“Everyone is in favor of free speech… but some people's idea of it is that they are free to say what they like, but if anyone else says anything back, that is an outrage.” ― Winston Churchill
In addition to US tariffs raising the cost of the steel and aluminum Harley uses to make motorcycles for Americans, TrumpTrade is driving US manufacturing jobs to Europe. Doesn’t say how many jobs will be lost, but 40,000 motorcycles a year are no longer going to be made here. Meanwhile, Harley has to eat $30 to $45 million in 2018.
Tit-for-tat going as expected. It’s all the fault of those dumb Europeans, of course.
Harley-Davidson To Move Some Production Outside US Over EU Tariffs
The “Worst Case Scenario”: A 10% Tariff On All US Imports & Exports Would Slash S&P EPS By 11%
Let’s hope that’s the worst case. Smoot and Hawley are watching with bated breath.
But it still shows President Trump’s confusion on trade and tariffs. From whitehouse.gov:
Press Conference by President Trump After G7 Summit
Emphasis mine.
Q Mr. President, you said that this was a positive meeting, but from the outside, it seemed quite contentious. Did you get any indication from your interlocutors that they were going to make any concessions to you? And I believe that you raised the idea of a tariff-free G7. Is that —
THE PRESIDENT: I did. Oh, I did. That’s the way it should be. No tariffs, no barriers. That’s the way it should be.
Q How did it go down?
THE PRESIDENT: And no subsidies. I even said no tariffs. In other words, let’s say Canada — where we have tremendous tariffs — the United States pays tremendous tariffs on dairy. As an example, 270 percent. Nobody knows that. We pay nothing. We don’t want to pay anything. Why should we pay?
We have to — ultimately, that’s what you want. You want a tariff-free [sic], you want no barriers, and you want no subsidies, because you have some cases where countries are subsidizing industries, and that’s not fair. So you go tariff-free, you go barrier-free, you go subsidy-free. That’s the way you learned at the Wharton School of Finance. I mean, that would be the ultimate thing. Now, whether or not that works — but I did suggest it, and people were — I guess, they got to go back to the drawing and check it out, right?
So, they did teach him that tariffs are a bad thing in his Econ 101 course. One would think this attitude would have made NAFTA easy to re-negotiate.
Since this is the first time I can recall any mention of it in the President’s otherwise protectionist, multitudinous rants; maybe he’s just now remembered it. Better late than never, but his recall is incomplete and confused.
Canada does, indeed, levy a 270 percent tariff on milk imported from the US. However, it is not the US that pays that tariff, it is Canadian consumers. Just like it’s American consumers and businesses who pay US tariffs on softwood lumber, steel, aluminum, washing machines, cars, etc., etc..
As to no subsidies: If Canada wants to subsidize US purchases of steel, aluminum, softwood lumber, or cars: I say let them. Those are subsidies given to US consumers by Canadian taxpayers. It’s stupid for Canada to do it, but it isn’t our problem.
President Trump is confused about who pays tariffs, and he appears to view trade as a zero sum game. If one side wins the other side must lose. Nothing could be further from the truth. By definition, in any freely conducted trade all the traders win.
If he could just remember that lesson from Wharton, he’d be a much better CEO. Maybe he missed class that day.
Used to be when you said “conservative” people had a clear idea of what you meant philosophically. Adam Smith, W. F. Buckley, Goldwater, Reagan, or Cruz might come to mind. Maybe it would invoke the tea party, free trade, Constitutional originalism, free markets, and opposition to deficit spending. Now, it’s all a mess thanks to a long run of “conservatives” like John McCain, George Bush, and Donald Trump
There’s “conservative,” “neo-conservative,” “cuckservative,” “Trump conservative,” “Alt-right,” etc.. TOC has worried in the past about this philosophical dilution – defining freedom down. The current round of internecine attacks, including selective rejection of long standing principles, have been more damaging than anything the Progressives have accomplished.
Cronyism and protectionism are seen as fine if the correct people do it. Now protectionism is “conservative,” along with corporate bailouts.
We all need to reread Friedrich Hayek’s Why I am Not a Conservative: “The tug of war between conservatives and progressives can only affect the speed, not the direction, of contemporary developments.” Hayek was a classical liberal, a qualifier required since the collectivists stole the original word. Now we’re witnessing the further muddling of what has been meant in the United States by “conservative,” i.e., “classical liberal.”
The latest example; “Conservatives” who defend Trump’s populist trade shenanigans as ‘bargaining positions’ are expediently abandoning moral leadership.
Why Trump’s Higher Tariffs Now are Unlikely to Result in Lower Tariffs Later
I think it is absurd to assume that Trump’s real intention is to get us to a new equilibrium with lower tariffs all around the world. He does not understand the value of free trade and his closest adviser on this issue is an ardent protectionist. Trump’s negotiation experience is all in zero-sum games where he is trying to extract the most of a fixed pie for himself, not in trying to craft win-win solutions across multiple parties.
But here is the real reason this won’t work: The current relatively-free trade regime that exists today was built almost totally on America’s moral leadership on the issue…
[M]many of the most powerful political actors in our trading partners actually represent large corporations (some state owned and some just highly-aligned with the state) and powerful labor unions who would be perfectly happy to pursue additional crony protectionism of their industry even at the expense of the majority of their country’s consumers and businesses. All these forces for protectionism have always been kept at bay in large part by America’s leadership on the issue.
Not any more.
Any price increase due to import taxes, aka protectionist tariffs, exactly equals the reduction in the disposable income of consumers in the country imposing the tariff.
While this benefits the general government coffers, it loots every citizen’s pocket – even those who never buy the good in question: The consumer is forced to either buy less of that good or less of some other good.
Apropos of President Trump’s Bezos bashing is this 2017 article from the Wall Street Journal: Why the Post Office Gives Amazon Special Delivery
Myopia is the first word that springs to mind on reading this. Well, the first polite word. The author knows regulation is the problem, and proposes more regulation as the solution.
Yes, United States Postal Service delivery of parcels is probably (it’s debatable that USPS even knows*) mis-priced, but it’s most definitely not Amazon’s fault. And it won’t be fixed by tweaking regulation, because if it could be it wouldn’t be a problem in the first place.
At the margin – “[USPS] has filled its spare capacity by delivering more boxes” – USPS would be far worse off without Amazon. It’s evident that without Amazon – whose parcels arguably cost the USPS next to nothing to deliver, since they’re making all those mandated stops anyway – USPS losses would be much greater. USPS must think so, too, since it has been making Sunday parcel deliveries in peak periods for some time now.
At least taxpayers get something back for subsidizing the government delivery service if they shop at Amazon. Or Newsweek, or National Review… USPS subsidized periodicals with $273 million in 2006.
All USPS problems result from its monopoly on first class mail, attendant regulatory price caps and other interference, consequent market cluelessness, and a refusal to innovate typical of government supported monopolies. USPS pricing errors are no “accident of history.” Unless you use Obamacare pricing as your definition of ‘accident.’
Maintaining delivery capacity USPS can’t fill is mandated by the Federal government. Rather than enable USPS to compete, our Congresscritters cap the first class mail rates and then make “it illegal for the Postal Service to price parcel delivery below its cost.”
Of course, *”calculating cost can be devilishly subjective.” So, to fix the problem legislators caused, the regulator decides to layer on some more regulation – “its regulator determined that, at a minimum, 5.5% of the agency’s fixed costs must be allocated to packages and similar products. A decade later, around 25% of its revenue comes from packages, but their share of fixed costs has not kept pace.” Well, they don’t actually know that, do they?
And, why not 5.8%, or 6.49%? And, kept pace with what? Isn’t 5.5% still 5.5%? And, isn’t that still the ‘right’ number a decade after it was imposed by the wise men? Or, did variable costs change “unexpectedly”? And, if 5.5% is a minimum regulatory stricture, why hasn’t USPS already raised it – since it’s illegal not to?
Gotta admire the precision decimal acumen of those nimble central planners, who can’t react to internet disruptions even as rapidly as every 10 years, and base pricing on fixed costs.
What do you bet UPS and FedEx know their total costs and don’t calculate them the way USPS does?
Yep, “devilishly subjective” pricing is a perfect scenario for a stultifyingly bureaucratic, government unionized organization with health care and pension liabilities at 169% of the fiscal 2016 revenues, and $15 billion in low interest loans from the U.S. Treasury.
“Select high-volume shippers are able to drop off presorted packages at the local Postal Service depot for “last mile” delivery at cut-rate prices. With high volumes and warehouses near the local depots, Amazon enjoys low rates unavailable to its competitors.” Let me rephrase that, “Because Amazon has invested in efficient logistics and well planned locations, it makes it easier for any delivery company to transport its goods. Especially an organization with tens of thousands of locations in that ‘last mile’” What do you bet Amazon gets volume discounts from FedEx and UPS?
“[T]he Postal Service needs to stop picking winners and losers in the retail world.”? How? There is no way to subsidize a government delivery service without “picking winners and losers in the retail world.”
Spare me the “universal-service obligation—to provide for all Americans at uniform price and quality. This communication service helps knit this vast country together, and it’s the why the Postal Service exists” argument. If that’s the mandate nobody should be surprised we have to subsidize it. Stop whining about the cost resulting from that choice, and stop scapegoating the companies (there will always be some) who can take advantage of regulatory winner/loser decisions, until you are willing to privatize the USPS.
Of course, as in Europe, the Post Office should be privatized. To do that, the first class mail monopoly must be eliminated. Then USPS can compete on price and service. Delivery to marginal locations will become more expensive and/or a bit slower. IAC, the “first class” mail rates would rise to market values. Junk mail volume would plummet, and we’ve been subsidizing that too. If “[T]wo-thirds of Amazon’s domestic deliveries are made by the Postal Service,” the Post Office’s burdensome real estate holdings might even become an advantage. At current pricing, they already are.
Or we could nationalize UPS and FedEx. That would fix the problem and provide more jobs for regulators.
USPS demonstrates exactly what happens to protected industries; misallocation of capital, mispricing, insensitivity to customer needs, complacency about markets – resulting in inability to innovate or compete.
The President’s ire is misdirected. Since it’s an economic question, that’s unsurprising. Well, actually, it’s petty personal animus toward Jeff Bezos, but that’s even less surprising.
Protectionism is trickling down from Washington, and leading the charge is Michigan state Senator Rick Jones, yet another economically undereducated Republican.
At present, Michigan buys road salt on a best price basis. However, our legislators are discussing a 6% tariff (note: this was originally 8%, as some of the articles quoted below state) on salt purchased out of state. There seems to be only one company which would benefit from the tariff.
Road salt bid bill could raise prices for Michigan
In 2017, the state awarded nearly $16 million in contracts for 349,265 tons of salt. Detroit Salt Co. was awarded $4.4 million of that, while Compass Minerals was awarded $9.8 million, according to the DTMB. The remainder went to Morton Salt and Cargill.
More purchases are made by local governments, according to Caleb Buhs, a spokesman for the DTMB. State and local governments spent a combined $48.1 million on road salt in 2017…
Detroit Salt has about $20.1 million worth of contracts with Michigan, about one-fifth of the state’s total, according to a House Fiscal Agency analysis.
This Detroit News article is confusing. If $20 million is one-fifth of the state total it adds up to $100 million – more than the $64 million (16+48) the article otherwise suggests. Or is $48 million the total of “State and local government” salt purchases?
The numbers also don’t square with the statement that Detroit Salt has one-fifth of the state contracts AND $4.4 million of $16 million in state contracts – which is more than a quarter. Either we already pay Detroit Salt above market prices, these are multi-year contracts or something else is going on that the article fails to reconcile. In any case, we can derive some reasonable approximations using other sources.
I looked to a state of Michigan Attorney General’s report on the Winter of 2014-2015. Following are some notes from that report:
It was recently reported that public agencies in Michigan use nearly 2 million tons of salt annually to clear snow and ice.8
The contracts expire on August 31, 2016, with two 1-year options, but prices are rebid every spring. The contracts serve MDOT, and approximately 300 local public entities.
According to MDOT, the 2014-2015 winter season average cost of road salt for the state and local road agencies was $65.81 per ton…
Compass [Minerals] was also the only bidder in 2014-2015 in all of the counties in the top half of the Lower Peninsula, including Missaukee County…
The mine is [2014] currently running at full capacity…
Detroit Salt did not have enough inventory to bid on all of the MiDEAL requests.
What does this tell us?
1- The cost of the 2 million tons of salt used in 2014-2015 was approximately $132 million.
2- Contracts are multi-year, but get repriced.
3- Northern counties in the lower peninsula can be glad they had out of state suppliers.
4- In 2014 Detroit Salt was running at capacity and had depleted inventory. Employment couldn’t be increased.
And if you read pages 20 and 21 of that report, you’ll see some of Detroit Salt’s problems were self-inflicted. Notably, their choice of delivery methods.
To preserve some fraction of Detroit Salt jobs, Senator Jones is asking taxpayers for $8 million in taxes. That’s nearly $113,000 per job/per year, assuming all 70 jobs are at risk. It’s likely, though, that we’re not talking about total layoffs, so the cost per job “saved” would be much higher.
The minimum annual $113,000 cost per job also ignores the cost to distributors, private users of road salt, and truckers. Neither does it consider the negative effect on employment in salt related businesses. It doesn’t contemplate the possible deterioration of roads, or increases in accidents due to more parsimonious use of road salt. It doesn’t recognize lost opportunity costs; every extra dollar spent on salt could have gone to fix potholes. Those things are unseen by Senator Jones.
It’s worth noting that Detroit Salt is a subsidiary of the Kissner Group, a Canadian company.
Detroit Salt’s leading competitor, Compass Minerals, is a US company operating a mine in Canada (Goderich, Ontario), while Detroit Salt is a Canadian company operating a mine in the US. So, the only possible point of this tariff is to “save” a few jobs at a single Michigan company outside of Senator Jones’ district. More from Crain’s: Bill seeks to help Detroit Salt gain edge over Canadian firms
The only Michigan company that sells a mined product to the state is Detroit Salt, which employs about 60 people on Sanders Street in southwest Detroit…
Sen. Rick Jones, a Republican from Grand Ledge who sponsored the bill, says the state should do what it can to protect Michigan workers’ jobs. He said he’s not concerned that the state might grant an incentive to a company with Canadian ownership, in part to offset competition by other Canadian suppliers.
“You call it a Canadian company,” Jones said. “I call it Americans, Michiganders, working here in the state of Michigan, and we need to support them and not workers somewhere else. If it is based here and providing 60 to 80 jobs to people here in Michigan, I consider it a Michigan company.”
I call it a subsidy to the Kissner Group.
Purchases of salt mined in Ohio would also be affected. Ohio already has tariffs on salt similar to the Michigan proposal, but they don’t apply them to Michigan. Senator Jones’ bill would apply our tariff to Ohio. I wonder how long Ohio will continue Michigan’s exemption?
One would have expected this to be a violation of the Commerce Clause in either case. Apparently, “an exception to the U.S. Constitution’s commerce clause applies to states if state government is acting as a participant in the market and not a regulator.” This is semantic gymnastics. It’s regulation by price-fixing.
All this central planning seems to be at cross purposes, with taxpayers caught in the middle by politicians pandering to populist economic ignorance. It’s just too complicated for them to pick winners and losers. One reason for the lower price for Canadian salt is said to be the $CDN/$US exchange rate: Something our president complains is an economic weapon in China’s hands. Simultaneously, he is doing his best to weaken the Canadian dollar by threatening to blow up NAFTA. Meanwhile, Rick Jones is clueless about anything except buying votes with your money.