which should give you pause for thought about national-security-rationalized tariffs. Output stable, real prices up.
Figure 1: Raw steel production, 2012=100, Seasonally Adjusted (blue, left log scale), and Producer Price Index for Cold Rolled Steel Sheet and Strip, Jun 1982=100, Monthly, Not Seasonally Adjusted deflated by CPI less food and energy, seasonally adjusted (red, right log scale). NBER defined recession dates shaded gray. Source: Federal Reserve Board and BLS via FRED, NBER, and author’s calculations.
The recovery has been driven in part by already implemented trade measures (anti-dumping, safeguard), so not asserting that we shouldn’t try to mitigate the effects of excess steel capacity abroad. Rather, it’s not clear that Section 232 is the way to go.
From Palette and Dawsey in WaPo:
Defense Secretary Jim Mattis and Secretary of State Rex Tillerson privately warned senior trade officials on Tuesday that President Trump’s proposed tariffs on steel and aluminum could endanger the U.S. national security relationship with allies, according to five people familiar with the meeting.
This TV report was done a little under a year ago. Has a little bit of a “cheerlead-y” kind of a feel to it. Still gives a very surface thin education on the industry:
https://www.youtube.com/watch?v=LObkM-cp8ME
I remember being roughly college age and thinking that economist Lester Thurow had many solid answers as to what was “ailing” America at the time. That was roughly 25 years ago, or 1/4 of a century (which sounds better??). I purchased two of his books and Thurow was on “60 Minutes” talking about German apprenticeship and also about how government subsidizing strategic long-term industries wasn’t a “bad thing”. To a frustrated and nervous young man worried about his future, Thurow’s words were magic to my ears and I remember clearly (as an extremely shy man who always sat in the back of class) raising my hand in my “Comparative Economics” class to state in a mildly angry tone to my hispanic professor (Stanford Phd educated) “Maybe you better tell Japan and Germany ‘protectionism’ and government subsidization of industries doesn’t work, because they didn’t get the memo” and that good-natured hispanic professor finding away to talk my blood-pressure back down. I sometimes still wonder if many of Thurow’s ideas might still work, but as I have already told some of Trump’s blind supporters on Menzie’s blog, that train has already left the station.
Moses, you’re rambling incoherently again.
@ Gersbach
That’s wild man, because the only reason I click on this blog is to read what Gersbach has to say today.
So Gersbach, what do you think of Donald “the VSG” Trump subsidizing breast implants for his daughter Ivanka?? You think it secretly gives him a “stiffy”??
@ Menzie
WOW, I just now clicked on the Josh Dawsey story link (read him a decent amount when he was at Politico). Gary Cohn finally had enough, eh?? Funny how Gary Cohn and Sensitive Stevie Mnuchin could stand about 15 feet to Trump’s right as he defends rabid Charlottesville Nazis foaming at the mouth to beat up (or worse) any Jews that might have been Charlottesville that night (Jews WERE there that night, as journalists covering it). Did that cause the two Jews (presumably ambivalent to the phrase “Never Again”??) Mnuchin or Gary Cohn to resign their posts?? NO. It was tariffs that Mr Cohn just found to be too grating on his poor nerves.
Well, at least Mr. Cohn left with his ethics and “personal code” intact—as of course Mr Mnuchin will also. It’s enough to make a אִמָא (Mom) proud.
Moses, I’ve heard differing accounts of Cohn’s departure. But as recently as a month ago, he didn’t seem to be fitting your narrative: http://money.cnn.com/2018/02/19/news/economy/steel-aluminum-us-economy/index.html
@ Bruce Hall
I thought that most likely you were full of crap before I clicked on your CNN link. But to be fair to you, I clicked on the CNN link, skimmed the text and watched the video. (in other words, didn’t trust my intuition and wasted part of my day because of you). To start with, there are ZERO quotes in the story text attributed to Cohn. Secondly, the writers don’t even describe Cohn’s stance indirectly themselves. Thirdly, a video interview that doesn’t even go 4 minutes long has Cohn tap-dancing every time the questioner tries to peg him as “pro-tariff”. Cohn spends most of his time deriding foreign countries’ tariffs on American goods. And fourthly, I would say it’s dumb-*ss referencing an article from 16 days ago when looking for an answer as to why Cohn abruptly quit his job about 24hrs ago.
Bruce, I suggest, like PeakIgnorance and Ed Hanson, you take a junior high level remedial course in reading comprehension. That way I don’t have to waste about 8 minutes of my life responding to an idiot.
Moses parting the Red Sea not only left you permanently fatigued, but hard of hearing. You might have noticed, otherwise, that the “reporter” was attempting to put words in Cohn’s mouth and ignoring what he was saying. But that’s typical, as you know from personal experience.
The video was the only reason for taking you to the article because of your snarky previous comment, but I thought the article fairly expressed concerns with tariffs.
You really need to grow up. This isn’t HuffPo.
@ Bruce Hall
It’s sad when a commenter’s own link reference refutes their own argument—but you know the beauty of that?? No matter how vacuous your comments are, anyone on this site can look at your link and judge for themselves. Beautiful for me that is—maybe depressing for you. Have a better one.
@ Moses,
From the video… Gary Cohn quotes:
“Because we believe in free, fair, open and reciprocal trade.”
“We would love the European Commission to drop their tariffs on many of the items that we would love to export from the United States. We’ve dropped our tariffs on most of the items. And we would have free, fair, and open reciprocal trade. That’s exactly what we’re looking for in the United States. We’re looking for a level playing field. We want to be part of a global world.”
“I’m not taking it as a zero-sum game at all. I’m talking about a reciprocal world where we treat each other equally. Right now we are not in a fair, equal playing field. We’re in a playing field where many, many countries charge tariffs for U.S. products. And we don’t their product a tariff to come into the United States. So we put our workers at a disadvantage. We want to level the playing field to put our workers at a competitive — at a competitive level to workers around the world.”
Protectionism? “No, no. It’s the opposite. Our products are charged tariffs around the world today. Other people’s products are not charged tariffs to come to the United States. That’s — that’s the reality of what we have in the world today.”
“Huge solar panel installation business in the United States. 350,000 solar panel installers in the United States… very important business in the United States. Unfortunately, there’s no cell manufacturers left in the United States. And therefore we’re allowing the cells to come into the United States at a much larger quantity than they came in today. So there’s absolutely no tariffs on cells coming into the United States. And they can come in larger quantities than they’re coming in today. We do have panel manufacturers in the United States. People that put the cells in frames. We are giving those panel manufacturing some protection to build the panels in the United States and because we want to create jobs in the United States.”
“In the washing machine area, look we’ve achieved exactly what we wanted to achieve. The two big foreign manufacturers of washing machines have agreed to open up factories in the United States. They’re going to hire 1,600 workers in the United States. Because guess what, we’re a competitive place to work right now in the United States.”
Were you not against these policies before? “We’re in this policy because we’ve had product dumped in the United States because businesses have been artificially subsidized. They are producing products way below cost, way below cost of production. You cannot produces these products at those (cost) levels. That is unfair trade practice.”
Now, Moses, please try watching the video again.
@ Bruce Hall
I have to admit I’m emotionally moved. To see Republican Bruce Hall so overwhelmingly desperate to not admit he’s wrong, quoting CNN video. CNN has now become Bruce’s personal Bible. Does anyone have some tissue handy??—I’m feeling verklempt now and tears are slowly rolling down my face.
There you have the big news today folks, EVERYONE on planet Earth knows why Gary Cohn left Trump’s cabinet but Bruce Hall. Bruce says that in fact it was not the enactment of import tariffs that caused Gary Cohn to leave the White House. Bruce Hall’s stealth investigation has uncovered that it was in fact greasy McDonald’s french fries in the President’s bedspread during late night cabinet meetings, was just too much for Cohn, a man from a tribe obsessed with clean food and clean sleeping arrangements. Here is the link discussing the greasy french fries/bedspread controversy:
https://www.nytimes.com/2018/03/07/business/gary-cohn-trump-wall-street.html
Perhaps Cohn decided to take his own advice on the tax cut and resigned to use “that average $1000” to remodel his kitchen or take the family on vacation or buy a new car.
@ noneconomist
I’m assuming that’s satire, but with all the idiot Republican commenters strangely magnetized to this blog, it’s getting harder to tell for certain.
You missed my rants—and real world numbers— on remodeling a kitchen for $1000.
I appreciate the long-term view. I was checking on who are the largest steel producer and one story noted how much world steel production has increased since 2009. I thought to myself “well yea, 2009 was the depth of the Great Recession”. And it does seem steel production is highly correlated with U.S. business cycles.
One aspect of importing manufactured products is the loss of critical skills. Nowhere is this more dire than in tool and die making. It’s a vicious cycle. Loss of manufacturing leads to loss of skills needed to manufacture which leads to further loss of manufacturing which leads to further loss of skills needed to manufacture. This was recognized as early as the 1980s in the Harvard Business Review: https://hbr.org/1988/09/manufacturing-offshore-is-bad-business
Today, nothing has improved: http://www.mlive.com/auto/index.ssf/2017/04/michigans_auto_tooling_industr.html . and . http://www.cargroup.org/the-looming-crisis-in-manufacturing/ . and http://www.crainsdetroit.com/article/20170802/news/635381/tooling-companies-brace-for-a-crash
There is a strategic issue when you cannot make the products you design. https://www.ft.com/content/adab0c50-0a3a-11e1-85ca-00144feabdc0 . As I’ve said before, economic logic and strategic logic do not necessarily align.
It seems that along with greater production levels, imported steel share of the U.S. market has increased 50% since 2009. https://www.trade.gov/steel/countries/pdfs/imports-us.pdf . [page 6]
Canada is the largest source of U.S. imported steel (49%).
Despite Canada’s formidable reserves of iron ore, the steel industry in recent decades has shrunk significantly as industrial markets have become increasingly globalized. Today, every remaining steel mill in the country is owned by foreign investors and Canada is a net importer of the manufactured product.
http://www.thecanadianencyclopedia.ca/en/article/iron-and-steel-industry/
Correction: The percentage for Canada’s share of U.S. imports is not 49%; it is 16%.
You need to be registered with Alpha in order to read this, but it’s relatively easy to register and it’s FREE. And that’s coming from someone who very rarely registers for crap online. This is one of the better breakdowns I’ve read on the steel tariffs situation, outside of Menzie’s breakdowns, so I highly recommend reading this link and letting your mind absorb the graphs and similarities to the current context. It also has at least one white paper link for white paper addicts out there.
https://ftalphaville.ft.com/2018/03/05/1520256774000/Men-of-Steel–unburdened-by-experience/
Here are more indicators:
http://usa.arcelormittal.com/sustainability/our-business/operating-context/understanding-the-domestic-steel-industry
Congrats to Bottom Feeder for being hired as a lobbyist for ArcelorMittal. I read their 20-F yesterday and here are a few things Bottom Feeder forgot to tell you. It is a Luxembourg based steel producer with over $60 billion in annual revenue and a decent overall profit margin. So don’t fall for this BS that it is struggling. This company may produce some of its product in the US but as the largest steel producer in the world, I would suspect it exports a lot of steel from Europe to the US. And yet they whine that the Chinese also produce a lot of steel? Just wow!
“ArcelorMittal’s operations in the United States are influenced heavily by external factors in the global economy. Challenging economic factors in the industry since the Great Recession continue to affect our business today, most notably global overcapacity in China.”
China is flooding U.S. markets with their steel? Hardly. According to http://www.census.gov, the U.S. imports about $20 billion of steel each year but only $327 million came from China in 2017 (down from over $2 billion back in 2014. Now we do import around $1 billion of steel from places like Germany, Japan, and South Korea.
ArcelorMittal’s lobbyist (Bottom Feeder) is peddling false information, which is readily debunked by anyone who knows how to use the information from Census to do basic research.
Pgl, the #1 negative name caller and complainer, are you saying the data by ArcelorMittal are wrong or are you just whining again?
Regarding your other nonsense, China produces half of the world’s steel. Chinese steel exports boomed, since 2000. Apparently, China sells its raw steel to countries at unfair prices and those countries sell the downstream products to the U.S. too cheaply, putting American produced steel products at a competitive disadvantage, even after U.S. steel producers built most productive plants and shut down their least productive plants.
June 2017
WSJ
Today there is more than 700 million metric tons of excess steel capacity globally. Driven by foreign-government interventionist policies, this overcapacity has led to high levels of dumped and subsidized imports and the loss of nearly 14,000 jobs.
“The steel industry has relied on our trade laws to address the impact of these unfairly traded imports, and that has provided some relief. However, high volumes of steel continue to enter the U.S. market from countries that aren’t subject to the relief, or where it has been ineffective or from companies that ship their steel through third countries to evade the laws.
The American steel industry is among the most environmentally sustainable and technologically advanced in the world. We have substantially reduced our energy usage and led the development of industry innovations—like advanced high-strength steel. If not countered effectively, the injurious dumping of steel will continue to cost thousands of good paying jobs.”
The bought and paid for lobbyist speaks! You know – you are an utter fraud. You pretend you are against regulations but when Trump proposes the mother of all regulations in the form of protectionisn, you go all cheer leading for this nonsense. Maybe you have a career as a pancake chef as you excel in flip flopping!
“The American steel industry is among the most environmentally sustainable and technologically advanced in the world.”
Whoever said this is a liar or is terribly uninformed. The US steel sector relies mainly on dinosaur technology.
The same WSJ that just slammed Trump’s Tariff Folly?
China is a large nation that consumes a lot of steel. BTW – http://www.census.gov shows that our imports of steel from China have dramatically declined since 2014. So yes – the claims you are making here are false. Are you so stupid you cannot even be bothered to check with the Census trade data?
Found this Bloomberg over at Delongs: https://www.bloomberg.com/view/articles/2018-03-05/steel-history-shows-how-america-lost-ground-to-europe
I remember the era.
25 July 2016
The productivity impact of new technology: evidence from the US steel industry
“The US steel industry really stands out: over the period 1972-2002, it witnessed impressive productivity growth – 28% compared with the median of 3% – and this while the sector contracted by 35%. The starkest difference was the drop in employment of 80% compared with a decline of 5% for the average sector. This left the industry with only 100,000 workers in 2002 compared with about 500,000 in 1972.
We find that the main reason for the rapid productivity growth – and the associated decline in employment – was not the result of a steady drop in steel consumption or the emergence of globalization. Nor was it the displacement of production away from the Midwest.
The increase in productivity in the US steel industry can be directly linked to the introduction of a new production technology: the ‘minimill’. We find that minimill plants were significantly more productive than traditional steel plants, and that this productivity premium initiated a reallocation process whereby minimills displaced the older technology inimill plants were significantly more productive than traditional steel plants, and that this productivity premium initiated a reallocation process whereby minimills displaced the older technology known as vertically integrated production.”
http://microeconomicinsights.org/productivity-impact-new-technology-evidence-us-steel-industry/
Oh brother! #1 – you left out this: “But the older technology was not entirely displaced.”
#2 – US steel was simply and blatantly following the lead of steel producers in Europe and Japan. Adopting their new technology after years of using dinosaur technology.
Does the lobbyist for the US steel sector known as Bottom Feeder even realize he has completely undermined their case for protectionism?!
The steel industry needs to fire Bottom Feeder as their lobbyist as he is completely incompetent at this stuff!
Great article> Key portion:
“At the end of World War II, American steel had no real challengers. It produced nearly three quarters of the world’s steel, and the factories of its biggest competition — Japan and Germany — lay in ruins. Giants like U.S. Steel looked poised to dominate the world for the foreseeable future.
Instead, the industry was lapped by foreign producers — and unfair trade practices were simply not a factor. Instead, the blame lies with U.S. manufacturers who held onto the so-called “open hearth” method of steel production decades after its expiration date.
Europeans, though, had no such attachment to the past, perhaps because many factories had been destroyed in the war. Moreover, they had started experimenting with the idea of turning iron into steel by blasting pure oxygen onto the molten metal. ”
Something else the lobbyist we know as Bottom Feeder forgot to tell us.
Trump today says: “China has been asked to develop a plan for the year of a One Billion Dollar reduction in their massive Trade Deficit with the United States. Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!”
Last year’s trade deficit with China was $375 billion. Can you even measure a $1 billion change?
I guess this is what passes for trade policy now that Gary Cohn is gone.
And what’s with the strange caps in Trump’s tweet. Is he speaking in the the Austin Powers Dr. Evil voice? One Beeellian Dollars.
Trade deficit. Worst in nine years.
https://2.bp.blogspot.com/-Pspd7gsEP2o/Wp_rg8Cw3oI/AAAAAAAAuGg/D7_pit_tKRsNqK0Y00GfztcfsgLE7RJagCLcBGAs/s1600/TradeDeficitJan2018.PNG
Peter Navarro and Wilbur Ross are running the show. We’re doomed!
“Last year’s trade deficit with China was $375 billion. Can you even measure a $1 billion change?”
Some of this $375 billion is likely due to transfer pricing games which can change in a heart beat. The Chinese SAT is pretty aggressive in enforcing their transfer pricing rules whereas the IRS is asleep at the wheel.
In the local news this morning: In California, there are 5,500 steel workers. And there are over 100,000 workers in industries that USE steel. Consequences? Layoffs? Higher prices/inflation? Trade war?
Nice going.
https://www.ussteel.com/locations/joint-ventures/uss-posco-industries
Posco (South Korea) is the 3rd largest steel producer in the world. They formed a joint venture with US Steel to make steel in California.
Among California’s leading manufactured products are Fabricated Materials, Machinery, Aerospace, and Electrical Equipment and Appliances. (No need to mention #1–computers, computer products is there?) All rely in some way on imported metals, including quite a bit of steel.
Worth noting too, is that many of these manufacturers are small businesses who, if McConnell, Cornyn, Hatch, Alexander, Paul, Graham, and the rest of the liberal troublemakers are correct, will suffer from the proposed tariffs. Increased job losses, higher prices, et. al.
As the saying goes, try to learn something new each day.
So what was learned? USS-POSCO joint venture does not make steel, as in new steel from scratch or even scrap. It takes hot-rolled steel already produced in SKorea (POSCO) and the US (US Steel) and manufactures colled-roll steel.
I assume this means the POSCO imports are subject to tariff and the US Steel portion us not. Have no idea the implications this has for the plant.
Ed
Another indicator. Report has it that US Steel is restarting a banked blast furnace at Granit City plant. 500 jobs will return. It would be nice if the steel using industries could count their job losses and gains as easily.
DDog
I am glad the linked article wrote of Nucor. It is and was my go to Steel Co. to check the health of the industry if it did more things right. Nucor is still making a profit, still distributing dividends, and I assume still paying corporate taxes. Wish the country would show a little more patience and see if the excellent corporate tax rate reductions would serve the purpose envisioned by the tariff.
Ed
One of my faulty memories of back in the day was that Nucor was also non-union.
Nucor is probably doing a better job in adopting the newer and more efficient means of making steel.
More of the faulty memory. Nucor used electric arc furnaces to melt scrap steel. I think they were using Tenn Valley electricity. There is a Sh*t Ton of scrap generated every year in murika.
No need to refine ore so one expensive step is avoided. A friend exports scrap steel to Asia using empty containers making the cheap return trip.
For the geekoids here is another part of the process that was invented by the Uroapians.
http://inductotherm.com/products/pressure-pour-systems/
http://www.versa-bar.com/AlloyInformation/ContinuousCastingProcess
Did you see where Bottom Feeder was trying to tell us how technological advanced the US steel sector is? Our favorite troll has jumped the shark!
Give it time, Ed. You missed the comments from Sen. Alexander and Rep. Walorski re: suspension of planned plant expansions in Tennessee and Indiana.
It’s a trickle now. Flood to follow.
How about those Trotskyites at the Wall Street Journal? Trump’s Tariff Folly. How dare they!
So one question is how an outlier like Navarro ended up having so much influence in Trump trade policy. From the Washington Post:
Navarro wound up in this spot partly because of serendipity. “At one point during the campaign, when Trump wanted to speak more substantively about China, he gave [Jared] Kushner a summary of his views and then asked him to do some research,” Washington Post reporter Sarah Ellison wrote for Vanity Fair last year. “Kushner simply went on Amazon, where he was struck by the title of one book, ‘Death by China,’ co-authored by Peter Navarro. He cold-called Navarro … who agreed to join the team as an economic adviser. (When he joined, Navarro was in fact the campaign’s only economic adviser.)”
Cripes. U.S. Trade policy driven by Jared poking around on the Amazon website. Whatta way to run a country.
Trump hates China. Navarro loves to do China bashing. A match made in heaven. No make that made in hell.
Another reason. Read Navarro’s gibberish on economics. It is really, really stupid. Next to him Trump looks smart by comparison.
Pgl, the #1 anti-economics and nonsense maker, your numerous rants contradict the study I posted above in American Economic Review, which is a real economics journal. You ignore and dispute actual data. And, contradict the most basic microeconomics. It’s amazing the amount of nonsense and ignorance you produce. Moreover, Navarro has a Ph.D in economics from Harvard and is a Democrat.
“I posted above in American Economic Review”.
Posted but did you actually read your link beyond the cherry picked quotes your client approved of. Give us a break Bottom Feeder.
Pgl, the nonsense maker and top negative name caller, I read it and provided the entire link. Get some sense and honesty.
A proper link to a 2015 paper in the American Economic Review that Bottom Feeder thinks makes the case of the Trump steel tariffs:
https://www.aeaweb.org/articles?id=10.1257/aer.20130090
“We measure the impact of a drastic new technology for producing steel—the minimill—on industry-wide productivity in the US steel industry, using unique plant-level data between 1963 and 2002. The sharp increase in the industry’s productivity is linked to this new technology through two distinct mechanisms: (i) the mere displacement of the older technology (vertically integrated producers) was responsible for a third of the increase in the industry’s productivity, and (ii) increased competition, due the minimill expansion, drove a productivity resurgence at the surviving vertical integrated producers and, consequently, the productivity of the industry as a whole.”
Should I get out the crayons and write this in large letters so Bottom Feeder finally gets it. The US steel industry fell behind the rest of the world as it continued to use old technologies while the rest of the world adopted new technologies. So it is a good thing that some of the US steel sector finally decided to catch up technologically. Those factories do not need these tariffs to compete. But as this AER publication notes the dinosaur factories still exists and they are begging to be protected. The latter is what bought and paid for Bottom Feeder wants to defend.
Let’s make this easy for Bottom Feeder – the bottom of page 2 of this AER article reads:
“We find that the main reason for the rapid productivity growth and the associated
decline in employment is neither a steady drop in steel consumption nor the emergence
of globalization. Nor is it a displacement of production away from the Midwest.
The increase in productivity can be directly linked to the introduction of a new production
technology, the steel minimill. The minimill displaced the older technology”
It was NOT globalization?! Actually the fact that the rest of the world adopted the new technologies led to the need for US companies to adopt the newer technologies.
Sort of undermines the entire case for protectionism!
It says the “main” reason between 1972-02 for productivity gains were minimills. However, that doesn’t exclude the huge surge in Chinese steel exports to over 100 countries, since 2000.
Pgl, the #1 negative name caller, Europe and Japan rebuilt after WWII. The U.S. likely had a huge global market share, and from 1972 to 2002 became much more productive than the rest of the world. To assume it’s not competitive ignores foreign countries, e.g. in Asia and Latin America, dumping subsidized steel at unfair prices on the U.S. market.
President David Dennison has my head spinning. The rationale for the tariffs was supposed to be national security. But we get the lion’s share of our steel imports from Canada, Brazil, South Korea and Mexico; i.e., from our allies. China isn’t even close. Similarly our biggest source for aluminum is Canada. We don’t have large deposits of bauxite, so of course we would have to import that even if we wanted to smelt it domestically. If we were really concerned about national security, then the sensible thing to do would be to stockpile raw materials (similar to the strategic petroleum reserve) and “warm base” the industrial capacity at an economically inefficient level. Tariffs hardly seem to address the core national security issue, to the extent that there really is a national security issue…a claim I find dubious in any event.
But wait. Now President Dennison is hinting that the tariffs won’t apply to Canada and Mexico. So apparently the plan is to only impose tariffs on the small fries and allow imports from the big players??? Huh? And if you’re a steelworker how does allowing Canadian and Mexican steel imports help you keep your job? So not only is the Trump tariff brain fart bad economics, it’s also useless on (insincere) national security grounds and ineffective at saving US jobs. Maybe President Dennison needs to spend more time chasing down buxom porn stars and less time trying to MAGA. Just step aside and let competent people run the government.
Is Bottom Feeder working for President Dennison? His new case for protection for the old steel factories with outdated technology? Other steel factories have innovated. I seriously doubt that Bottom Feeder even realizes how much his argument undermines the case for protectionism. They say there is a brain drain in the White House. I guess so when President Dennison has to rely on Bottom Feeder to push his economic agenda.
@ Menzie
Menzie, you need to put a post up soon related to QE and monetary policy, as I have a question I badly want to ask you about it.
Peter Navarro is running around saying that tariffs are necessary for national security. But then he says he’s willing to make exceptions for Canada and Mexico. But then he says only if they make concessions on NAFTA for things like dairy and lumber, because, yeah, what means more to national security than cheese and two by fours.
Peter Navarro has gone over the cliff and needs intervention from those who care about his sanity.
They may also make exceptions for the military. So free trade is necessary for national security it seems!
Strange bedfellows. We have seen Bottom Feeder attack Senator Chuck Schumer. We have also seen Bottom Feeder cheer lead for Trump’s protectionism. Just this morning Schumer applauded Trump’s protectionism.
Now I disagree with my Senator on this issue but I wonder how crazy Bottom Feeder will get once he realizes that he and Schumer are in the same bed!
the conversable economist actually read the document on the national security justification for the tariff and his post on it and his post is well worth reading.
It makes most of what is talked about here irrelevant.
http://conversableeconomist.blogspot.com/
Nice discussion (a refreshing change from those insulting and dishonest PeakIgnorance rants). Thomas Willett had a similar discussion a while back.
Willett’s interesting essay on the national security canard for protectionism:
https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1984/1/cj3n3-6.pdf
ArcelorMittal’s global automotive steel business – where they make their money – has its home in Hamilton, ON. It is though a multinational. I visited a supplier that used R&D from their core facility in Europe, refined towards commercialization in one of their US R&D centers in Illinois, produced the underlying product in Indiana, turned it into the automotive “blank” in Ohio, whence it was hot stamped by another company, and eventually used by Honda – for a product made exclusively in the US but therefore exported to any other global market where that model is sold.
What is unusual about this case is that the steel did _not_ cross borders. Visit Detroit or Windsor and you can find trucks backed up in each direction with many individual components the end product of multiple border crossings at different stages of processing. No car made in the US is without Canadian product, and vice-versa.
Steel though has a 45 day or more lead time. So how are you supposed to do things if there’s only an initial 30-day exemption? How will the executive order be phrased? And what will Toyota, Nissan and Honda – and GM and Ford and FCA – tell their dealers? As of the moment there is no infrastructure up and running – customs officials, tariff escrow accounts, and on and on to give the stamp of approval for goods to move across the border. They must be contemplating telling dealers “we will ship you cars, but we can’t tell you the price and we can’t tell you whether all orders will be delayed by a month or two while we await our next steel shipment.” (An aside: I list Toyota first because the Detroit Three now account for less than half of the vehicles assembled in the US.)
BTW automotive steel is not a commodity, the dies for body panels are tuned to a very specific grade of steel from a specific mill, and it’s not unusual that such steel is made at only one plant. They’re multi-layered, microstructured products coming off a specific array of rolling mills and coating machines and heat treatments that won’t be identical at another mill. So even if production is moved, the steel will be different from the original and require retuning the production process at automotive customers.
ArcelorMittal is the world’s largest steel multinational. One would think they could hire a better lobbyist than PeakIgnorance.
Oh gee – I just heard that Trump likes Australia so much that he will exempt Australia from the steel tariffs. Guess what – less than 1% of our steel imports come from Australia. In other words – BFD!
Trump just said our trade deficit with China came to $500 billion last year. Really? http://www.census.gov says our imports were only $505 billion last year. So our exports were only $6 billion? NO! Try $130 billion.
Trump also claims we have a intellectual property deficit. How does that work? We pay them royalties for their intellectual property? I doubt it since we are the ones who license out our intellectual property to the rest of the world. If we are not charging Chinese affiliates for this – Trump should call the IRS and demand that they enforce section 482. Oh wait – he has no clue what that even is.
I guess we’re dealing relative levels of stupidity. President Dennison’s initial announcement from a week ago went to eleven on the idiocy scale. Today’s revised announcement dials that back to around a seven or eight. So I guess we should be thankful for small improvements. But this revision also means it does a helluva lot less for those bamboozled steelworkers he paraded in front of the camera. It also tells us that the national security argument was an insincere smoke screen. But of course we knew that all along…except perhaps PeakTrader, who (clueless as ever) seems to have taken it as a sincere concern.
2slugbaits, your English comprehension is as bad as Pgl’s. I’m only against unfair and illegal trading, including subsidies and dumping.
Without unfair and illegal trading, would there be a national security issue?
Trump is following the Bush-Cheney political play book. Need some votes next time from Western Penn and Ohio – pander to the steel sector. Give them want they want and then after reelection take it away. The only Republicans who dare object represent the farm belt. Politics after all is all local.
@ Menzie
MENZIE!!!!!!! DID YOU SEE THIS?!?!?!?!? It was up on Delong’s blog Thursday night:
https://twitter.com/dynarski/status/971542480628969472
Trump took on Hillary who has been in politics for 30 Years, and she was funded to the tune of $1.2 Billion twice the amount he had, she was backed up by 95% of the MSM, all the pollsters, she was backed up by most of Trump’s own Republican party and the entire establishment call it ‘deep state’, but Trump WON.
So now you tell me that this Moses Herzog is not a moron ?
Jess a reminder of the millions of morons.
178.4 180.8 million people are represented by the 48 49 senators who caucus with the Democrats.
144.1 141.7 million people are represented by the 52 51 senators who caucus with the Republicans.
65.9 million people voted for Hillary Rodham Clinton and Tim Kaine to be their president and vice president
63.0 million people voted for Donald Trump and Mike Pence to be their president and vice president.
Let me correct you. Trump won the Electoral College, not the popular vote. The polls actually got the popular vote about right. What they got wrong was voting in a few key states that were only lightly polled, if at all. As to Hillary having more money…I dunno. Trump did have Moscow funding part of his campaign, so who knows.
2slugs, let me correct your by including what was indisputably implied: ” but Trump WON (the election).”
@ Steve Kopits
It’s hard to argue with deep analysis like yours Kopits. The complexity and nuance of your thoughts is so deep I think it could only be matched by Judge Jeanine on FOX. Although if Jeanine had ever opened her legs for Roger Ailes it wouldn’t much matter either way would it?? You’d still be salivating on your trousers watching her and all the cougars on FOX.
Keep up the good work brother.
I didn’t write that, Moses. I rarely make ad hominem attacks. At least I try not to.
Menzie, why don’t you tell us who wrote the ‘Trump took on Hillary’ comment above.
Let me further apologize on behalf of the person who wrote that comment in my name, Moses.
Steven Kopits and Moses Herzog: That comment was posted by somebody who also calls him/herself John the Kopits Friend, posting from Germany. I will ask him/her to desist.
Thank you.
@legit/original Kopits
I should apologize to you.. You didn’t do anything wrong and it was you who were unfairly treated. It didn’t sound like your prior comments on the blog. For that reason I should have held back and not commented at all. It was a lack of judgement on my part and I’m sorry.
I’ve reached a “stage” of life where I like to “match fire with fire”–and it probably attracts the wrong type of individuals to “start things” or “light matches” and run. So maybe in some way I indirectly created this, and again, I apologize.
Steven Kopits (Pseudonym): Please choose another name to post under, given the name Steven Kopits is already in use on this blog.
I’ve been reading this blog for years, because I like the thoughtful analysis that goes on here. Could someone explain to me why it is so detrimental to try and protect our manufacturing industries ? Since the country was founded till the 1990s we pretty much had some form of protectionism/fair trade. If you listened to Trump’s speech yesterday he sounding reasonable to the average joe that is trying to feed his family. He was absolutely right when he said the politicians have left the rust belt to rot and let our factories and plants close without offering viable solutions.
I think the main take away I’m suggesting is until the democrats can escape identity politics and start talking about the average joe’s standard of living they are going to be fighting a losing battle. Joe doesn’t care what an economist says when his job is sent overseas even though it may benefit him. Joe also votes regularly and often.
The last point I wanted to make was what happens if we end up in a war with key trading partners and we don’t have the domestic industries to produce raw materials for the war machine ? In NY the governor basically gave Alcoa a blank check to keep the aluminum smelters open. I don’t agree with it, but it did save about 1200 jobs in areas that have extreme poverty.
@ Lurker
We’ve been getting cheap goods from overseas forever—and you know who the biggest proponent of that was??—-and I’m gonna take a wild guess it’s your same “big hero” in life—Ronald Reagan. Just because you can’t read a newspaper doesn’t mean this shit hasn’t been going on forever. When Republican candidates went around selling “right to work” laws on TV, you ran out and voted for them (and probably still do). Without unions workers were told “you’ll work for a pittance or we’re heading to Mexico or China”. Well guess what happened Einstein?? “Common sense” does not mean being illiterate and having the wool pulled over your eyes. Grow up and quit going brain dead watching FOX news.
What Republicans have “sold a bill of goods” to people like you who can’t read above 4th grade level and are therefor dependent on FOX news to spoonfeed you is when Democrats stand up for the working class and middle and low income people it’s called “identity politics”. “Trickle down economics” doesn’t sell anymore, EVEN to idiots like YOU , so Republicans needed a new marketing term. Guess what dumb fish just bit down hard on the “identity politics” bait??? Same folks like you that are lucky if you ever walked by a University campus, much less darkened the doorway.
Lurker The advantages of free trade are well known and you can review those arguments in just about any econ textbook. The short answer is that it maximizes the output value of scarce resources and allocates them so that each country tends to focus on producing the things for which it has a comparative advantage. But be careful, comparative advantage is not the same thing as absolute advantage. A lot of politicians and media talking heads confuse the two. Every country has a comparative advantage in something even if it does not have an absolute advantage in anything. That’s one of the insights that makes econ non-intuitive, which is one reason that the “average Joe” has a hard time understanding the logic of free trade.
He was absolutely right when he said the politicians have left the rust belt to rot and let our factories and plants close without offering viable solutions.
I agree. Politicians have made a hash out of free trade. All too often they sell free trade as a jobs bill…it isn’t. That was something I didn’t like about the way NAFTA was oversold. The free trade argument says that there will be winners and losers, but the gains going to the winners will exceed the losses going to the losers. For too many politicians that’s the end of the story. The correct inference should be that winners see some of their gains taxed away and redistributed to the losers. That’s the part of the free trade argument that never seems to happen. And over the long run that risks future gains from free trade because there will be a lot of pressure to protect workers from foreign competition. That will eventually leave even more people worse off. Our politicians like winner-take-all outcomes. The only solution is to demand better and more honest arguments about free trade from out politicians. The sad fact is that “Joe” is likely to be fooled into thinking that tariffs will actually protect his standard of living and will be vulnerable to the kind of false arguments that charlatans like President Trump/Dennison offer. It’s the same trick that Trump/Dennison pulled on coal miners. We need to demand honest arguments about free trade and punish politicians who lie about economic realities.
if we end up in a war with key trading partners and we don’t have the domestic industries to produce raw materials for the war machine
First, throwing up trade barriers is a pretty good way to make a hot war more likely. For example, stepping away from TPP will only encourage other Pacific rim nations to cozy up to China. Second, maybe we shouldn’t be engaging in so many wars. Finally, tariffs are an ineffective way to maintain a defense industrial base. If voters are truly concerned about the defense industrial base, then they should tell politicians that they want to endure a permanently lower standard of living along with higher taxes to fund the stockpiling of critical raw materials and the operation of an economically inefficient warm base capability at DoD arsenals. So the next time a politician wants to shut down some inefficient arsenal in a BRAC, tell that politician that you view national defense more than economic well-being. Of course, voters won’t do that. They prefer to listen to comforting lies. This is another way of saying that we need to demand honesty not just from our politicians, but from voters as well. There are trade-offs that have to be made.
Moses Herzog did I trigger you a little ? I am a conservative and can make up my own mind on matters and can form opinions based on all of the information I can get my hands on. I love a spirited debate, but you don’t have to resort to name calling. It makes you look childish and ignorant. People that are on different sides of the political spectrum can get along and find a solution that either benefits everyone, or no one. Usually the best decisions are the ones that no one is happy with.
2slugbaits thank you for your comment. Growing up in Upstate, NY, I have seen several manufacturing companies close permanently killing the local economy. I worry about defense stockpiles if we did end up in a hot war. One issue that caught my eye is that we had to spend billions of dollars to reopen a factory to reverse engineer our own equipment so we could manufacture a device for our nuclear arsenal.
The US industry does not make commodity steel. Nucor and its rivals do recycle scrap into lower margin products, but even Nucor left the commodity business long ago.
But if China is subsidizing commodity steel, shouldn’t our response be to import it with a quiet “thank you”?!
For more on steel there’s a quick eBook read by Peter Warrian on Business Expert Press. Mea culpa: Peter and I coauthored an auto industry book in the same series that includes a steel-related case study of supply chain issues. I’m the auto industry end of that. I’ve used others in the series with undergraduate students in Industrial Organization, really good papers out of the agricultural machinery and toy industry books, among others.