Or, when 10% is not just 10%. (GM edition)
This is a reprint of a 2018 post. It takes on a heightened importance when one considers (1) the fact that tariffs on Canadian imports will hit a lot of inputs, rather than final goods, and (2) the integrated nature of the American auto industry.
I was pondering whether the US is a large country insofar as tariffs on avocados are concerned. Since 90% of consumption is from Mexico, one might think the US is a large country; on the other hand, elasticities matter. This study by Ambrozek et al. (2019) indicates 0.2 demand elasticity at shipper level. Let’s guess that supply elasticity is 0.2 (about 80% of Mexican exports go to the US, and about 85% of production is exported; Carman and Kraft (1998) cite 0.2.
Through 1/31/2025, in anticipation of tariffs that might or might not be announced today.
Canada is America’s second largest trading partner. In 2023, of the $416 billion of imported goods from Canada, $119 billion is oil and gas, and petroleum products and coal. (Total merchandise imports is $3.1 trn.) From the Milwaukee Sentinel Journal today:
The White House has confirmed imposition of tariffs on Canada, Mexico, and China tomorrow (Feb 1). Why are tariffs on Canada and Mexico different than (some) other tariffs? Consider this graph courtesy of Bloomberg via Torsten Slok:
Here are key indicators followed by the NBER’s Business Cycle Dating Committee, plus monthly GDP. Seven days ago , DiMartino Booth at 13:50, says it started in Spring/Summer 2024. Heritage’s EJ Antoni says it started in August. Data for most series through December.
Actual hit GDPNow nowcast of 2.3%, q/q AR (see Jim’s post for a discussion) Still, achieving Treasury Secretary Bessent’s 3% annual growth (in addition to 3% deficits and additional 3 million barrels oil) is going to be tough.
From article 8 days ago:
…the White House has put a hiring freeze in place, prohibiting the replacement of open government positions or the creation of new ones while the administration evaluates reductions in the workforce. The White House plans to release a memorandum with further guidance within 90 days. This has drawn criticism from lawmakers as the FAA has been ramping up controller hiring.
Bloomberg consensus 2.7%, GDPNow 2.3% as of today. Jim Hamilton comments on the release tomorrow.
Today, we present a guest post written by David Papell and Ruxandra Prodan-Boul, Professor of Economics at the University of Houston and Economics Lecturer at Stanford University.