Trump’s Trade War Chickens Coming Home To Roost

Three months after it started, the Trump Trade War is already starting to have a negative impact on American businesses and American consumers.

Just days after President Trump once against threatened to unleash new tariffs in a trade war that clearly seems to be expanding rather than heating up, The New York Times reports that American businesses and consumers are already starting to feel the negative impact of what is, in the end, an economically illiterate policy:

WASHINGTON — The effects of President Trump’s trade war are beginning to ripple through the United States economy as steel tariffs disrupt domestic supply chains and global trading partners retaliate against a wide variety of American products, such as peanut butter, whiskey and lobster.

The cascade of tit-for-tat tariffs has spooked corporate executives, potentially slowing investment, and the Federal Reserve suggested this week that it might have to rethink its economic forecasts if the trade wars continue.

On Friday, Mr. Trump only added fuel to the fire when he threatened in a tweet to impose a 20 percent tariff on all European cars coming into the United States if the European Union did not remove its auto tariffs. “Build them here!” the president wrote.

Mr. Trump, who campaigned on a get-tough approach to trade, has said his tariffs would make trade pacts more fair and ultimately help American workers, farmers, manufacturers and other. But the situation could soon become politically perilous to Mr. Trump, whose trade policies are starting to inflict economic pain across the country, including in areas that are home to the voters who helped him win election.

The Times goes on to profile the owners of medium-sized and small corporations in five separate industries including manufacturing nails, the owner of a whiskey distillery in Virginia, lobster fishermen in Maine, cranberry farmers in Maine, and peanut farmers and peanut butter manufacturers, all of whom have seen there industries the targets of retaliatory tariffs or threatened with such retaliation in response to the threats that the President has made most recently. In reality, of course, this is only the beginning of what we’re likely to see as a result of this ill-informed policy, and other examples have already started piling up demonstrating the impact that the President’s tariffs and “easy to win” trade war are likely to have on the economy.

Late last month, for example, The Wall Street Journal reported that prices for steel and aluminum were increasing, thus impacting manufacturers that rely on these raw materials for their products. Other reports indicated that American pork farmers were increasingly nervous about their overseas business with nations like China. In Iowa specifically, it is being reported that Chinese retaliation for the tariffs imposed on Chinese goods could cost soybean farmers $624 million this year alone, with the prospect of larger losses if the retaliation continues beyond this year. This has led many leaders in Iowa and elsewhere, including Senator Chuck Grassley to express concern about the impact of the trade war on Republican fortunes in the fall. This is especially true given the fact that the tariffs seem to be expressly targeted toward Trump voters and middle-class Americans.

More broadly, the expanding trade war has also had an impact on world financial markets, and especially on the stock prices of companies that rely on international trade, of which there are many among the members of the Dow Jones Industrial Average, the S&P 500, the NASDAQ index, and broader measures of market activity such as the Wilshire 5000.  Since the President announced the first round of tariffs in March, all of these stock indices, which had been on a nearly uninterrupted upward swing since Election Day 2016, began heading downward, often at a dizzying three-digit-per-day pace that, while amounting to a small percentage of actual market value is nonetheless disconcerting. To be fair, at least some of these losses can be attributed to a natural, expected, and necessary correction in the market after more than a year of going upward. However, it is also clear that a large segment of what we’re seeing constitutes a negative reaction by investors to the tariffs and nervousness about what impact a trade war could have on corporate earnings and world financial markets. As a result, where the market has erased all the gains it had made since December 31, 2017. While that still places stock prices in a good place, the prospect of future tariffs is likely to mean that we’ll see gains made since the 2016 election start to erode too, and that’s likely to pose problems for Republicans heading into the midterms.

None of this should come as a surprise to anyone who is even moderately well-versed in economics, of course. Both economic analysis and actual history have demonstrated time and again that tariffs and trade wars are ultimately destructive, that they do not “protect” domestic industry, that the end up harming international relations outside of the economic sphere, and that they end up harming consumers. One of the best examples of this, of course, is the one that most Americans are probably the most familiar with, the infamous Smoot-Hawley tariffs imposed just before the start of the Great Depression. While later economic and historical analysis has shown that the role the tariffs played in precipitating the subsequent economic downturn likely wasn’t as prominent as has been popularly believed, it’s nonetheless true that they did nothing to help the economy recover and, predictably, led to the kind of retaliatory tariffs that weakened the world economy and helped to set in motion many of the elements that played a role in the inevitability of the Second World War.

As for the impact of all of this on international relations, we can see that unfolding before our very eyes. and it’s not just impacting our relationship with nations such as China. It’s also ruing our relationships with our most important allies.

Late last month, President Trump revoked the exemption from the steel and aluminum tariffs that had been announced back in March that applied to American allies in Europe as well as Canada and Mexico. At the time, he claimed that this was being done for “national security” reasons. Right off the bat, of course, the idea that nations that have been loyal American allies since the end of World War Two, and in many cases long before that, are somehow threats to our national security is laughably absurd. Needless to say, these actions were not well received by our allies in Europe and elsewhere. Canada’s Foreign Minister called the new tariffs “absurd,” for example, and European Union officials announced retaliatory tariffs against American goods. Things got even more bizarre in this regard as Trump exchanged harsh words with Canadian Prime Minister Justin Trudeau prior to the G-7 Summit. Once he was at the summit, Trump essentially did everything he could to alienate America’s closest allies, thereby seemingly achieving a goal that Russia and, before it, the Soviet Union had only dreamed of, driving a wedge between the United States and its allies. After the Singapore Photo Op Summit, Trump continued his tirade against Trudeau, while polling revealed that Canadian public opinion about the United States was suffering as a result of American actions and the President’s rhetoric. Finally, it was reported at the same time that the President was considering what would effectively be a ban on German-built luxury automobiles. a threat he repeated on Twitter yesterday:

If this happens, of course, the Europeans will once again respond with retaliatory tariffs of their own, and the cycle will continue into the foreseeable future. As I said earlier this week, President Trump once said that trade wars are good and easy to win. It’s only been three months since he started this war and we’re already finding out just how wrong he is about that.

FILED UNDER: Donald Trump, Economics and Business, International Trade, Politicians, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. OzarkHillbilly says:

    Southeast Missouri nail company gets hammered by Trump’s tariffs

    President Trump’s tariff on steel imports that took effect June 1 has caused a southeast Missouri nail manufacturer to lose about 50% of its business in two weeks. Mid Continent Nail Corporation in Poplar Bluff – the remaining major nail producer in the country – has had to take drastic measures to make ends meet. The company employing 500 people earlier this month has laid off 60 temporary workers. It could slash 200 more jobs by the end of July and be out of business around Labor Day.

    During a Finance Committee hearing this week on Capitol Hill, U.S. Senator Claire McCaskill, D-Missouri, sounded the alarm about the company going downhill and fast.

    Mid Continent is one of the largest employers in Butler County and the second largest manufacturer in Poplar Bluff. If push comes to shove, slicing the remaining 440 jobs that pay an average of $12.50 an hour would add to the Bootheel’s struggling reputation marked by several of the poorest counties in the state.

    Mid Continent is owned by Mexico-based Deacero. The parent company produces steel and ships the material to its Poplar Bluff plant. Spokesperson Elizabeth Heaton tells Missourinet Deacero is being hit with the 25% tariff for importing steel to its own company.

    So this is trump doing this to at least 230 of his most ardent supporters (230 out of 260 laid off, about right for Butler County, the very heart of trumpland) proving once again that voting Republican is like shooting one’s self in the balls, only a lot more painful.

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  2. @OzarkHillbilly:

    This is the same company profiled in the NY Times report linked above.

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  3. teve tory says:

    @OzarkHillbilly:

    Ross blames speculators for driving up steel price after tariffs

    US commerce secretary to investigate ‘anti-social behaviour by people in the industry’

    US commerce secretary Wilbur Ross predicted the swings in commodity markets would “settle down”, citing his conversations with big farmers © EPA

    The Trump administration blamed speculators for the extent of the rise in domestic steel prices since its introduction of tariffs, saying it would investigate what the commerce secretary Wilbur Ross called “profiteering”.

    https://www.ft.com/content/28c26592-74a5-11e8-aa31-31da4279a601

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  4. CSK says:

    @OzarkHillbilly:

    Do you think the 230 will realize who’s responsible for them losing their jobs?

    I read the whole article you linked. At the end it mentions that there haven’t–as far as the spokesperson knows–been any discussions about moving the plant to Mexico. That means someone is at least thinking about it.

    MAGA!

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  5. teve tory says:

    @CSK: Krugman thinks the GOP will blame it on some combination of George Soros and MS-13, and it’ll work on their supporters.

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  6. becca says:

    So we have India, China, the EU, Mexico, and Canada all planning retaliatory measures. Am I missing any more?

    All trump’s dick-swinging is gonna hurt a lot of his supporters, but it is so sad good people will be hurt along with them.

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  7. Michael Reynolds says:

    Whatever happens to people hurt by Trump’s random eruptions of spite and imbecility the true Trump voter will know who to blame: Brown people n’ homos.

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  8. OzarkHillbilly says:

    @Doug Mataconis: I figured it was, I just wanted to highlight the fact that they are laying people off due to trump’s tariffs on steel, not any retaliatory tariffs imposed by other countries. I did not know whether or not the NYT made that distinction.

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  9. OzarkHillbilly says:

    @teve tory:

    The Trump administration blamed speculators for the extent of the rise in domestic steel prices since its introduction of tariffs, saying it would investigate what the commerce secretary Wilbur Ross called “profiteering”.

    As anybody with half a brain predicted.

    @CSK: They will blame anybody and everybody but trump. Butler County is about as insular and jingoistic as it gets. @Michael Reynolds: gets it dead right.

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  10. CSK says:

    @Michael Reynolds:

    Yeah, well, don’t forget the eeee-vil Ryan-Schumer-McConnell-Pelosi Cabal of Spineless RINOs and Demonrats who are stonewalling the efforts of the Greatest President in History at MAGAing.

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  11. MarkedMan says:

    It’s really too early to say whether the stock market is in decline. It has been on a pretty steady rise since Obama’s inauguration. It looked for a year or so that rise had accelerated, but now that has leveled off to the point where the last 18 months average out to a slowing of that rate. But in Obama’s turns there were slow downs of the increase too, and of course, short term declines.

    Every two weeks, billions of dollars in retirement savings plans get automatically invested in the stock market regardless of whether it is a bullish or bearish climate. I suspect that has as much to do with the continuing upward trend as anything.

    Despite this, I started moving to cash and inflation adjusted securities once Trump assumed office. I’m financially conservative and closer to retirement than most. And although I don’t have much in the way of financial acumen, I applied one of my more general rules of thumb: never bet on stupid. Trump is a moron and his administration is stocked with 4th rate administrators and 3rd rate thieves. Eventually the market will respond in a big way.

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  12. Mikey says:

    @MarkedMan:

    It’s really too early to say whether the stock market is in decline.

    FWIW if the Dow hadn’t gained yesterday, it would have had its first nine-day losing streak since 1978.

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  13. Bob@Youngstown says:

    @OzarkHillbilly: Replicated in Western PA. here.
    and here:
    here.

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  14. Bob@Youngstown says:

    Please release me !!!!

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  15. Stormy Dragon says:

    This has led many leaders in Iowa and elsewhere, including Senator Chuck Grassley to express concern about the impact of the trade war on Republican fortunes in the fall.

    Oh, if only there were some republican controlled organization with the power to place limits on the President’s actions.

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  16. Stormy Dragon says:

    @MarkedMan:

    It’s really too early to say whether the stock market is in decline. It has been on a pretty steady rise since Obama’s inauguration. It looked for a year or so that rise had accelerated, but now that has leveled off to the point where the last 18 months average out to a slowing of that rate. But in Obama’s turns there were slow downs of the increase too, and of course, short term declines.

    It hasn’t leveled off over the last 18 months, it’s leveled off over the last six months. After the brief sugar rush immediately after the tax cut, the markets hit a wall.

    Which is what happens every time the Republicans cut taxes: the markets go to shit until the cuts are repealed.

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  17. Just nutha ignint cracker says:

    @MarkedMan: Only about 30% of my investment portfolio is in equities and more than half of that is in reserve (cash) waiting for the market to sort out so my advisor and I can sort out where to go. I’ve been waiting since November of 2016, and don’t see any more clearly now than I did then.

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  18. Just nutha ignint cracker says:

    @Stormy Dragon: Well there’s not any such entity. The Constitution provides for one well enough, but it’s that whole Franklinesque “a republic, if you can keep it” thing behind the scenes forking things up.

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  19. teve tory says:

    Oh, if only there were some republican controlled organization with the power to place limits on the President’s actions.

    Sadly, that organization’s power depends on approval from the Bunges, the JKBs, the John420s, the BarbisaLooneys, the TardMonkey#1s,…

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  20. Gustopher says:

    This reminds me that I really need to put stop loss orders in on my major stock holdings.

    Some day, and maybe soon, Trump is going to blow up the economy.

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  21. SC_Birdflyte says:

    I’m trying to look on the bright side of things. For over two years, I’ve had a mind-boggling eight years worth of normal spending in cash because I was concerned about equities being overvalued. In the foreseeable future, I may see some opportunities to invest my cash, once the full stupidity of what our own Dear Leader wants to do becomes evident.

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  22. Kathy says:

    The thing to keep in mind is that all other countries are not waging trade wars against each other. The EU is not imposing tariffs on Mexican or Canadian goods, the TPP countries aren’t imposing tariffs on the EU, etc.

    Trump isn’t just fighting the whole world, he didn’t even think to find allies for his cause first. This isn’t hubris, it’s rank stupidity.

    Two quotes from Homer Simpson are or applicable here:

    1) Oh, why do my actions have consequences?
    2) Why do things that happen to stupid people keep happening to me?

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  23. george says:

    @Michael Reynolds:

    Actually they’ll mainly blame coastal elites. And they’ll include the Republican old guard as part of that. For them the big issue is the cultural war, which pits the common folk (definition nicely flexible to fit all circumstances, but always including themselves) against the elite (similarly flexible definition which can include anyone, including people who were common folk in the last issue).

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  24. lounsbury says:

    @teve tory:
    And this is a supposed Republican Party administration? My god how low they have fallen.

    Blaming speculators for bad policy is the realm of Venezuelan Chavistas.

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  25. Barry says:

    Doug: “As I said earlier this week, President Trump once said that trade wars are good and easy to win. ”

    The biggest lie about war is ‘home by Christmas’. That promise of an easy, short war…

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  26. teve tory says:

    trump’s gotten much more nervous about the Mueller investigation since Cohen’s files were seized:

    David P Gelles

    Verified account

    @gelles
    Jun 23
    More
    Trump tweets about the “witch hunt”

    May 2017: 3 times
    June 2017: 5 times
    July 2017: 6 times
    Oct 2017: 1 time
    Dec 2017: 2 times
    Jan 2018: 1 time
    Feb 2018: 3 times
    March 2018: 2 times
    April 2018: 9 times
    May 2018: 20 times
    June 2018: 22 times

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