Are Trump's steel tariffs working? Seems they are!

Evidence is now emerging that the Trump steel tariffs are beginning to have the desired effect of re-energizing shut-down steel mills and rolling lines, putting American steelworkers back to work, and displacing imports.  It also seems to be doing that without a particularly heavy burden on steel consumers, although the final appraisal of that aspect of steelmaking and steel tariffs is not complete.  This result is unsettling to the “free traders,” mostly because of thinking of political orthodoxy, but again I point out that the USA has not had, if it ever had, “free trade” in basic metals, mostly because there are no comparative advantages.  Instead, offshore (non-US) producers have long held an “absolute advantage,” in that offshore production costs have been lower than US costs in dollar terms, and in an effort to dispose of the chronic over-production of steel (due to large over-capacity),  offshore producers have been dumping their excess into the US market. 
    To illustrate, I invite readers to ponder the situation now unfolding in Lorain, Ohio.  Lorain has been a US steel-producing location since about 1880; it sits on the South Shore of Lake Erie, near Cleveland.  There are two steel plants in Lorain: the basic steel smelters of Republic Steel, and a processing re-melt and rolling mill operation of U.S. Steel. Both had some or all of their plant shut down in 2017, due to being undercut by dumped imported steel.  
    The Republic mill manufactured tubed product, basically forms of pipe, and rod product, including quite thin rod.  That sort of steel is used in such items as chicken-coop fencing, industrial fencing, and playground fencing. Tubing can be both thin-wall and thick-wall, and used in such final products as hydraulic lines, and pipe.  Now the Republic plant had shut down several pipe extruding and rolling lines; with the commencement of the tariffs, Republic is starting up those lines and calling back another thousand men.  Previous employment was down to about 660 men, so this is a significant boost in local employment.  
    The US Steel plant appears to be a rolling and finishing plant for both hot-rolled and cold-rolled products.  I do not have a full picture of the product lines, but given the historical location (near both shipbuilding and rail locomotive manufacture) I would guess it would include plate steel, boiler steel, structural.  That plant also will re-start rolling lines, probably adding many hundreds if not a thousand men.
    The impact on Lorain is huge.  Lorain is a city gripped in poverty, with a poverty rate now at some 27% of the population.  Putting several thousand men back to work at steelmaking wages  (these are United Steelworkers Union jobs) dramatically changes that picture.  It also changes the dynamics of the local taxes and payments, putting City Hall on a more solid foundation, able to pay the policemen and the firemen.  So all of that is quite positive.
    Who is taking the hit?  I don’t know, but I would assume the company taking the biggest hit is Acelar-Mittal, a dominant steel player headquartered in India.  The dumped product, I speculate, is flowing from Acelor mills in France, the Ruhr, India, and possibly Luxembourg.  I don’t know if any of the displaced product came from the other side of Lake Erie, in Ontario Canada, and probably does not, although the US-owned US Steel Canada might have produced some competing product.  How much tube steel was coming out of China is something the industry insiders would have a handle on, not me.  But in any event, it does choke off the dumped steel, and obliges domestic buyers to switch to US product, which they are now doing. 
Bottom line:  Trump’s steel tariff gambit is working.  Now:  is it really hurting steel users?  Stay tuned for a later installment in this saga. 
 

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Very interesting, Jan.  I have had my suspicions that some of this tariff business might actually work, and that the overwhelming media "opinion" writes off every economic action Trump takes as being negative if not downright harmful to the U.S. economy and jobs.  It is actually quite thrilling to know that some people in Ohio, or anywhere in the Midwest actually, can go back to work.  I'll keep my fingers crossed for them in any case.

I know you are planning to report more about this, and I look forward to it, but I am also very interested in what happens/doesn't happen with the EU after the most recent meeting at the White House between Trump and Junckers.  I am very aware that the only real result at the moment is that they agreed to work on the issues, nothing immediate or concrete, but I'd really like to know if results are achieved.  Angela Merkel was the first to signal a willingness to lower EU (or at least German) tariffs on cars from the U.S. and perhaps she used her enormous influence to arm Mr. Junckers with that offering.  I hope you won't mind exploring this area as well.  Thank you, Jan.

EDIT:  Jan, I seem to recall that you actually already wrote about Ms. Merkel's possible reasoning for being willing to lower the auto tariffs. If I recall correctly, could you re-add you comments to this discussion?  Thanks.

Edited by Dan Warnick
Jan's previous post?
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12 minutes ago, Dan Warnick said:

Very interesting, Jan.  I have had my suspicions that some of this tariff business might actually work, and that the overwhelming media "opinion" writes off every economic action Trump takes as being negative if not downright harmful to the U.S. economy and jobs.  It is actually quite thrilling to know that some people in Ohio, or anywhere in the Midwest actually, can go back to work.  I'll keep my fingers crossed for them in any case.

Yes, I was rather surprised to find out about the quick response in Lorain.  Republic had kept that particular mill in "stand-by," and spent the money to keep it up, so the re-start was a lot quicker than an abandoned mill.

I know you are planning to report more about this, and I look forward to it, but I am also very interested in what happens/doesn't happen with the EU after the most recent meeting at the White House between Trump and Junckers.  I am very aware that the only real result at the moment is that they agreed to work on the issues, nothing immediate or concrete, but I'd really like to know if results are achieved. 

Probably none.

Angela Merkel was the first to signal a willingness to lower EU (or at least German) tariffs on cars from the U.S. and perhaps she used her enormous influence to arm Mr. Junckers with that offering.  Yet US car sales in Europe are hardly a make-or-break for US manufacturers from US plants;  they are not big sellers. US plants today tend to sell SUVs and pick-ups.  Outside the US, pick-ups are typically made by Toyota.  SUVs consume too much gasoline for the typical Euro driver, as gas can run to eight bucks a gallon (ouch!). 

 

I hope you won't mind exploring this area as well.  Thank you, Jan.  That is probably outside my area of expertise. "A man's gotta know his limitations," as one rather sage and taciturn fellow put it so succinctly (while holstering his giant pistol). 

 

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6 minutes ago, Jan van Eck said:

Angela Merkel was the first to signal a willingness to lower EU (or at least German) tariffs on cars from the U.S. and perhaps she used her enormous influence to arm Mr. Junckers with that offering.  Yet US car sales in Europe are hardly a make-or-break for US manufacturers from US plants;  they are not big sellers. US plants today tend to sell SUVs and pick-ups.  Outside the US, pick-ups are typically made by Toyota.  SUVs consume too much gasoline for the typical Euro driver, as gas can run to eight bucks a gallon (ouch!). 

Yes, I remember your analysis of US car sales in Europe, which pretty much applies everywhere else in the world as well.  I believe Trump knows that he can probably win on this particular European tariff (getting it removed or at least reduced down to @ 2%).  Then, his logic may follow, he can use that as a further negotiating tool for other tariffs around the world.  He needs a win, any win, to get some momentum going.  It would also score big (or Yugely) with his base.

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2 minutes ago, Dan Warnick said:

Yes, I remember your analysis of US car sales in Europe, which pretty much applies everywhere else in the world as well.  I believe Trump knows that he can probably win on this particular European tariff (getting it removed or at least reduced down to @ 2%).  Then, his logic may follow, he can use that as a further negotiating tool for other tariffs around the world.  He needs a win, any win, to get some momentum going.  It would also score big (or Yugely) with his base.

The biggest whack, and win, would be to hit the Canadians with a 25% auto tariff.  Some 85% of Canadian production goes straight to the US market, thus enriching Canadian (highly paid) auto workers at the expense of US jobless workers.  Personally, I anticipate that Trump will do that, notwithstanding the howls you will hear from anyone and everyone.  Also, remember that a large number of US plants have closed as Mexican assembly plants started up; a hefty duty against Mexican-assembled autos will sting.  Right now Volkswagen has a large assembly operation in Mexico with the product immediately shipped to the US, including the Beetle.  US VW production is only for the Passat model, which is a nice seller, but I don't think consumes the volumes that would keep Trump from tariffing Mexican production. There are some ten auto plants in Mexico that ship their product to the US.  Also, a number of engine casting plants are set up in Mexico, including (strangely enough) the engine casting plants for Outboard Marine Corp and I believe The Mercury boat motors.  All of that is work taken away from Wisconsin, home of Paul Ryan as I recall.  Don't be surprised that the auto parts industry gets slapped with tariffs. Would that upset the auto makers?  But of course.  So what?  It will push that work back into the US, no question.  (The result for Canada would be acutely unpleasant, probably pushing the country in a recession and a 40-cent dollar). 

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50 minutes ago, Dan Warnick said:

American pipe company heading for IPO.  Is it a good investment?

https://finance.yahoo.com/news/american-pipe-giant-zekelman-industries-174419760.html

I am always dubious about anything coming out of Wall Street - which is, let's face it, a den of thieves and pickpockets, unscrupulous scoundrels who long ago abandoned even a pretense of morality and ethics.  These pigs are out there specifically to separate you from your cash and put it into their own pockets.  So the first question on this (or any) IPO is:  what does the seller plan to do with the capital it raises?  Are the owners simply cashing out, transferring future risk onto your shoulders?  Or is there a real need for new capital, in order to build new plant or acquire a competitor?  And if so, are debt issues being also considered, and what is the state of the debt load on the firm?

Personally, I would take a long hard look at the top-tier pilot training schools, places such as Flight-Safety.  Fully half the pilots out there today will retire in the next decade; meanwhile, air travel demand is just exploding.  The industry is short some 800,000 pilots.  Where are you going to find these guys?  Lufthansa already hires "zero hour" pilot candidates, guys who have never even sat in a little 4-cylinder 80-hp trainer, and when they come out of the Flight-Safety school in Florida, they go straight into the co-pilot seat on a twin-jet. In the old days, the airlines would hire guys from the military, or who had spent years flying small commuter aircraft, even bush planes, to build experience. Those days are gone. 

And that has other interesting implications:  if you cannot find the pilots, then who is going to fly all the new iron coming out of Boeing and Airbus?  Does the shortage imply a tamping on airframe deliveries?  And what about the "regionals"?  Right now the US small regionals are experiencing 100% pilot turnover each year as the Majors simply poach away their staff.  Will that put the regionals out of business?  [answer: probably]. 

So then you have other wrinkles:  will the small airports in say Iowa and Nebraska end up with no air service?  [answer:  yup.]  And how will those people travel - or do they stay home?  Will a market develop for DMU railcars?  More inter-city buses?  [probably]. 

And for the long-haul service, both trans-continental and trans-oceanic, if you cannot find the pilots, do the carriers respond by buying much bigger planes?  Airbus attempted that with the gigantic A-380, and now nobody is buying them any more. Emirates was the big buyer, and they have stopped that business model.  So, does the A-380 and even larger aircraft now make a comeback?  Or does a certain segment now go back to travelling by a souped-up steamboat, such as a gigantic hydrofoil with 1,200 passengers, skimming the waves at 300 mph?  I dunno; you tell me. 

Edited by Jan van Eck
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Good idea, but Mr. Buffett got there first and bought them way back when (vision) and although I was thinking about buying a few thousand shares of Berkshire, I'm waiting for a dip in the market.  Any day now.....

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2 hours ago, Dan Warnick said:

a few thousand shares of Berkshire, I'm waiting for a dip in the market.  Any day now.....

Are those going to be A or B shares?  Also, I wouldn't wait too long.  Your best chance for a dip in the market will be when Trump finally declares $500 billion in tariffs on China.  I keep hoping he will do it soon, but I am not sure we will be lucky enough to see that one.  Even if we do, I am not sure the dip will be as big as I'd like.  China will just devalue the yuan in response and the US stock market will likely end up holding relatively steady.  Good luck, though.

 

2 hours ago, Jan van Eck said:

So the first question on this (or any) IPO is:  what does the seller plan to do with the capital it raises?  Are the owners simply cashing out, transferring future risk onto your shoulders?  Or is there a real need for new capital, in order to build new plant or acquire a competitor? 

^This.  But how do you discover that info without knowing someone on the inside?  Skuttlebutting it would work, but I don't have those kind of resources.  

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7 minutes ago, Epic said:

^This.  But how do you discover that info without knowing someone on the inside?  Skuttlebutting it would work, but I don't have those kind of resources.  

Presumably it would be described in the 10-K Filing that the issuer would file with the SEC.  You do have to read those things carefully.  If the Offering Statement says the cash will be used for "general corporate purposes," then watch out.  That could be anything. 

Edited by Jan van Eck
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6 hours ago, Epic said:
8 hours ago, Dan Warnick said:

a few thousand shares of Berkshire, I'm waiting for a dip in the market.  Any day now.....

Are those going to be A or B shares?  Also, I wouldn't wait too long.  Your best chance for a dip in the market will be when Trump finally declares $500 billion in tariffs on China.  I keep hoping he will do it soon, but I am not sure we will be lucky enough to see that one.  Even if we do, I am not sure the dip will be as big as I'd like.  China will just devalue the yuan in response and the US stock market will likely end up holding relatively steady.  Good luck, though.

In many cases I will add "(sarcasm intended)" after a post like this, but I thought it would be obvious in this case.  But, since you don't know me and I don't know you, I appreciate you giving me the benefit of the doubt that I might be able to afford ANY Berkshire stock.  :)

 

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Jan 

you said 'Bottom line:  Trump’s steel tariff gambit is working.  Now:  is it really hurting steel users?  Stay tuned for a later installment in this saga.'

The first instalment was last month  https://uk.reuters.com/article/us-usa-trade-tariffs/u-s-oil-pipeline-companies-producers-seek-relief-from-steel-tariffs-idUKKBN1JF0DZ

'The pipeline industry could face higher costs from tariffs as about 77 percent of the steel used in U.S. pipelines is imported, according to a 2017 study for the pipeline industry. Benchmark hot-rolled U.S. steel coil prices are up more than 50 percent from a year ago, according to S&P Global Platts.'

Trump's plan will create more jobs no doubt but those jobs were lost as a lot of American steel was more costly to produce due to higher labour costs, that has not changed so consumers and producers in the US will have to pay for using higher cost US steel this will impact on inflation in the US and drive up interest rates therefore driving up the $ making imports even cheaper and US exports more expensive taking away more US jobs unless tariffs are put on everything imported into the US but then that will drive up costs etc....

The benefit of globalisation and free trade is that countries can get cheaper products and services from poorer countries so boosting both economies however the downside is a highly competitive environment for workers in the US and other Western countries as they are now competing against workers in 2nd and 3rd world countries this is responsible for the rise of anti establishment administrations in the US and Italy and Brexit in the UK . Trump has decided to try and reverse globalisation I think he will find it won’t work long term but I for one am interested to see where this economic experiment will lead I hope he does find a solution to the unemployment issue around the Western world but the more likely result is a massive world depression then wars but then I am not as optimistic as Trump.

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2 hours ago, jaycee said:

Jan 

you said 'Bottom line:  Trump’s steel tariff gambit is working.  Now:  is it really hurting steel users?  Stay tuned for a later installment in this saga.'

The first instalment was last month  https://uk.reuters.com/article/us-usa-trade-tariffs/u-s-oil-pipeline-companies-producers-seek-relief-from-steel-tariffs-idUKKBN1JF0DZ

'The pipeline industry could face higher costs from tariffs as about 77 percent of the steel used in U.S. pipelines is imported, according to a 2017 study for the pipeline industry. Benchmark hot-rolled U.S. steel coil prices are up more than 50 percent from a year ago, according to S&P Global Platts.'

Trump's plan will create more jobs no doubt but those jobs were lost as a lot of American steel was more costly to produce due to higher labour costs, that has not changed so consumers and producers in the US will have to pay for using higher cost US steel this will impact on inflation in the US and drive up interest rates therefore driving up the $ making imports even cheaper and US exports more expensive taking away more US jobs unless tariffs are put on everything imported into the US but then that will drive up costs etc....

The benefit of globalisation and free trade is that countries can get cheaper products and services from poorer countries so boosting both economies however the downside is a highly competitive environment for workers in the US and other Western countries as they are now competing against workers in 2nd and 3rd world countries this is responsible for the rise of anti establishment administrations in the US and Italy and Brexit in the UK . Trump has decided to try and reverse globalisation I think he will find it won’t work long term but I for one am interested to see where this economic experiment will lead I hope he does find a solution to the unemployment issue around the Western world but the more likely result is a massive world depression then wars but then I am not as optimistic as Trump.

Sorry, Jay, I simply cannot agree, and further I would go out on a limb and say that your analysis is flawed.  Here's why:

"The pipeline industry faces higher costs."  Yes, that is true, in the immediate short term, as the big producer of pipeline pipe is a smelter and mill located in Edmonton, Alberta (Canada), which is the dominant supplier  (basically has a stranglehold on the North American Market).. That mill is EVRAZ, they spell it in all-capital letters (I dunno what that stands for, if anything).  It is precisely this stranglehold that the Trump tariffs are intended to break.  By pushing on EVRAZ, US steel mills are motivated to enter that market.  Sure, you get cheap pipe from Canada because they can use Canadian scrap as the charge material and manufacture in depreciated Canadian dollars, then can sell that pipe with a nice guaranteed 30% profit just on the exchange rate.  But The Donald is not here to ensure keeping the Good Times Rolling up in Canada, that is not his concern nor his objective.  He wants to push US basic industries to manufacture those products.  The tariff will do that - and if it does not, he will increase the tariff until it does.  Remember that at one poing Ronald Reagan put a 100% tariff on large-displacement Japanese motorcycles, specifically to push Yamaha and Kawasaki out and grant a market monopoly to Harley Davidson.  And that worked - spectacularly well. 

The argument about "countries can get cheaper products from poorer countries..." is classic Milton Friedman right-wing thinking, and what it really is, is fostering a race to the economic and environmental bottom.  You see this at its most dramatic in the shipbreaking industry at Alang, India, where some 22 miles of beach are converted into outdoor ship-wrecking yards, with men paid a dollar a day to work with zero safety equipment cutting up huge freighters and tankers. Men get hurt and die every day, nobody cares, nothing is paid in compensation.  Do you really want to live in a brutish, Hobbsian world that that portends?   US steel casting is done under stringent conditions, and excluding steel made under primitive conditions acts as a bar to the race to the bottom.  Does it cost a little more?  Probably.  So what?  All developed economies adjust to the changes in input pricing, so that is not a knock-out factor.  Pushing out Chinese (and Indian) steel displaces dumped steel made under conditions not tolerated in the USA, and accepting dumping is not in the interests of working people any more than of consumers. You don't buy pharmaceuticals manufactured by some guy with an eighth grade education using an old washing machine tub to mix the ingredients either  (or, to be accurate, you shouldn't).  Same principle here. 

Trump is not "reversing globalization."  He is re-industrializing the basic industries of the USA.  You may conclude he is incoherent, or ill, or incompetent, anything you like, but don't confuse expansion of basic steel with anti-globalization. Trump is not going to allow bottom-feeding countries with workers paid a dollar a day to decimate US manufacturing - which is exactly what Clinton was doing.  (Personally, I don't think Trump really understands what he is doing, but he seems to get there by some bizarre form of instinct, and you end up with the same result. It is the end result that counts.  Amazing stuff, to be sure.)

 

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(edited)

2 hours ago, Jan van Eck said:

Trump is not "reversing globalization."  He is re-industrializing the basic industries of the USA.  You may conclude he is incoherent, or ill, or incompetent, anything you like, but don't confuse expansion of basic steel with anti-globalization. Trump is not going to allow bottom-feeding countries with workers paid a dollar a day to decimate US manufacturing - which is exactly what Clinton was doing.  (Personally, I don't think Trump really understands what he is doing, but he seems to get there by some bizarre form of instinct, and you end up with the same result. It is the end result that counts.  Amazing stuff, to be sure.)

 

Jan

You seem determined to take offence at what I posted, re read it I am not anti Trump infact I am rarely anti anything I look at facts and work out the consequences and try to maximise my gain from my reading of the future. I genuinely hope Trump’s reindustrialisation of America works as it would then work for everyone else however as I pointed out the basic facts are against him. Friedman may have right wing thoughts but why does that make him wrong? If he was left wing would he be right or even centralist? Basic economics to me will prevail I will repeat my original step by step walk though of how it will play out.

American steel is more expensive, you admit that. So if American industry is forced to use it then costs will rise and have to be passed onto the consumer. It will also raise the costs for American exports like cars making them less competitive outside the US. Rising costs in a country means inflation inflation leads to higher interest rates than in turn strengthens the $ which means less exports and unless you put tariffs on all goods entering the US then imports will be cheaper. Higher export costs and lower import costs kills jobs both ways. On the other side of the coin the countries exporting to the US will lose money and not have any money to actually buy American goods.

I agree it’s a race to the bottom but it was a race the West started because there was no other solution to the problem they faced of declining living standards due to the Western governments being heavily in debt and having moribund economies due to a declining and ageing population, trade with the East was the best way to fix it and for a while it worked loads of cheap goods arrived and we exported back higher level goods the higher grade goods are now being manufactured by the likes of China we need to move to services but even that is now being taken away as I am witnessing in the oil contracting industry as low paid inexperienced Indian engineers now do the vast amount of design work for O&G sector. Nobody wants to pay for the higher skilled western workers who actually save money as the amount of rework is significantly lower.

There is no appetite for your plan of everyone increasing costs to push out the East I am afraid. The industry created by stopping imports will be cancelled out by the industries closing due to lack of exports and the decreasing population of the West means that markets for goods only get smaller. We need to trade with the vast Eastern markets or face a slow collapse as was happening pre globalsiation. The solution is to somehow produce something they cannot produce and sell it to them. Producing steel etc at higher costs means we are forcing our industries to buy input materials at a higher cost so we can never export what we make back East unless it is something they cannot make which I am struggling to see what that maybe.

Don’t take criticism of Trump’s plan personally I genuinely hope it works but nothing I can see leads me to believe it will.

Edited by jaycee

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7 hours ago, jaycee said:

The benefit of globalisation and free trade is that countries can get cheaper products and services from poorer countries so boosting both economies

This would be true if we were talking about an 'ideal world'.  But we don't live in an ideal world.  We live in the real world.  In an ideal world, the US would have perfect laws that establish justice and uphold truth, and as a result, all countries would have joined the US, and there would be 215 states in the USA.  There would also only be 1 currency.  As a result, there would be no tariffs between the states, and none of the states could harm the others by manipulating their currency.  

But we don't live in an ideal world.  We live in a world where one nation operates with a different currency than another, and they can manipulate that currency in order to drive the industry of other countries out of business.  In a world with more than 1 currency, free trade doesn't work.  Sorry.  We can't have free trade because due to currency manipulation, free trade isn't fair trade.  

4 hours ago, jaycee said:

Rising costs in a country means inflation

If you want to talk about inflation, you need to also consider the greatest producer of inflation: monopolies.  I know you think that globalization will result in cheaper products, but currency manipulation destroys competition, and this results in monopolies.  Nothing creates inflation faster than the monopoly.  After all, look at what the Chinese did to the price of tungsten back in 2004 once they captured a monopoly on it...ouch!  The cost was $8,700 per metric ton in 2003, $37,000 by 2005, and $56,700 by 2012.   Talk about inflation!  Now imagine they are allowed to do that with the entire economy?  They will, of course, if they are allowed to.  Remember, it is not globalization that drives down prices, but competition.

Jaycee, you are right.  globalization and free trade is the ideal, but the ideal is enemy to the good, and in the real world, the good is the best we can attain.  And as long as countries can manipulate their own currency or apply subsidies to their own goods, then neither globalization nor free trade will actually do what they are supposed to do, which is to generate competition.  Instead, they will be used to generate monopolies.  And when they do, every lose loses.    

5 hours ago, Jan van Eck said:

Hobbsian

Jan, I just wanted to let you know how much I appreciate when people use words like this. 

5 hours ago, jaycee said:

American steel is more expensive, you admit that. So if American industry is forced to use it then costs will rise and have to be passed onto the consumer. It will also raise the costs for American exports like cars making them less competitive

This is not necessarily true, depending on now you define the word 'costs'.  What Jan was trying to point out in his previous message was that there exist externalities which you have not completely accounted for in your economic, bottom-line calculations, and that the costs of these externalities (such as living in a Hobbsian world of the Indian shipbreaking industry) involve costs that are not completely offset by the lower price of inputs, which you desire and which you fear will lead to inflation if they are replaced by US labor and the OSHA laws and regulations that it entails.  

It is also not necessarily true for a second reason.  Even if inflation does occur as a result of higher costs of inputs, the tariffs can also result in a reduced need to tax the US citizen, thereby reducing the effects of that inflation.  Think of it like this: if inflation increases from 1% to 5%, but your tax incidence reduces by 6%, you end up with a gain!  I also want you to remember that at the most basic level, the wealth of a nation includes only that produced by the labor of its citizens (even a nation's natural resources are not sufficient...just look at Venezuela).  You cannot spend your way to wealth.  Nor can you print your way to wealth.  If the Chinese laborer is willing to allow their currency to be devalued so as to increase availability to labor more, but the US laborer is unwilling  to do this due to the downward burdens that it puts upon their own purchasing power, then the end result is that eventually there will be no more US laborers.  Since the wealth of a nation is dependent upon the productivity of its labor force, and the end result is that without tariffs to combat the currency manipulation and subsidies of other nations, then US productivity will fall to zero... 

When that happens, well, you can do the math.  

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15 hours ago, jaycee said:

Jan

You seem determined to take offence at what I posted, re read it I am not anti Trump

Don’t take criticism of Trump’s plan personally I genuinely hope it works but nothing I can see leads me to believe it will.

Jay, I am focusing this specific response to your above comments. First, I do not "take offence," and on a personal level I am horrified by Trump and I am more horrified by his various aides that he has brought into the White House, of which (in my opinion) the most evil of all is Stephen Miller  [the architect of taking away little toddlers from mothers crossing the Tex-Mex border, then deporting the parents, thus stealing little kids and dumping those kids into the vortex of an unthinking, uncaring bureaucracy, never to be reunited with parents.  It is the most heinous, most disgraceful, most shameful, policy that the most evil mind on the planet could concoct.  And Trump likes this guy.) You can go criticize Trump all day long and not hear a peep of protest from me, that's for sure.  Ugh. 

So I emphatically do not "take criticism of Trump's plan personally."  I am not convinced it is "Trump's plan," or for that matter if there even is any "Trump's Plan."  It seems to be lurching through the landscape akin to some drunk staggering out of a bar at closing hour.  Nobody can figure it out and nobody can see where it is going. OK, all that said, as outsiders looking in we see that certain tariffs are imposed, together with a ton of swagger and lots of insults directed at the rest of the planet.  Now, how do we analyze all that?  And that is where the intellectual challenge starts. 

It is difficult to segregate actual policies coming out of the White House from the men setting them.  Part of this is the result of the total incoherence of anything inside Washington. So we look at the people in those policies; when all is said and done, when you look at "Senior Advisor" Stephen Miller, age 32, and you get past the bombast, the intellectual denial, the twitter feeds, the arrogance, and the hate, what you have as a residual is Evil.  

Now, Evil is hard for Americans to swallow.  The population likes to think of itself as inherently good, perhaps not all the way to Say Louis XIV, who convinced himself that he sat at the right hand of God, but hey, close enough  (and yes, some Americans actually do think that, Pat Buchanan comes to mind [Mitch McConnell, anyone?]).  The reality is much more painful. Right now, evil predominates, and is bubbling up out of the underground like so much surplus drilling mud.  So you have people such as Kirstjen Nielsen, Secretary of Homeland Security, who sets into motion the policies of having heavily-armed government thugs board buses to interrogate passengers ("Where were you born?  Are you a citizen?  Your Papers!"), something straight out of East German Stadtspolitzei, and is totally shameless about having her goons scoop up some hapless Mexican dairy worker at church or a doctor's office, when he is the only guy who is prepared to do the grunt work of shovelling cow manure and working the milking machines at four in the morning, and you can forget the arguments about "displacing local workers," hey nobody wants to do that work.  On go the handcuffs, forget about legal defense, and into the Gulag you go, until the Feds decide to jail you or deport you  (or shoot you).  Now, like it or not, these are the people that Trump surrounds himself with, and you cannot seriously think that I approve of any of it.  

But that is not the issue I was putting forth.  That issue is purely technocratic:  are Trump's policies on tariffs working as respects basic steel?  And if they are (or are not), whose ox is being gored?  Those are interesting issues, as it, in a microcosm, will also determine Trumpian policies on everything else, including the Oil Patch.  And right now, there is some evidence surfacing that Trump's tariffs are having an effect, that they are taking a bite out of dumped steel.  Does that mean that the policy has intellectual rigor?  Of course not.  Indeed, I would argue that nothing that Trump does has intellectual rigor.  But that is not the issue, nor the point; we are asking, what effect does the policy now have, and how do we predict that industry will accommodate the new policy? 

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10 hours ago, Epic said:

 

Jan, I just wanted to let you know how much I appreciate when people use words like this. 

 

Yup, you gotta watch out for those immigrants, next thing you know, they get all wordy on you.  Dangerous business, immigration.  Probably better off to deport them to Norway.  Or a one-way taxi ride to the Roxham Road.  In handcuffs. if you please!

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12 hours ago, Epic said:

This would be true if we were talking about an 'ideal world'.  But we don't live in an ideal world.  We live in the real world.  In an ideal world, the US would have perfect laws that establish justice and uphold truth, and as a result, all countries would have joined the US, and there would be 215 states in the USA.  There would also only be 1 currency.  As a result, there would be no tariffs between the states, and none of the states could harm the others by manipulating their currency.  

But we don't live in an ideal world.  We live in a world where one nation operates with a different currency than another, and they can manipulate that currency in order to drive the industry of other countries out of business.  In a world with more than 1 currency, free trade doesn't work.  Sorry.  We can't have free trade because due to currency manipulation, free trade isn't fair trade.  

If you want to talk about inflation, you need to also consider the greatest producer of inflation: monopolies.  I know you think that globalization will result in cheaper products, but currency manipulation destroys competition, and this results in monopolies.  Nothing creates inflation faster than the monopoly.  After all, look at what the Chinese did to the price of tungsten back in 2004 once they captured a monopoly on it...ouch!  The cost was $8,700 per metric ton in 2003, $37,000 by 2005, and $56,700 by 2012.   Talk about inflation!  Now imagine they are allowed to do that with the entire economy?  They will, of course, if they are allowed to.  Remember, it is not globalization that drives down prices, but competition.

Jaycee, you are right.  globalization and free trade is the ideal, but the ideal is enemy to the good, and in the real world, the good is the best we can attain.  And as long as countries can manipulate their own currency or apply subsidies to their own goods, then neither globalization nor free trade will actually do what they are supposed to do, which is to generate competition.  Instead, they will be used to generate monopolies.  And when they do, every lose loses.    

Jan, I just wanted to let you know how much I appreciate when people use words like this. 

This is not necessarily true, depending on now you define the word 'costs'.  What Jan was trying to point out in his previous message was that there exist externalities which you have not completely accounted for in your economic, bottom-line calculations, and that the costs of these externalities (such as living in a Hobbsian world of the Indian shipbreaking industry) involve costs that are not completely offset by the lower price of inputs, which you desire and which you fear will lead to inflation if they are replaced by US labor and the OSHA laws and regulations that it entails.  

It is also not necessarily true for a second reason.  Even if inflation does occur as a result of higher costs of inputs, the tariffs can also result in a reduced need to tax the US citizen, thereby reducing the effects of that inflation.  Think of it like this: if inflation increases from 1% to 5%, but your tax incidence reduces by 6%, you end up with a gain!  I also want you to remember that at the most basic level, the wealth of a nation includes only that produced by the labor of its citizens (even a nation's natural resources are not sufficient...just look at Venezuela).  You cannot spend your way to wealth.  Nor can you print your way to wealth.  If the Chinese laborer is willing to allow their currency to be devalued so as to increase availability to labor more, but the US laborer is unwilling  to do this due to the downward burdens that it puts upon their own purchasing power, then the end result is that eventually there will be no more US laborers.  Since the wealth of a nation is dependent upon the productivity of its labor force, and the end result is that without tariffs to combat the currency manipulation and subsidies of other nations, then US productivity will fall to zero... 

When that happens, well, you can do the math.  

I applaud you guys when you have these detailed discussions, bringing different disciplines, experiences and perspectives to the table.  Thank you all.

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On 7/26/2018 at 3:58 PM, Dan Warnick said:

Good idea, but Mr. Buffett got there first and bought them way back when (vision) and although I was thinking about buying a few thousand shares of Berkshire, I'm waiting for a dip in the market.  Any day now.....

Two thousand shares of Hathaway Class A stock will set you back a sweet 604,000,000.  Don't forget to pay the stockbroker his commission. 

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(edited)

6 hours ago, Jan van Eck said:

But that is not the issue I was putting forth.  That issue is purely technocratic:  are Trump's policies on tariffs working as respects basic steel?  And if they are (or are not), whose ox is being gored?  Those are interesting issues, as it, in a microcosm, will also determine Trumpian policies on everything else, including the Oil Patch.  And right now, there is some evidence surfacing that Trump's tariffs are having an effect, that they are taking a bite out of dumped steel.  Does that mean that the policy has intellectual rigor?  Of course not.  Indeed, I would argue that nothing that Trump does has intellectual rigor.  But that is not the issue, nor the point; we are asking, what effect does the policy now have, and how do we predict that industry will accommodate the new policy? 

Hi Jan

Your comment preciously......

" You may conclude he is incoherent, or ill, or incompetent, anything you like, but don't confuse expansion of basic steel with anti-globalization."

Does seem to make it look like you think I am anti Trump now you have clarified your position it appears  I am more pro Trump than you!

He is not very clever, never thinks of the consequences of anything, or more likely does not understand them, and is a stranger to the truth however he is a good thing for America because after years of presidents not delivering on their promises or even listen to what people want Trump is giving the people what he said he would and what they clearly want. The fact they are being promised things that will hurt them in the long run is not his problem as I said he does not think very far ahead. Like most of the Western world Americans are sick of low paid jobs or no jobs and the slow decline of their standard of living and he has promised to address that. In future US presidents may actually listen a bit more to people’s concerns for the fear of another Trump, or an even more radical version, gets elected so they have done themselves a favour electing him. So long as he does not get 2 terms off course!

Regards your comment I have highlighted in the text box above...

OK so I disagree as I put forward they were already hurting pipeline suppliers. They have taken a chunk out of the dumped steel however they are replacing it with higher priced longer lead time steel. I cannot see how this is going to be good for America short or long term. The fundamental problem is Amreican steel will never compete with the low cost suppliers and by excluding them they are increasing the costs for Americans and American industry. All the reasoning I have proposed earlier.

Your view I believe, from reading your posts, is that America will swallow these costs and eventually become more competitive. Well short term that will hurt and long term I cannot see how they can compete with newer factories with cheaper labour in the East unless they cut workers wages and build new facilities but then they are just joining in the race to the bottom.

At one point you seemed to think I am pro globalisation, maybe you still do, but I will reiterate my view point. The problem is the West had moribund economies, with an aging declining population so there was a decreasing demand for products so economies were shrinking and living standards were falling trading with the East reversed part of that trend however the downside is the reduction in wages for Western workers. I dislike that same as any man however how do you solve the basic problems of the aging and declining population? Closing borders and going inwards only accelerates the end. My view is that rising Eastern standards of living and costs will meet declining Western wages and living standards at a midway point so we will not hit the bottom. I base this theory on observation of my friends in IT who were one of the first professional sectors to encounter the cheap labour of India. Their rates fell from about 10 to 1 to about 3 to 1 and have levelled out there to be fair they were paid double what I earned, I am an O&G I&C engineer, so the reduction has not really made them paupers and they still earn a good living and can get better rates that the 3 to 1 reduction for a bit harder work that they used to do, again they did not seem to have been unduly over worked previously.

Lets see how Trump’s policies play you never know something unexpected may happen as nothing in economics is certain but all logical views to me point to failure.

Edited by jaycee
highlighting quoted text various spelling errors
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(edited)

3 hours ago, Dan Warnick said:

Jaycee, you are right.  globalization and free trade is the ideal, but the ideal is enemy to the good, and in the real world, the good is the best we can attain.  And as long as countries can manipulate their own currency or apply subsidies to their own goods, then neither globalization nor free trade will actually do what they are supposed to do, which is to generate competition.  Instead, they will be used to generate monopolies.  And when they do, every lose loses.    

I hope you realise America is not innocent in this trade manipulations business either. All countries do their best to swing the scales in their direction but we are where we are due to the dire state we were in before we invited China and India to the trade party. At the time it was the only solution to the death spiral we were in due to declining population and failing economies due to vast debts globalisation has masked these two issues but they still remain remove globalisation and the problems come back to bite you. There are negatives to globalisation but you have to solve them rationally and fairly not retreat back to the good ole days.

16 hours ago, Epic said:

This is not necessarily true, depending on now you define the word 'costs'.  What Jan was trying to point out in his previous message was that there exist externalities which you have not completely accounted for in your economic, bottom-line calculations, and that the costs of these externalities (such as living in a Hobbsian world of the Indian shipbreaking industry) involve costs that are not completely offset by the lower price of inputs, which you desire and which you fear will lead to inflation if they are replaced by US labor and the OSHA laws and regulations that it entails.  

Some industries will never again be done in the West we cannot compete with the labour costs. In the UK we cannot get anyone to pick fruit and vegetable harvests and have to import labour to do it the world has changed we need to create new industries, probably service type ones,to compete ie raise the skill level of the population or more accurately move on from the industrial revolution to a newer one.

3 hours ago, Dan Warnick said:

It is also not necessarily true for a second reason.  Even if inflation does occur as a result of higher costs of inputs, the tariffs can also result in a reduced need to tax the US citizen, thereby reducing the effects of that inflation. 

You are missing a basic point here I feel, tariffs will stop other countries exporting to the US and thereby reducing their growth which in turn will stop them buying high price American goods. For trade to work you need two countries hence the acceptance of previous Western governments to allow China and India to undercut their home work forces they realised to trade you need someone to sell to so they had to allow the East to develop. The problem is they never implemented the second part of the plan to move the home work force up the employment ladder and now we have the consequences.

Edited by jaycee

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23 minutes ago, jaycee said:

now you have clarified your position it appears  I am more pro Trump than you!

Your view I believe, from reading your posts, is that America will swallow these costs and eventually become more competitive. Well short term that will hurt and long term I cannot see how they can compete with newer factories with cheaper labour in the East unless they cut workers wages and build new facilities but then they are just joining in the race to the bottom.

 The problem is the West had moribund economies, with an aging declining population so there was a decreasing demand for products so economies were shrinking and living standards were falling trading with the East reversed part of that trend however the downside is the reduction in wages for Western workers. I dislike that same as any man however how do you solve the basic problems of the aging and declining population?

Jay, you by definition have to be more pro-Trump than me, because I really don't have any use for the man.  I like thinking people, and he does not qualify. 

Trump has not done all the things he said he would do during the campaign, and that is just as well, as some of the things he said he would do are just horrible.  I remember Trump addressing a large contingent of policemen and declaring that the policemen should not "be so gentle" when placing suspects into police cars, but should whack the detainee's heads against the door sills.  The policemen were horrified, but carefully avoided saying anything at that time.  Later, dozens of police chiefs roundly condemned that statement. 

Let's move past that and on to examining the relative stances of expensive Western societies vs. poor Eastern societies, such as China, Vietnam, Indonesia. Look at Denmark.  There you have a classic Western society with a high standard of living, very high wages, and an individual income tax rate of about 50%.  You also have govt-paid "everything."  Now, how does Denmark do that?  First, they have high-quality, differentiated products.  Denmark exports its top-quality dairy products, especially cheeses, to Saudi Arabia, which pays top dollar for the cheese.  That Saudis have the money for that, of course, so Denmark, which has its own currency the Kroner, can let its currency appreciate and thus gain greater purchasing power for Euro goods.  

Denmark also has sophisticated industrial goods, including diesel engines.  They dominate the small diesels for ship lifeboats, for example.  They also build expensive ferryboats, and build exemplary heavy ship's diesels.  These are expensive goods, sold in an expensive currency, and yet they have good market demand. 

Part of the reason for continuing demand for expensive goods is that those goods are complex, and thus require a high level of integrated skill to produce.  For example, take the conundrum of massive cruise ships, the stuff of Costa Concordia size, now being built at 140,000 tons, a floating city of 5,000 guests and another 2,500 staff.  These monsters are invariably built up an obscure North German River, the Ems, at the town of Papenburg, at the Meyer Werft shipyard, which has been around in the Meyer family since 1795  (the current CEO is Jan Meyer, no surprise).  Here in this tiny town you have this monster shipyard with 3,300 men building the world's cruise ships.  German (and danish) shipwrights will earn easily the equivalent of $50,000/year each; the men in yards in Romania are paid $2,500./year, and in say Poland perhaps $4,000./year.  So the logical approach you would think would be to build the hull (if not the entire ship) in Romania, then tow it up to Germany or Denmark and do the outfitting there. 

But that does not happen.  Instead, the entire ship is built at Papenburg.  Why is that?  Because Western societies have developed advanced manufacturing techniques that are not duplicated or duplicable in less advanced societies. A 140,000 ton cruise ship is incredibly complex.  They are built in "modules," sections of 1,000 tons each, all finished with the plumbing and wiring and all the complicated parts and for all I know the toilets and paint and even the carpets already installed, the module then welded into place in sequence. In Romania or Poland you would first lay the keel, then attach the frames, then weld on the hull plates, then build the internal walls, and add the machinery, and then start to figure out the pipes and the wires, it is all cut and piece it together as you go along.  Doing that it would take you 15 years to build that cruise ship.  So it cannot be done. 

So you can pay top-dollar industrial wages in the highest-cost location and your ship still comes out faster and cheaper than if you went to the lower-skilled shipyard. 

Now when you start looking at industrial societies that way you begin to realize that it is the overall integration of the components of the society that will determine its future and its wealth - not simply the wage disparities.  Where the Europeans do better than the Americans is that they recognize that the entire society has to be part of that picture so you have this vast "socialized" health and education system and what are in effect income subsidies.  When you have that you have the momentum to constantly maintain both innovation and productivity.  And that gets you your complex, expensive cruise ships. 

Americans have abandoned the poor  (and the old), and that posture is what undermines the society.  Everybody has to have  a stake in the society and the future, and that brings you prosperity. And to answer your question as to how to solve the problems of an aging population, why you encourage the young to reproduce!  They seem to like sex for recreation quite enough, so now to motivate that to sex for procreation. Should work.   Cheers.

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(edited)

14 minutes ago, Jan van Eck said:

Denmark also has sophisticated industrial goods, including diesel engines.  They dominate the small diesels for ship lifeboats, for example.  They also build expensive ferryboats, and build exemplary heavy ship's diesels.  These are expensive goods, sold in an expensive currency, and yet they have good market demand. 

Part of the reason for continuing demand for expensive goods is that those goods are complex, and thus require a high level of integrated skill to produce.  For example, take the conundrum of massive cruise ships, the stuff of Costa Concordia size, now being built at 140,000 tons, a floating city of 5,000 guests and another 2,500 staff.  These monsters are invariably built up an obscure North German River, the Ems, at the town of Papenburg, at the Meyer Werft shipyard, which has been around in the Meyer family since 1795  (the current CEO is Jan Meyer, no surprise).  Here in this tiny town you have this monster shipyard with 3,300 men building the world's cruise ships.  German (and danish) shipwrights will earn easily the equivalent of $50,000/year each; the men in yards in Romania are paid $2,500./year, and in say Poland perhaps $4,000./year.  So the logical approach you would think would be to build the hull (if not the entire ship) in Romania, then tow it up to Germany or Denmark and do the outfitting there. 

Jan

if you look at my reply above to Epic you will see I point out that this is the way to move forward so we are saying the same thing. I will now contradict myself and you by pointing out I have experience of a high tech specialist factory in Denmark moving their production to Romania. We were in the process of buying their instrumentation when they told us they were moving manufacture to Romania because it was cheaper so I am afraid Denmark is not as perfect as you perceive everyone is looking to cut costs and skilled labour isn't always enough to keep jobs in a country as quality is no longer such a desiable thing compared to price I have noticed in O&G industry. I feel Denmark may have to come down a bit to meet the rising East.

Edited by jaycee

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(edited)

Have a read of the article at this link:

http://www.nydailynews.com/news/national/ny-news-trump-steel-tariff-waiver-untruths-20180729-story.html

I offer this story as further evidence about how the tariffs are working, or not working, within North America.  Further to Jan's informative comments on this previously, it is interesting to see some of the corporate wrangling that is going on here.  I think it's a pretty well written article with a relatively, relatively, minor political slant.  Anyone care to break it down further based in information/knowledge you may have?

After re-reading the article it occurs to me that a side affect of this might be that someone will be able to take advantage of the disadvantage to the tin steel situation as it relates to canning in the U.S., and push through alternative packaging.  Does anyone know if there is alternative packaging that has been waiting in the wings for such an opportune time?  

Edited by Dan Warnick
Additional musings.

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