Mnuchin Goes Manchurian

Update 382 — Mnuchin Goes Manchurian:
Trump’s Tariff Policy Bites His Base, Mostly

Treasury Secretary Steven Mnuchin said last week regarding President Trump’s tariff policy that “We have not yet seen any impact on the U.S. economy.”  Secretary Mnuchin might get out of the Yale Club more. 

Like to Missouri, where the farmers have lost the Chinese market, and historic flooding followed by delayed planting, with bad news on the trade talks all conspiring to rout commodity markets.  

“Farmers are patriotic. We love our country and don’t want to see it cheated,” says a Pettis County farmer in central Missouri.  “But we have given about as much to this battle as we are able.”

The rest of us pay in higher prices.   The New York Fed estimates that the tax on the average American household has been $860 to date and counting.  More below…

Best,

Dana

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Donald Trump has been consistent throughout his years in public life on trade policy. In the 1980s, amidst rising U.S. trade deficits, he lambasted U.S. politicians for “selling out” the country. In his 2016 campaign, this message found an audience. Many voters, particularly in the Midwest, believed that trade had cost them jobs and hurt their communities. Trump went on to narrowly win Michigan, Wisconsin, Ohio, and Pennsylvania, securing the presidency. 

As President, Trump has followed through with promises to overhaul U.S. trade policy.  On day three of his presidency, he withdrew the United States from the Trans-Pacific Partnership (TPP). Since then, he has imposed new tariffs on U.S. trading partners, angering friends and rivals alike. But new figures indicate that the tariffs imposed so far have cost each American household about $600-$1000 annually and have reduced U.S. employment by 300,000 jobs. 

Trump’s anti-free trade rhetoric has ossified into a full-blown trade war with China, with tariffs now imposed on billions of dollars worth of Chinese imports into the country. The president’s opening salvo was his invocation of Section 232 of the Trade Expansion Act of 1962 to justify tariffs on aluminum and steel on national security grounds. His willingness to cite national security absent an explanation has resulted in bipartisan legislation to curb the President’s unilateral trade authority, currently stalled in Congress. The GOP Senators most active here are Toomey and Portman, of Pennsylvania and Ohio. 

So far, the U.S. has imposed tariffs on $375 billion worth of Chinese goods, and China has retaliated by imposing tariffs on nearly $100 billion of U.S. exports. 

Source: Financial Times 

Effects on Major U.S Producers

The Tax Foundation estimates that tariffs planned and imposed by Trump, along with announced retaliatory tariffs imposed by other countries, would reduce long-run U.S. GDP by 0.67 percent ($167.75 billion) and wages by 0.42 percent. Employment would fall by 519,978 jobs. The President is quick to cherry-pick data, but the facts are clear: Trump’s trade policy is negative-sum, and there are clear losers across the economy. 

  • Manufacturing: Trump’s tariffs, ostensibly to “revive manufacturing” are in fact, hurting. Steel and aluminum tariffs have raised prices for these inputs, increasing costs for American firms. The prospect of a trade war with China or the EU, let alone the current tariffs being levied, make planning for the future difficult. In the long-term capital-intensive manufacturing sector, this is especially true. This year, the Administration’s own Commerce Department published a study which found that Trump tariffs are a “challenge” for foreign companies wanting to move production to the U.S. 
  • Agriculture: U.S. agricultural exporters are the biggest victims of Trump’s trade policy. The U.S. produces more food than any other country, and overall agriculture exports exceed $150 billion annually. The industry as a whole has traditionally enjoyed immense political influence in the U.S. due to the structure of the Senate and the importance of agri-business in large swaths of the country, making it a ripe target for retaliatory tariffs. Among buyers of U.S. agriculture goods, China leads globally, imposing tariffs on soybeans, pork, wheat, and other products. Agricultural exports to China were $24 billion in 2014 and $9.1 billion in 2018. 

Effects on U.S. Consumers

In large part due to increasingly severe tariffs levied against Chinese-made goods, American consumers are feeling a direct impact from Trump’s trade policies. China is the U.S.’s top trading partner and its largest source of consumer goods. Trump plans to double the average U.S. tariff on nearly all imports from China by Dec. 15, from an average of 12.3 percent in June to 24.3 percent. This amounts to a nearly $40 billion price increase — just for consumer goods from China. Depending on how consumers respond to new prices, the tariffs planned and on the books already will cost the average U.S. household around $1,000 a year with some estimates as high as $2,000. 

National Public Radio recently looked at how tariffs have already increased prices for a number of discrete consumer goods. Trade policy is just one variable among many, but the effects of tariffs are indisputable. NPR’s “basket of consumer goods” experienced an overall 3 percent price increase since August 2018 — double the rate of inflation. Big box retailers like WalMart and Target make the final call on the price of their goods and they won’t be able to avoid passing costs to consumers. “Increased tariffs will lead to increased prices,” said WalMart CFO Brett Biggs in May.

The 2020 Political Cycle

Free trade, perhaps tarnished by demagogues like Trump, has never polled especially well — in 2016, 85 percent of Republicans and 53 percent of Democrats polled said that free trade has cost the U.S. more jobs than it has created.  Trump’s presidency has had the paradoxical effect of making trade more popular with the public than it has ever been before. Gallup has a long-running question on whether Americans see trade as “an opportunity for increased growth from exports” or “a threat from foreign imports.”  The positive responses today are the highest they’ve ever been at 74 percent.  

Most 2020 Democratic candidates are quiet on the issue.  Sen. Sanders and Warren criticize Trump’s process, saying they might maintain certain tariffs if elected. Joe Biden and the centrists dismiss anti-free trade concerns.  The recent slump in manufacturing, largely triggered by the tariffs, is hitting key electoral states especially hard. Democrats owe the public something beyond surface criticism of Trump’s trade policy.  Will any of the 2020 candidates go on the offensive with a comprehensive alternative to Trump’s clearly destructive policies, or is silence the best politics? 

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