Trump’s Tariffs Set to Destroy More Jobs than The Tax Cut Will Create.
Trump's trade war will claw back 25% of the growth in GDP, slightly more than 20% of the wage growth and more than wipe out all the jobs his tax cuts would provide.
President Trump’s tax cuts will provide the following benefits according to an analysis by the Tax Foundation.
According to the Tax Foundation’s Taxes and Growth Model, the plan would significantly lower marginal tax rates and the cost of capital, which would lead to a 1.7 percent increase in GDP over the long term, 1.5 percent higher wages, and an additional 339,000 full-time equivalent jobs.
However, the Tax Foundation has also estimated the effect of all the tariffs Trump has implemented and his most recent threat to impose more tariffs on Chinese goods and services.
The Trump administration has imposed and threatened several rounds of tariffs in 2018, and other countries have responded to these measures in kind. Using the Tax Foundation Taxes and Growth Model, we analyze the effects of enacted, threatened, and retaliatory tariffs on the United States economy. Tariffs damage economic well-being, and lead to a net loss in production and jobs, and lower levels of income.
According to the Tax Foundation model, the tariffs enacted so far by the Trump administration would reduce long-run GDP by 0.06 percent ($15.7 billion) and wages by 0.04 percent and eliminate 48,585 full-time equivalent jobs. If the Trump administration enacts additional tariffs on automobiles and parts and additional Chinese tariffs, GDP would fall by an additional 0.36 percent ($89.6 billion), resulting in 0.26 percent lower wages and 277,825 fewer full-time equivalent jobs.
Other countries have also announced intentions to enact tariffs on U.S. exports. If these tariffs are fully enacted, we estimate that U.S. GDP would fall another 0.05 percent ($12 billion) and cost an additional 38,376 full-time equivalent jobs.
If all tariffs announced thus far were fully enacted, U.S. GDP would fall by 0.47 percent ($117.6 billion) in the long run, effectively offsetting one-quarter of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.33 percent and employment would fall by 364,786.
So, looking at the rather likely scenario, IMO, that we implement all the recent tariffs Trump has threatened and retain the ones already in place and ignore any possible retaliation to future tariffs (note this is a rather strong assumption and can be seen as a best scenario) Trump’s trade war will claw back 25% of the growth in GDP, slightly more than 20% of the wage growth and more than wipe out all the jobs his tax cuts would provide. Note this is using the same model in both cases.
Too see the potential here in more concrete terms, Ford has lowered its earnings expectations.
Ford Motor Co. said on Thursday it expects lower earnings per share in the first quarter and lower pretax profit in 2017 due to higher spending on commodities, warranties and investments, and a drop in sales volumes especially fleet sales.
Ford Motor Co (F.N) on Wednesday lowered its full-year earnings forecast due to slumping sales and trade tariffs in China and its struggling business in Europe, and said ongoing plans to revamp its business could lead to pre-tax charges of up to $11 billion over the next three to five years.
Tariffs, particularly those imposed on U.S. aluminum and steel imports by President Donald Trump’s administration, should cost Ford $1.6 billion in North America in 2018, Shanks said.
The automaker’s struggles to boost sales in China have showed no sign of ending despite its taking steps to bring new products to market. Through the first five months of 2018, Ford’s Chinese sales were down 22 percent.
GM also is lowering its earning expectations as well and is citing similar reasons as Ford.
General Motors (GM) on Wednesday downgraded its expected earnings for 2018 because of costs associated with the Trump administration’s steel and aluminum tariffs.
Reuters reported that the company expected to face a $1 billion impact on its full-year results, an increase from the $500 million it had previously projected. Most of its additional costs were incurred in America, Chief Financial Officer Chuck Stevens told reporters.
However, he added that the GOP tax-reform legislation passed late last year and low unemployment should help mitigate some losses from the tariffs in 2018.
“What happens beyond 2018, there’s a lot of uncertainty in this space at this point in time,” Stevens said.
The Trump administration implemented steep tariffs on aluminum and steel imports earlier this year. The move prompted a number of other countries to impose retaliatory tariffs.
U.S. steel producers have raised their prices to keep up with the new tariffs, leading to higher costs for GM, Reuters reported.
In FCA’s case, Chinese demand slumped in the quarter ahead of a July cut in import duties, resulting in higher incentive spending and an increase in unsold vehicle stocks that “particularly affected Maserati,” new Chief Executive Mike Manley told analysts on a conference call.
Manley said “very, very cost conscious” Chinese consumers sat on the sidelines during the second quarter waiting for prices to come down.
FCA shares plunged more than 15 percent.
The automakers’ results were overshadowed by news former CEO Sergio Marchionne had died after suffering complications from surgery.
FCA said that it has fixed-price contracts for most raw steel through 2018, but would see increases in 2019 if current prices hold.
Additionally and ironically, Whirlpool has trimmed its earning forecast as well due to steel and aluminum tariffs. This is ironic since Whirlpool initially clamored for tariffs on washing machines and parts and got them. Then Trump ruined the party by imposing additional tariffs on steel and aluminum driving up Whirlpool’s costs and eating into earnings. Whoops. From the article,
Home appliance manufacturer Whirlpool Corp (WHR.N), an early supporter of tariffs to protect U.S. washing machines, said on Tuesday that U.S. tariffs on steel and aluminum were raising sharply the costs of raw materials, contributing to a slump in second-quarter earnings, and shares fell 15 percent to a two-year low.
On Monday, Whirlpool reported second-quarter profit after market close that fell short of Wall Street estimates. The company posted a net earnings loss of $657 million, or $9.50 cents per diluted share, in the quarter that ended in June, compared with $189 million, or $2.52 per share, a year earlier.
The Trump administration slapped tariffs on imported washing machines earlier this year, which was expected to give Whirlpool a boost.
Bitzer praised the tariffs on washing machines in January but struck a more cautious tone in April, saying the company’s raw materials costs in its U.S. laundry business had risen substantially primarily due to a separate set of tariffs on steel and aluminum.
On Tuesday he said that “uncertainty related to tariffs and global trade actions have also led to increased cost of certain strategic components and finished goods import and export.”
American Soybean Association CEO Ryan Findlay said Thursday that China’s retaliatory tariffs of 25 percent on U.S. beans have dealt farmers a major blow because it’s led to low prices that essentially don’t support paying bills.
“Farmers see that pain right now,” Findlay said in an interview on CNBC’s “Power Lunch.” “You have to have the prices to pay the bills — and the prices aren’t there right now.”
U.S. soybean futures have fallen nearly 20 percent since China announced on April 4 plans to slap a 25 percent tariff on 106 U.S. products, including soybeans. At the same time, Brazilian soybeans are fetching a significant premium over the Chicago prices due to increased demand from Chinese buyers.
“If somebody were to lose 20 percent of their income, that hurts,” Findlay said. “I don’t care what segment of industry you’re in, that hurts — and farmers are feeling that right now. And they’re starting to feel that emotional impact.”
Findlay said another ripple effect is farmers holding off buying farm equipment because “they won’t have the funds to make that purchase.”
And of course this has led Trump to propose a $12 billion bailout of the agriculture sector.
“This trade war is cutting the legs out from under farmers and White House’s ‘plan’ is to spend $12 billion on gold crutches,” Sasse said in a statement. “America’s farmers don’t want to be paid to lose – they want to win by feeding the world. This administration’s tariffs and bailouts aren’t going to make America great again, they’re just going to make it 1929 again.”
Winning…so much winning.
Trump’s policies in regards to trade are hurting Americans. Even if you are not in one of the affected industries you’ll likely face higher prices. And all of this is literally for nothing. Trade deficits are hard to classify as Bad™. Trade is mutually beneficial, at least ex ante, and this is true if you are trading in the same city, same state, same country or even between countries. The two parties to the transaction are free not to make the trade if they think it will be bad for them. Granted, trade between countries allows for greater specialization and even innovation and those two things can destroy jobs, but that is part of the market process. The new destroys the old. As farmers obtained tractors and other equipment of increasing sophistication and productivity each farmer became more productive. Where in the past 1 farmer could farm say 20 or 30 acres with his team of horses, tractors and latter combines now 1 farmer can farm 500 or 1,000 acres. And naturally jobs in the agriculture sector have been destroyed on a large scale. In 1900 approximately 40% of the work force worked on farms. Today that number is down to 2%. Why this job destruction is seen as tolerable or even desirable when it is done within a country, but suddenly bad when it crosses international borders makes zero sense.
Further, merely raising tariffs, even if our trading partners do not, hurts Americans. There is a difference between who is legally required to pay the tax and who actually does pay the tax. Consider the sales tax. If there is a sales tax and you are buying something that is $10 what does the businessman selling you the good do? He multiplies the price by 1.1 and charges you $11. He keeps the $10 and sends the extra $1 to whatever agency is collecting the sales tax. And the businessman also pays part of the tax. Since his prices are now effectively higher he will lose some sales so his revenues and earnings will go down too as a result of the tax. This “sharing of the tax” irrespective of who writes the check to the government is known as tax incidence or tax burden.
The bottom line is simple. Trump’s trade policies are anti-growth and nationalistic and are based on a faulty idea that trade deficits are inherently bad. His solution to bailout the agriculture sector is emblematic of socialism.