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Can Trump’s Trade War Make America Great Again?

It is difficult to ascertain just when President Donald Trump’s war on international trade commenced. Was it when the White House imposed tariffs on Canadian softwood lumber? Or, was it when his administration slapped levies on Chinese aluminum foil? It is also just as hard to determine where this trade war is heading, when it will cease, and what America’s trading future looks like.

Some industries have seen a modest resurgence; others have endured pain and suffering.

But President Trump thinks the short-term agony will yield long-term prosperity. If you’re a soybean farmer on the cusp of insolvency with rotting inventories and surging storage costs, then it’s impossible to imagine tomorrow’s wealth. On the other hand, if you’re a U.S. steel factory manager, and you’re enjoying the fruits of protectionism, then you cannot help but be excited for what the future brings.

So, how did the Trump-led trade spats fare in 2018? Will things get better or worse in 2019?


For the last 20 years, U.S. brands have shifted their manufacturing practices to China and other nations with a comparative advantage in labor. Retailers have also turned to foreign markets to import cheap goods. As a result, consumer prices have been kept in check, allowing American businesses to invest more in operations and shoppers to enjoy a greater purchasing power.

In recent months, prices have come under pressure as corporate America begins to pass the costs from levies onto the consumer. In October alone, U.S. companies paid $6.2 billion in tariffs, a 104% surge from the same period in 2017.

Overall, products that have been targeted by this policy are seeing the biggest price hikes.

In January, President Trump imposed taxes ranging from 20% to 50% on washing machine imports. At the time, economists forecast that the penalties would lead to a 15% price increase. Did it happen? Yes, but worse: There was a 16.4% jump for washing machines as appliance producers, like LG and Samsung, passed these costs onto consumers.

Steel is another material that is seeing double-digit increases. According to data from the Bureau of Labor Statistics (BLS), the six major Producer Price Index (PPI) series for U.S. steel prices climbed between 18.2% and 25.8%, averaging a 22.4% increase through September. This has made U.S. steel prices higher than any other market in the world, raising costs by the millions and billions for companies and entire industries that depend on steel.

BLS numbers show that the cost of lumber also rose about 10%, padding an extra $1,300 to the average construction of a new home, though the raw material did dip in the final quarter of 2018.

This past Christmas might have set you back a bit more because 90% of articles, decorations, and accessories are made in China.

According to all of the Federal Reserve district bank Beige Book surveys, manufacturers fear that prolonged import penalties will continue to force them to push up prices. Here is what the Dallas Fed Bank reported:

“Input price pressures remained elevated in part due to tariffs, particularly in manufacturing and construction, and firms were struggling to pass these higher costs onto customers.”

One more thing: IHS Markit, a London-based economics research firm, discovered in a study of 800 companies that higher prices are more likely to stem from tariffs, not more jobs.

Effects on Industry

“Steel is steel. You don’t have steel, you don’t have a country,” said President Trump upon signing his executive order on tariffs.

The Trump administration earned a quick victory in the immediate aftermath of announcing steel and aluminum taxes. U.S. Steel CEO David Burritt said in March that he would be adding 500 jobs because the tariffs “feel like the beginning of a renaissance for us.” In the summer, he confirmed that an additional 800 jobs would be created. [perfectpullquote align=”left” bordertop=”false” cite=”” link=”” color=”” class=”” size=”24″]…farmers preferred to trade rather than receive a handout.[/perfectpullquote]

Was this a sign that the trade war is producing a tsunami of jobs?

The U.S. economy did add about two million new jobs last year, which leads many to believe that this is the result of tariffs. It might not be as cut and dry.

First, let’s talk agriculture. When China initiated a round of retaliatory tariffs, it targeted domestic farmers, particularly soybean growers. This caused dozens of family-run farmers to file for bankruptcy as they witnessed their storage expenditures spike and supplies deteriorate. Without a foreign market, they couldn’t sell their inventories. Other soybean farmers transferred to other agricultural commodities, like wheat and cotton. The administration tried to alleviate the damage by extending a $12 billion bailout package to the sector, but farmers preferred to trade rather than receive a handout.

Second, the domestic steel industry is booming again with output hitting a five-year high. However, steel-reliant businesses have not been as fortunate, experiencing surging costs because of higher material prices.

In addition to the announcement of layoffs and lower revenues, the recent selloff in industrial stocks suggests that there could be new risks for manufacturers. Despite a strong year of production and rising sales, thanks in part to tax cuts and consumer confidence, producers cannot catch a break.

From The Wall Street Journal:

“Caterpillar said tariff-related costs for this year would likely come in at the low end of the previous range of $100 million to $200 million it forecast. 3M expects the tariffs to push up costs by about $20 million this year and $100 million next year.”

It was not the primary factor in shutting down a handful of plants, but General Motors did note that the steel tariffs added approximately $1 billion in additional annual outlays.

This is why it did not surprise many when the Brookings Institution warned in March that 600 non-steel jobs were at risk for every one steel job saved.

Protectionism in 2019

In a December tweet, President Trump vowed to keep up the pressure with tariffs should U.S.-China trade negotiations fail once the 90-day truce is up, referring to himself as a “Tariff Man.” This might be a sign of things to come if Washington cannot establish better trade deals with some of its biggest trading partners, like the European Union, China, and Japan. In other words, it’s a bird, it’s a plane, it’s Tariff Man and if he believes you’re ripping off the country, then feel the wrath of mercantilism.

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