http://money.cnn.com/2018/03/05/news/companies/tariffs-gm-ford/index.html
(https://www.usatoday.com/story/money/2018/03/05/tariffs-trump-impact/395314002/ for some quick background)
Summary:
Last Thursday, Trump announced his plan to impose a 25% tariff on foreign steel and a 10% tariff on aluminum. The move is scheduled for this week, and this controversial stance has been at the forefront of financial news. Even Paul Ryan has denounced this move, but the White House has remained rigid in his decision, which is clear in Trump's tweets and words form his administration.
According to Goldman Sachs, however, Ford and General Motors could each lose $1 billion a year in revenue if the tariffs are imposed, which is 12% of Ford's profit from last year and 7% of GM's. Both manufacturers say that they mostly use American-made steel, but they also do rely on foreign-made steel, as Ford believes the tariff would harm "the competitiveness of American manufacturers." Steel and aluminum prices are low because of global competition, and when that is removed, an American market would have a smaller supply and greater prices. The steel and aluminum industries in the U.S. would benefit, but all U.S. steel-using industries will either have to lay off people, produce less, and lose profits. The American International Automobile Dealers Association warns that automobile prices will rise, and also cautions that Trump my be furthering trade/tariff wars, causing other members of the global market raise their tariffs against the U.S.
Analysis/opinion/connection to econ:
I do think certain aspects of Trump's arguments are reasonable, although his personality makes his every move seem aggressive. The U.S. does have trade deficits with other countries, and many countries have higher tariffs against us than we do for them, so it is fair for us to want to help out our industries. Trump has also said that these high tariffs would give him leverage in NAFTA negotiations, which is not unreasonable, although it is a gamble. An idea from our econ class that could relate here is the "invisible hand" theory, which suggests that if every country puts itself first like Trump wants to do with the U.S., it could perhaps be to the benefit of the global market as a whole.
One issue with Trump's tariff is that he seems to be protecting one group at the cost of others. I have read that the amount of workers that use steel is 50 times the number that produces it, so we would be hurting way more people than the few in the industry Trump wants to help. Trump could be prioritizing steel because it is produced in states he needs to win in 2020, or because he wants to take a bottom up approach in fixing all of our nation's industries. If the latter is true, Trump would be better off gradually increasing the tariff to what he wants, allowing a longer time horizon for the steel market to adjust, as supply and demand are both more elastic over longer periods of time. Then, other industries that rely on steel, such as car manufacturing, could operate without any factors (such as input costs) shifting their supply and influencing their revenue, and predicted car price increases and revenue decreases would not occur.
Questions:
1. If Trump only intends to use these tariffs as leverage in NAFTA and other trade discussions, is it a smart choice? Do these tariffs give the U.S. more power as intended?
2. Could these tariffs have important political implications for 2020? Why do industrial state Democrats support the tariffs, and why is Trump's own party leadership not on his side?
3. Would a lower tariff or a gradually increasing tariff be any better?
4. In the global market, can the "invisible hand" work? Is putting the U.S. first right or wrong?
4 comments:
I'm a big fan of the efficiency that a free market provides. Resources go where they are needed, and overall growth is at a maximum. Of course, they say that capitalism is a destroyer as much as it is a creator; it creates opportunities and advancements at the cost of low value jobs. And when a group of people with those low value jobs start feeling the pressure, they send us a champion in the form of President Trump to protect their interests. But while this tariff protects that small group of people, it harms the interests of the businesses, the people who work for those businesses, the shareholders of those businesses, and the efficiency of the global market. Not a great trade off.
These tariffs that Trump has imposed do not really give him leverage, as it would hurt the United States and the steel it needs to build infrastructure and other manufacturing and industry projects. The tariff will deter foreign nations from investing in the American economy and they will be less inclined to ship goods to America, when they can sends the same goods elsewhere that does not have a high tariff. If these tariffs do not work out and the economy of these parts of the country that are dependent on this form of good (ie. the rust belt), then it will negatively hurt Trumps chances of reelection in 2020.
I'm kind of confused as to the purpose of these tariffs, because I thought the purpose of these tariffs is to support American markets, whereas these tariffs would actually hurt the American car industry. But regardless, I wouldn't necessarily be in favor of these tariffs, especially because they are on something as important as steel, which is used as an input for so many different industries, like infrastructure, cars, etc. The overall damage this would do to the economy due to the versatility of steel far outweighs the benefits this gives to american steel industries.
I have read about this proposal in the newspaper recently, and all I've read have expressed a general condemning tone. I would have to agree by questioning Trump's decision on this. These tariffs seem rather sudden to me, and, thus it is quite possible that other countries would be rather irritated about them. In fact, I know other countries are upset about these tariffs because of the newspaper. I think this may cause countries to turn away from buying steel and aluminum from the US due to the emotions that come up as a result, and due to just the price on its own.
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