’d like to have done as far as the eye can see. And unemployment, as currently defined, is necessarily the evidence that for a given level of govt. expenditure the economy is that much over taxed, as a simple point of logic. Not that policy makers understand that, of course… As they are stupid enough to believe taxes fund things.
Now let’s add a border tax to the model, for the purpose of creating jobs, not withstanding how that premise is categorically ridiculous. Anyway, a border tax would put a tax on importing the cars to attempt to keep us from buying them so we would have more jobs building cars domestically, and reduce the tax on exporting the trees so we would have more jobs cutting down and shipping out trees.
Let’s assume that that’s what happened and then look at the consequences. First, we would be shipping out more trees and getting fewer cars.
This makes the nation as a whole worse off due to those reduced real terms of trade. The next step is to identify the winners and losers, recognizing the losses to our standard of living are higher than the gains.
Best case: we put more people to work growing more trees so we have just as many trees for ourselves, and we’d put more people to work building cars so we’d have just as many cars as before. Which is trumps master plan.
So what he would accomplish is that we are working more to be left with the same amount for ourselves.
That’s called a drop in productivity, and a decline in our standard of living, since work is an input and a real cost of production. Work itself is not an economic benefit. The economic benefits of work is the output produced. And the whole point of producing output is consumption of some type, either for immediate use or for future use. That is, it makes no economic sense to work and produce output for the purpose of immediately throwing it away.
So with the above ‘best case’ assumptions, the border tax does work to create jobs, and unemployment is a political problem, which is why the border tax has that element of political appeal.
Not that it matters, but my first choice for job creation would be a fiscal adjustment, either a tax cut or spending increase, large enough to promote sufficient spending to increase sales, output, and employment, in order to produce that additional output. That way we have that much more domestic output to consume plus all the imported cars we were buying before the border tax, and we don’t have to give away the extra trees due to the border tax proposal.
And how does it look from the government’s point of view?
First, the government expects extra revenue from the tax on the imported cars, net of the revenue lost from tax benefits for exporters. This means less spending power for consumers paying the tax, presumably offset by new tax cuts, making it all revenue neutral, which – through some presumed channels – is theorised to have its own positive consequences.
So in this ‘best case’ scenario Americans work more and get less, while consumer taxes go up while other taxes go down. Once thought through, that whole topic hardly seems worth a second look.
But that is only the economic best case scenario. All kinds of other bad things can happen.
Posted by: Sun Of Alabama | Mar 7 2025 1:47 utc | 232
@Roger, pay attention to what you said. I’m quoting you:
“You need educated, trained and experienced workers to operate the machines and computers, more to plan production, to plan the logistics, together with a large number of ongoing relationships with suppliers within the supply chain and with customers in many cases to co-design new products and processes”.
And that’s why I cited logistics companies in the U.S. You asserted that we can’t do logistics, and I proved we can.
And to discount Tesla by asking “How long did it take Tesla to learn how to make cars in volume” … Roger, you spin up a car manufacturer from nothing, building a car that no one else ever made (in volume), and tell me how fast you got it done. Nobody thought Tesla could do it (including auto majors) and they did. And I think it took them 7 years to get to 500K produced annually from a cold-start. Pretty impressive.
Now here’s the line-by-line rebuttal of your latest:
Roger: SpaceX: only exists because NASA was never outsourced to China
Tom: At what point did NASA or anyone else make a reusable rocket? And btw, NASA doesn’t manufacture, their contractors manufacture.
Roger: Walmart: its a retailer not a manufacturer (and a huge amount of its merchandise is from China and other foreign nations)
Tom: Walmart is a logistics and supply-chain management company, one of the best in the world. Their retail stores are the least complex aspect of their operation. Yes, Walmart (and most other U.S. retailers of consumer goods) move a lot of Chinese goods, hence the tariffs.
Roger: Amazon: its a retailer not a manufacturer (ditto)
Tom: Amazon is the pioneer, premier e-retailer. It also has – built from scratch – the best consumer-goods logistics in the world. It operates its own data centers, and sells its cloud-computing based logistics and retailing services to many companies in the U.S. and around the world
Roger: Data Centre Construction: its construction not manufacturing
Tom: It takes skills – which you claim are not longer present – to build a data center and all the gear inside them, incl HVAC, power systems. The computers we get from outside U.S., generally.
Roger: BNSF, Union Pacific: its a railway company not manufacturing.
Tom: I repeat: you said we can’t do logistics, and we’re doing logistics. We manufacture rail, rolling stock, locomotives, signaling equipment domestically. We export locomotives.
Roger: FedEx, UPS: logistics not manufacturing
Tom: Repeat: you asserted we couldn’t do logistics. We’re doing it. And we’re using systems that were pioneered, developed, and still operated domestically. The (custom) trucks, tracking gear, hand-held scanners, etc. almost all (not sure about the hand-helds) manufactured here in U.S. to-spec for UPS and FedEx.
Roger: Caterpillar: an actual manufacturing company, that has 45% of its workforce in the US with continuity among a number of US manufacturing plants for many decades.
Tom: Thought you said we couldn’t do manufacturing. Where’s all the skilled workers coming from? What about Deere, Manitowoc, Case (constr equip) Paccar (trucks), Monon, Trailmobile, Great Dane (trailers). We’re doing it.
And just to hammer home the point. Here’s a quote (on page 9) from this year’s report on manufacturing from the U.S. National Institute of Standards, a division of the Department of Commerce, listing the top 10 global manufacturers:
The top 10 manufacturing countries accounted for $10.7 trillion or 71.0 % of global
manufacturing value added: China (31.0 %), United States (15.1 %), Japan (6.6 %),
Germany (4.9 %), South Korea (3.1 %), India (3.1 %), United Kingdom (1.9 %), Italy
(1.9 %), Mexico (1.8 %), and France (1.7 %) (United Nations Statistics Division 2024).
Somehow, a country with 4% of world population produces 15% of world manufactures – even after having given away a great big part of our productive capacity – somehow we do that, all the while having very little institutional knowledge. Imagine that.
So, Roger: still waiting on that Industrial Policy whitepaper that (so far) none of the gloomers have taken time from their wailing to produce.
And yes, indeed, we are “far apart”. Glad to report that such is the case.
Posted by: Tom Pfotzer | Mar 7 2025 4:12 utc | 254
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